Fitch Ratings has said that the proposed merger of three Indonesian reinsurers could dilute the capital profile of the domestic reinsurance market in the absence of fresh capital inflows.
Fitch believes that the merged entity will reduce domestic reinsurance capacity as a result of dilution, although the industry’s competitive intensity will ease if the merger were to be completed. Two of the three reinsurers have weak capital positions, with one in a negative net asset position.
Danantara announced in June 2025 that it plans to consolidate three reinsurers owned by the Indonesian government - PT Reasuransi Indonesia Utama (Persero) (Indonesia Re), PT Reasuransi Nasional Indonesia (Nasional Re) and PT Tugu Reasuransi Indonesia (Tugure). The proposal follows Danantara’s strategy to streamline state-owned entities, reducing them from 889 to about 200.
Nasional Re, the second-largest of the three, had negative equity of IDR2.1tr ($129m) at end-June 2025, widening from the first time it was reported in 2022, due to significant reserve top-ups in its credit insurance business. Nasional Re’s regulatory risk-based capital (RBC) ratio was -156%. Indonesia Re’s regulatory RBC ratio of 133% at end-June 2025 was just above the regulatory minimum of 120%. Tugure’s ratio was a higher 173%.
Fitch believes that Nasional Re’s large negative net asset position will dilute the capital profile of the merged entity. New regulation, announced in December 2023, requires reinsurers to have a higher minimum capital of IDR1tr by 2026 before rising to IDR2tr by 2028. Only Indonesia Re, which had an equity capital of IDR2.6tr at end-June 2025, meets the new thresholds, while Tugure, with an equity capital of IDR1.6tr, meets only the 2026 requirement. The merged entity will marginally meet the new thresholds. Fitch believes that the capacity of the merged group will be reduced, with the three reinsurers’ combined net premiums/capital rising to 4.9x on a pro forma basis, from 1.4x and 1.7x in 2024 for Indonesia Re and Tugure, respectively.
The Financial Services Authority’s 2015 regulation required all insurers to obtain 100% reinsurance support from domestic reinsurers on simple risk coverage, such as motor. However, an updated regulation starting 1 January 2021 removed the 100% domestic reinsurer requirement. Domestic reinsurers’ weak capitalisation restricts their ability to absorb large or complex risks and will enable more overseas reinsurers to enter the Indonesian market.
Fitch believes the Indonesian reinsurance market is supported by improved treaty structures and more stable pricing, benefitting the domestic primary insurance market and expects greater competition from overseas reinsurers to persist, as they offer coverage at competitive pricing.