The recent tsunami to hit Indonesia following the Anak Krakatau volcanic eruption in the closing days of 2018 is not likely to affect the financial stability of the country’s insurers due to comprehensive catastrophe risk management and strong capital buffers, according to Fitch Ratings.
Credit: The Jakarta Post/Dhoni Setiawan
It’s also likely that specialist reinsurers in the region, as well as the largest global players, will absorb their ~$1.1 billion share of losses.
Fitch Ratings says Lesung beach, Panimbang and Carita beach accounted for most of the insurance losses.
An underwater landslide on 22 December 2018 after the Anak Krakatau eruption triggered the tsunami around the Sunda Strait’s coastal areas, with homes, hotels, public buildings and fishing boats among the hardest hit.
Fitch Ratings adds that, while insurers have strong capital buffers, indicated by the average of the rated insurers’ risk-based capital of above 200% at the end of September, the rising frequency of catastrophe losses is likely to result in more disciplined underwriting to improve risk management.
Fitch says that insurers also need to re-calibrate their catastrophe reinsurance coverage amid increased frequency of disasters during the reinsurance coverage period.
In addition, the recent tsunami adds to a series of natural disasters that affected the country in 2018, including an earthquake in Lombok and a tsunami in Palu, which may increase insurance claims and lower the insurers’ profitability for 2018, Fitch says.
