The Best’s Special Report, titled “Risk-Based Capital Impacts From Reinsurance Asset Leverage in Indonesia,†states that while the average insurance company will not experience a significant capital ratio drag from higher allocations to non-rated or less highly rated reinsurance counterparties, over time as Indonesia’s non-life market expands, reinsurance assets could become more sensitive to catastrophe events and risk-based capital ratios could start to decline to worrisome levels.
“To avoid disproportionate negative impacts on capital ratios, it is important that such non-life insurers keep reinsurance asset growth at a prudent pace relative to capital growth,†said Chi-Yeung Lok, a senior financial analyst in A.M. Best’s Singapore office.
Property insurance stands out as the single largest driver of the Indonesian non-life industry’s reinsurance utilization, and hence, reinsurance asset leverage, as ceded property premiums accounted for 41% (IDR 8 trillion) of all premiums ceded by direct non-life insurers to reinsurers in 2013. Ceded motor premiums rank a distant second to property premiums at 11% (IDR 2 trillion) of total ceded premiums in 2013. Energy onshore, aviation and satellite are among business lines with the lowest percentage of premium retention; however, their share of market gross premiums for non-life insurers is small.
Reinsurance assets can be an important aspect in assessing the balance strength of insurance companies, and the significance of this component increases with the level of reinsurance leverage ratio. A.M. Best studied 12 select major non-life insurers that together account for almost 50% of market gross premiums, and found that the average reinsurance asset leverage ratio (reinsurance assets to capital) was roughly 100% of capital in 2013. Net of payables to reinsurance counterparties, this ratio on average represented 80% of capital. While this level is moderate, A.M. Best is concerned over the future stability of this ratio as the non-life insurance market grows and develops, especially in the face of catastrophic events and increasing insurance penetration and density.
To access a copy of this special report, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=235494.
A.M. Best Company is the world's oldest and most authoritative insurance rating and information source. For more information, visit www.ambest.com.
Copyright © 2015 by A.M. Best Company, Inc. ALL RIGHTS RESERVED.
Contacts
A.M. BEST
Chi-Yeung Lok, +65-6589 8400, ext. 211
Senior Financial Analyst
chi-yeung.lok@ambest.com
or
Christopher Sharkey, +(1) 908 439 2200, ext. 5159
Manager, Public Relations
christopher.sharkey@ambest.com
or
Jim Peavy, +(1) 908 439 2200, ext. 5644
Assistant Vice President, Public Relations
james.peavy@ambest.com
Source: A.M. Best
Reporter: PR Wire
Editor: PR Wire
Copyright © ANTARA 2015
