(The following statement was released by the rating agency)
Fitch Ratings-Hong Kong-May 20:
Fitch Ratings Indonesia has affirmed Credit Guarantee and Investment Facility's
(CGIF) National Insurer Financial Strength (IFS) and National Long-Term Ratings
at 'AAA(idn)'. The Outlook is Stable.
Fitch believes CGIF's credit profile is stronger than Indonesia's Long-Term
Local-Currency Issuer Default Rating of 'BBB', which supports the assignment of
a 'AAA(idn)' National IFS Rating.
'AAA(idn)' Long-Term National Ratings denote the highest ratings assigned by
Fitch on its national rating scale for that country. This rating is assigned to
issuers or obligations with the lowest expectation of default risk relative to
all other issuers or obligations in the same country.
Key Rating Drivers
CGIF's ratings take into consideration its 'Very Strong' capitalisation, prudent
investment composition, use of reinsurance to support its underwriting capacity
and improving operating profitability.
CGIF, a trust fund of the Asian Development Bank (AsDB, AAA/Stable), benefits
from its affiliation with AsDB and shares AsDB's multilateral supranational
status. CGIF continues to cautiously manage its guarantee operation by adopting
prudent operational policies and adhering to its risk-management framework.
Fitch expects the company's capitalisation to remain strong amid the coronavirus
pandemic. CGIF's capitalisation, as measured by after-reinsurance notional
insured par/capital, remained manageable at 0.96x at end-2019, despite continued
expansion of its bond guarantee business and several transactions still in the
pipeline. The company entered into a quota share reinsurance treaty to support
its underwriting capacity. Premiums are ceded to a panel of reinsurers with
strong credit quality.
CGIF's net profit rose by 37% in 2019 to USD23.2 million, while its return on
equity rose to 2.2% in 2019 from 2% in 2018. Fitch expects the company's
profitability to decline due to volatile results from both underwriting and
investment amid the economic fallout from the coronavirus pandemic. Nonetheless,
we believe that CGIF's fundamental operating profile will remain intact.
Fitch does not expect CGIF to be greatly affected by the financial market
volatility from the coronavirus pandemic. CGIF's investment composition remains
conservative, as it invests only in cash, deposits and fixed-income securities
with strong credit quality. The company has no exposure to equity or property
investments. Eligible fixed-income securities with maturity terms of more than
one year must be rated at least 'A+' for government-related entities of CGIF
contributor countries and 'AA-' for others on an international scale.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to negative rating
action/downgrade:
-An upsurge in the after-reinsurance notional insured par/capital leverage ratio
to consistently higher than 3x.
-Losses developing in the guarantee portfolio adversely deviated from the
company's expectation.
-Increased reliance on reinsurance protection with a reduction in the net/gross
notional par insured ratio to below 75%.
-CGIF's capital providers fail to pre-fund business growth with capital
injections, and instead allow the leverage ratio to (even temporarily) exceed
targets.
Factors That Could, Individually or Collectively, Lead to Positive Rating
Action/Upgrade:
CGIF's National IFS and National Long-Term Ratings are already at the highest
possible level and cannot be upgraded.
Best/Worst Case Rating Scenario
International scale credit ratings of Financial Institutions issuers have a
best-case rating upgrade scenario (defined as the 99th percentile of rating
transitions, measured in a positive direction) of three notches over a
three-year rating horizon; and a worst-case rating downgrade scenario (defined
as the 99th percentile of rating transitions, measured in a negative direction)
of four notches over three years. The complete span of best- and worst-case
scenario credit ratings for all rating categories ranges from 'AAA' to 'D'.
Best- and worst-case scenario credit ratings are based on historical
performance. For more information about the methodology used to determine
sector-specific best- and worst-case scenario credit ratings, visit
https://www.fitchratings.com/site/re/10111579.
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the
Applicable Criteria.
Credit Guarantee and Investment Facility; National Long Term Rating; Affirmed;
AAA(idn); RO:Sta
; National Insurer Financial Strength; Affirmed; AAA(idn); RO:Sta
Contacts:
Primary Rating Analyst
Jessica Nina Pratiwi,
Senior Analyst
+62 2988 6816
PT Fitch Ratings Indonesia
DBS Bank Tower 24th Floor, Suite 2403 Jl. Prof.Dr. Satrio Kav 3-5
Jakarta 12940
Secondary Rating Analyst
Femmy Novaryani,
Analyst
+62 21 2988 6814
Committee Chairperson
Jeffrey Liew,
Senior Director
+852 2263 9939
Media Relations: Leslie Tan, Singapore, Tel: +65 6796 7234, Email:
leslie.tan@thefitchgroup.com; Peter Hoflich, Singapore, Tel: +65 6796 7229,
Email: peter.hoflich@thefitchgroup.com.
Additional information is available on www.fitchratings.com
Applicable Criteria
Exposure Draft: National Scale Rating Criteria (pub. 02 Mar 2020)
https://www.fitchratings.com/site/re/10099639
Insurance Rating Criteria (pub. 02 Mar 2020) (including rating assumption
sensitivity)
https://www.fitchratings.com/site/re/10112692
National Scale Ratings Criteria (pub. 18 Jul 2018)
https://www.fitchratings.com/site/re/10038626
Additional Disclosures
Solicitation Status
https://www.fitchratings.com/site/pr/10122762#solicitation
Endorsement Status
https://www.fitchratings.com/site/pr/10122762#endorsement_status
Endorsement Policy
https://www.fitchratings.com/regulatory
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