Fitch Ratings reports that new regulations for Indonesian insurers and reinsurers are likely to reduce the number of companies operating in the sector and encourage a healthier competitive environment.
The country’s Financial Services Authority will significantly raise minimum equity requirements starting from the end of 2026.
Currently, Indonesian insurers must maintain a minimum equity capital of over $6 million, which will increase to almost $16 million by the end of 2026.
A second stage will be implemented from the end of 2028, where the minimum requirement will rise again to almost $32 million for all insurers.
Insurers offering a wider range of products, including credit insurance, will face an even higher minimum of almost $32 million by the end of 2028.
Reinsurers will also face an increase in their minimum requirements, rising from over $6 million currently to almost $32 million by the end of 2026.
By the end of 2028, a two-tier system will be introduced. Reinsurers offering basic products will need over $63 million, while those offering a wider range will need over $127 million.
Jessica Pratiwi, Associate Director at Fitch, stated, “We believe consolidation of the sector would generally be credit positive for our rated issuers, which are likely to survive the process and would subsequently enjoy strengthened competitive positioning.”
These changes may prompt insurers unable to meet the new requirements to seek additional funding or consider mergers and acquisitions.
Fitch estimates that around 90% of their rated insurers already meet the new requirements by the end of 2026, based on recent equity levels.
However, about 62% of the rated portfolio, mainly in the non-life and reinsurance sectors, would need to increase their equity capital to meet the requirements by the end of 2028.
Moreover, new credit insurance rules are set to influence micro and consumer lending practices, as banks will now be required to retain 25% of the insured default risk, a departure from the previous model where insurers bore up to 100% of the insured risk.
Overall, by raising minimum equity requirements for insurers and reinsurers, the regulations aim to streamline the industry, encouraging consolidation among stronger players while enhancing overall financial stability.
