The profitability of Reasuransi MAIPARK Indonesia (MAIPARK) has improved, reflected in an increase in return on equity (ROE) to 10% in 2023, from 7% in 2022, on higher investment income, Fitch Ratings has pointed out.
The reinsurer’s three-year average ROE was 8% during 2021-2023. The reinsurer has managed its combined ratio well, with a three-year average of 78%. MAIPARK pays out high commissions to ceding companies to sustain its gross premium written (GPW) growth, which was 8% in 2023 (2022: 10%).
Outlook revised to ‘Positive’
Fitch Ratings Indonesia has revised the outlook on MAIPARK’s National National Insurer Financial Strength (IFS) Rating to ‘Positive’ from ‘Stable’ and affirmed the rating at 'A(idn)'.
The revision of the outlook reflects MAIPARK's improved financial performance and strengthened capitalisation. Fitch believes that the reinsurer's profitability level will be sustained despite exposure to catastrophe risk, which is supported by stronger retrocession arrangements. Fitch expects MAIPARK's capital buffers to continue to support its business concentration in earthquake risk over the next 12 to 24 months. The rating affirmation reflects a 'Less Favourable' company profile and conservative investment portfolio.
'A' National IFS Ratings denote a strong capacity to meet policyholder obligations relative to all other obligations or issuers in the same country or monetary union, across all industries and obligation types.
Aside from improved profitability, other key rating drivers for MAIPARK include:
Satisfactory Regulatory Capital: Fitch expects MAIPARK to maintain a sufficient capital buffer in light of exposure to earthquake risk.
MAIPARK's capitalisation, as measured by the risk-based capital (RBC) ratio, was 1,048% at end-2023 (2022: 977%), well above the 120% minimum regulatory requirement. The increase was due to higher admitted assets, following higher placement in time deposits. Moreover, the reinsurer's equity balance is already above the new 2026 equity requirement of IDR500bn ($30.8m).
However, the absolute amount of capital is lower than some domestic and international reinsurers in south-east Asia, leaving the reinsurer susceptible to external shocks. This weighs heavily in Fitch's rating assessment of small insurers such as MAIPARK.
Retrocession Coverage Limits Claim Risk: MAIPARK has adequate retrocession coverage to manage exposure to earthquake risk, in Fitch's view. The retrocession panel is dominated by overseas retrocessionaires rated 'A-' or above on the international scale and it has an increased number of overseas retrocessionaires on its 2024 panel.
It has retrocession cover in place with a protection limit that is adequate to cover losses for a return period that is above the minimum regulatory requirement. The reinsurer has an internal catastrophe modelling tool, MAIPARK Catastrophe Modelling and an enterprise risk-management system, SENA Catastrophe Portfolio Management, to monitor risks closely. Moreover, exposure of MAIPARK's capital base to reinsurance recoverables is favourable, at 12% at end-2023 (2022: 12%).
'Less Favourable' Company Profile: Fitch assesses MAIPARK's company profile as 'Less Favourable', based on a 'Less Favourable' business profile and 'Neutral' corporate governance compared with that of other domestic insurers. The business profile assessment reflects MAIPARK's status as a specialised reinsurer in earthquakes and special risks albeit with a small asset and premium size against other local reinsurers and those within the Asia-Pacific. Risk appetite is on a par with the sector although diversification is limited because of MAIPARK's concentration in earthquake risk.
Compulsory Cession Dominates: MAIPARK sources most of its GPW from compulsory cession arrangements for earthquake risk in Indonesia, accounting for 94% of total GPW in 2023 (2022: 94%). The remaining is from non-compulsory cessions, such as facultative, state-owned insurance property, mortgage and agricultural businesses. The reinsurer sources most of its business through direct channels.
Liquid Invested Assets: MAIPARK has a conservative investment strategy, with around 70% of invested assets placed in cash, time deposits and fixed-income securities at end-2023. The liquid assets ratio was high, to provide buffer in the event of claims following a major catastrophe. Exposure to risky assets, which include stocks, is low compared with the reinsurer's equity.