Indonesia Re assessed that the pressure on the rupiah exchange rate against the dollar has the potential to increase reinsurance costs amid the escalation of conflict in the Middle East.
This situation has also triggered an increase in war risk premiums, particularly in marine insurance lines directly related to shipping activities through risky areas, which the reinsurer noted deserves vigilance and careful anticipation.
Indonesia Re's Technical Operations Director Delil Khairat said the combination of the weakening rupiah and rising geopolitical risks has begun to impact risk calculations in the national insurance industry, particularly those with exposure to global reinsurers.
According to Mr Khairat, dependence on foreign currency in the retrocession scheme makes reinsurance costs more sensitive to exchange rate movements, so that exchange rate pressures can have a direct impact on the burden on domestic insurance companies.
"There's a possibility of that happening, especially if the situation in the Middle East worsens. The impact is already visible in the marine sector, particularly on war risk premiums, which are directly affected," he told Indonesian news outlet Media Asuransi.
He explained that the most immediate impact was seen in the insurance line, particularly in relation to the movement of goods through conflict zones, where the increased risk of war directly drives up protection premiums.
Meanwhile, he said that conditions in other insurance sectors, such as property, remain relatively stable at present, as there has been no significant external pressure on risks in that sector. However, he cautioned that this situation could change if the conflict escalates further.
"Property prices are still soft right now. But if tensions in the Middle East escalate, premiums could rise," he said.
Furthermore, he stated that global uncertainty due to geopolitical dynamics has made reinsurers face challenges in projecting risks in the medium term, particularly regarding the direction of future premium movements and reinsurance costs.
Developments in the conflict in the Middle East will be an important factor in determining the stability of the global reinsurance market.
"We can't predict what will happen because everything depends on developments in the Middle East. If there's a ceasefire and the war stops, things could certainly improve. But if the conflict continues, anything is possible," he said.