In 2022, Nasional Re (Indonesia's Reinsurer) recorded a negative regulatory solvency ratio due to capital erosion brought on by adverse reserve development, mostly because of losses from credit reinsurance. Nasional Re experienced such a significant reserve strengthening that both its shareholders' equity and regulatory solvency ratios declined to negative levels.
As a Reinsurer plays a significant role in the capacity of local insurers to provide insurance cover, this has deeply impacted the country's insurers. The difficulty of replacing this reinsurance coverage is made worse by Indonesia's market's low capacity and the diminished interest of foreign reinsurers.
In 2022, Indonesian non-life insurers contributed between 45 and 50 percent of their gross premiums to reinsurance, with more than half going to domestic reinsurers. However, given the understanding that even well-established domestic reinsurance market heavyweights like Nasional Re can offer a default risk, domestic cedents are becoming more careful in the selection of reinsurance counterparties. During the most recent reinsurance renewals i.e in 2023, Indonesian insurers strategically replaced capacity with other reinsurers as a result of Nasional Re's weakened solvency position.
Given the knowledge that even well-established domestic reinsurance market giants like Nasional Re can represent a default risk, domestic cedents are becoming more selective in the selection of reinsurance counterparties. Despite this, some cedents still place a significant emphasis on the use of fundamental metrics such as absolute capital bases and market positions as important indicators of creditworthiness.
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