Indonesia’s reinsurance industry premiums have increased in the past few years with a three-year average growth of 33%, after the Indonesian Financial Services Authority (OJK) optimised local capacity, enabling the sector to retain more risk domestically.
OJK requires all reinsurers to purchase enough protection to cover a 250-year return period; most of Indonesia’s reinsurers can cover around 400 years, Fitch commented that “this shows their readiness to increase capacity further following optimisation of local reinsurance capacity.”
Fitch said the OJK policy to optimise local capital improves Indonesia’s reinsurance competitiveness; and reinsurance companies capitalisation is expected to increase further with some parent companies having committed to capital injections, adding an additional boost to premium growth momentum.
Indonesia’s reinsurance profitability has shown a steady increase in the past few years with carriers showing efficient underwriting practices, effective asset management, lower combined ratios and steady investment yields.
And Fitch has forecast further profitability increase, as underwriting practices become more efficient, enabling the industry to rely more on underwriting.
Fitch said the capitalisation boost will have a neutral impact on ratings; “rated reinsurers’ credit profiles to remain steady, underpinned by strong capitalisation, improved risk-management techniques and active monitoring of risk accumulation.”
