Indonesia: Non-life hit by rising reinsurance counterparty credit risk
Source: Asia Insurance Review | Nov 2023
Heightened reinsurance credit risk and potential pressure on underwriting margins owing to rising reinsurance costs and more-restrictive coverages have led to AM Best to maintain a negative outlook on the Indonesia non-life insurance segment.
The Best’s Market Segment Report, ‘Market Segment Outlook: Indonesia Non-Life Insurance’, states that the primary non-life market’s exposure to reinsurance counterparty credit risk has worsened as the financial strength of several domestic reinsurers has deteriorated in recent years due to outsized losses in their life, health and credit insurance lines. AM Best expects primary insurers’ underwriting margins to come under pressure because of the hardening reinsurance market as well.
“As an alternative to paying higher reinsurance costs, Indonesia’s insurers may choose to increase their retention levels,” said AM Best associate director, analytics Chris Lim. “However, doing so increases income volatility – insurers will bear greater exposures to catastrophe risks given that the country is prone to natural disasters such as earthquakes and floods.”
Underwriting losses in the credit insurance line of business, as well as slower premium growth in the property insurance line and rising health insurance claims, also are factors in the negative outlook.
Over the long term, AM Best expects the non-life segment’s expansion to be supported by the country’s economic growth, particularly as Indonesia continues to develop its insurance market and increase non-life insurance penetration. A