The financial performance of Asuransi Asei Indonesia (Asei) is expected to remain volatile due to its high exposure to general insurance relative to its small size, and changes in reserves associated with its existing long-tail credit insurance business, according to Fitch Ratings Indonesia (Fitch).
Fitch has revised the outlook on Asei’s National Insurer Financial Strength (IFS) Rating to ‘Negative’ from ‘Stable’ and affirmed the rating at 'A(idn)'. Fitch assesses Asei's standalone credit quality at 'a(idn)'.
The ‘Negative’ outlook reflects the deterioration in Asei's capitalisation and financial performance metrics. The risks stem from potential high claims in the property business, and impairment on receivables, following delayed claim recoveries from the life insurer back-ups in the credit insurance business.
Fitch says that the '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.
Asei’s key rating drivers are:
Weaker Regulatory Capital: Asei's capitalisation, measured by regulatory risk-based capital (RBC), dropped to 208% by end-June 2024 (end-2023: 265%) due to higher claim reserves in general insurance. Asei had a high financial leverage of 48% at 30 June 2024 (2023: 47%) due to an IDR407bn ($26.4m) subordinated loan from its parent, Reasuransi Indonesia Utama. Asei received the loan during 2017-2018, with no maturity date. Nonetheless, Asei's equity balance of IDR440bn at 30 June 2024 exceeded the regulator's new equity requirement for 2026 of IDR250bn.
Volatile Underwriting Result: Asei's combined ratio worsened to 169% in 6M24, from 102% in 2023, due to high general insurance claims, mostly from the property line, and high impairment of receivables, particularly in credit insurance. Asei booked additional impairment on receivables of IDR12bn in 6M24 (2023: IDR30bn). More than 50% of reinsurance receivables are from general insurance and 30% from credit insurance. About 20% of the receivables are impaired, after long claim recoveries, mostly from life insurer back-ups covering death claims in the multipurpose credit insurance business.
Asei booked a net loss of IDR19bn in 6M24, from a net profit of IDR8bn in 2023. Annualised return on equity was -8% in 6M24, from 2% in 2023.
Premiums Continue to Drop: Asei's gross premiums fell by 15% in 6M24 (2023: -41%) because of a declining credit insurance business. Asei stopped receiving multipurpose credit insurance business from its main client from 1Q24, resulting in a drop in the share of credit insurance in gross premium written (GPW) to 12% in 6M24, from 54% in 2023. Consequently, general insurance, which mainly comprises property insurance, became its main business with 67% of GPW (2023: 29%).
Increased Reliance on Reinsurance: Asei has been ceding more premiums to reinsurers due to its small scale and exposure to the property business. Its premium retention—measured as the ratio of net premium written to gross premium written—decreased to 40% in 6M24, from 43% in 2023. The three-year average was 47% over 2021-2023, below the non-life industry's average of 56% and that of rated peers. The exposure of Asei's capital base to reinsurance recoverables is higher than that of the company’s peers.
The ratio surged over the past three years to 203% by end-June 2024 (2023: 174%) due to increasing reinsurance assets of the general insurance business, following high claims in property insurance, and the credit insurance business. The high reinsurance recoverable ratio may raise Asei's risks in light of the weak credit quality of the life insurer back-ups in the credit insurance business and some domestic reinsurers in Asei's reinsurance panel. The company's reinsurance treaties are led by Reasuransi Indonesia Utama.
'Less Favourable' Company Profile: Fitch ranks Asei's company profile as 'Less Favourable', based on a 'Less Favourable' business profile and 'Neutral' corporate governance compared with other insurers in Indonesia. The business profile assessment is driven by its limited business franchise, with a small market share of 0.3% based on GPW in 2023 (2022: 0.5%). Moreover, risk appetite is higher than that of the sector, following its high exposure to general insurance relative to its small size, and limited diversification.
Low Exposure to Risky Assets: Asei has a conservative investment strategy, as its exposure to risky assets relative to equity remains low. More than 80% of Asei's invested assets were in cash and equivalents and fixed-income securities at the end of 2023. The remaining investment portfolio consists of various instruments, including stocks and mutual funds.
State-owned Asei was established in 2014 as a spin-off of Asuransi Ekspor Indonesia and is engaged in Export Credit Insurance, General Insurance, Credit Insurance, Guarantee, and Shariah Insurance.