Indonesia's Insurance Market Hampered By Domestic Reinsurer's Weakened Solvency Position - AM Best

KUALA LUMPUR, May 3 (Bernama) -- Concerns over the actual and prospective solvency levels at what was recently Indonesia’s largest domestic reinsurer has limited its ability to write new business and prompted cedants to place coverage elsewhere during the Jan 1 renewals, according to a new AM Best commentary.

The Best’s Commentary, “Indonesian Market Hampered by Weakened Domestic Reinsurer Solvency”, notes that thinning capital buffers among Indonesia’s domestic reinsurers leaves them facing the challenge of withstanding further balance sheet shocks amid the increased likelihood for near-term economic uncertainties and unexpected catastrophe events.

PT Reasuransi Nasional Indonesia (Nasional Re) reported a negative regulatory solvency ratio in 2022 after being impacted by capital erosion from significant adverse reserve development, largely related to losses from credit reinsurance.

The Best’s Commentary also notes that the magnitude of reserve strengthening at Nasional Re was so significant that both its shareholders’ equity and regulatory solvency ratios fell to negative levels.

According to AM Best in a statement, this weakened solvency position at Nasional Re led to a coordinated replacement of capacity by cedents to other reinsurers during the recent reinsurance renewals.

Indonesia’s domestic reinsurers have long been favoured by cedents there, not only because of applicable regulatory requirements to cede their business locally, but also because of their associated lower reinsurance costs and more favourable reinsurance commissions.

Non-life insurers in Indonesia favour the use of reinsurance, ceding approximately 45-50 per cent of gross premiums in 2022, with more than half going to domestic reinsurers, according to the commentary.

However, domestic cedents are becoming more cautious in the selection of reinsurance counterparties given the realisation that even well-established domestic reinsurance market leaders like Nasional Re can pose a risk of default.

Notwithstanding, some cedents continue to rely heavily on the use of basic measures such as the counterparties’ absolute capital bases and market positions as key indicators of creditworthiness.

-- BERNAMA