MERITZ FIRE & MARINE INSURANCE CO., LTD.
Fitch Ratings Indonesia has affirmed
The affirmation reflects Meritz Korindo's 'Less Favourable' company profile, low premium retention, satisfactory capitalisation and volatile financial performance.
'A' National
Key Rating Drivers
Operating Synergies: We view Meritz Korindo as an 'Important' subsidiary of
Low Premium Retention: The company has a low premium retention ratio - the proportion of net premium written in gross premium written - at 8% in 2021 (2020: 7%). Most premiums from the Korean business are ceded to the parent, with additional facultative reinsurance if treaty reinsurance is insufficient. The company also cedes its premiums from local business by maximising treaty reinsurance from domestic reinsurers.
'Less Favourable' Company Profile: We regard Meritz Korindo's company profile as 'Less Favourable' based on its 'Less Favourable' business profile and 'Moderate/Favourable' corporate governance compared with that of other domestic insurers. The company has a limited business franchise, a risk appetite that is somewhat higher than the sector as a whole and limited diversification.
Small Market Share: Meritz Korindo's market share is small, at 0.3% of the industry's gross premiums written in 2021. Its business portfolio is dominated by property, which accounted 83% of total gross premiums in 2021, sourced from the Korindo group and Korean corporates operating in
Satisfactory Capitalisation: Capitalisation, as measured by the risk-based capital ratio, remained well above the 120% minimum regulatory requirement, at 591% at end-2021 (2020: 632%). However, the absolute amount of capitalisation is small compared with Fitch-rated peers. We expect the insurer to maintain a sufficient capital buffer to support its business and offset its volatile underwriting performance.
Volatile Financial Performance: Meritz Korindo's net loss ratio improved to 24% in 2021, from 71% in 2020, due to lower claims, yet its financial performance remained volatile as it is exposed to catastrophe risk coming from the property business. Its three-year average (2019-2021) return on equity remained high at 10%, benefitting from high reinsurance commissions and positive investment income.
Conservative Investment Portfolio: Meritz Korindo's invested assets are mostly placed in cash and equivalents and fixed-income securities in the form of government bonds. Exposure to risky assets, which include unaffiliated stocks, is kept at a manageable level relative to equity.
Reinsurance Coverage Mitigates Catastrophe Risk: The company mitigates catastrophe exposure through surplus, quota share and excess-of-loss reinsurance treaties. Its protection limit is adequate to cover probable maximum losses for a return period of 250 years.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to negative rating action/downgrade:
A perceived weakening of support from its parent.
Significant deterioration in the company's company profile, including a declining market franchise and premium retention ratio (net premium written/gross premium written) over a prolonged period.
Significant deterioration in capitalisation, with the regulatory capital ratio persistently below 300%.
Factors that could, individually or collectively, lead to positive rating action/upgrade:
Significant and sustained improvement in the company's company profile in terms of market franchise and further diversification in its distribution channel for a sustained period.
Increasing premium retention ratio above 30% for a prolonged period, while maintaining stable profitability.
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.
RATING ACTIONS
Entity / Debt
Rating
Prior
Natl Ins Fin Str
A+(idn)
Affirmed
A+(idn)
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