Fitch Ratings said a potential merger of three Indonesian reinsurers could weaken the capital profile of the domestic reinsurance sector if it is not accompanied by new capital.
The agency projects that the combined entity would have reduced reinsurance capacity due to capital dilution, though competition in the market could lessen if the transaction moves forward. Two of the reinsurers involved have weak capital positions, with one showing a negative net asset balance.
In June, Danantara announced plans to merge PT Reasuransi Indonesia Utama (Persero) (Indonesia Re), PT Reasuransi Nasional Indonesia (Nasional Re), and PT Tugu Reasuransi Indonesia (Tugure, A+(idn)/Stable).
All three are ultimately owned by the Indonesian government, with the proposal part of a broader plan to reduce the number of state-owned enterprises from 889 to about 200.
The government previously explored merging state-owned reinsurers in 2013, but that effort did not proceed. Fitch said any changes to the government’s latest plan, along with potential impacts on Tugure’s credit profile, could influence its assessment of the company.
Tugure’s rating was affirmed in November 2024, reflecting adequate regulatory capital, a “Moderate” company profile, and volatile results. The company has stated that it is focusing on surplus growth to meet equity requirements for 2028.
Indonesia’s insurance and reinsurance market remains fragmented, with dozens of life and non-life insurers supported by just a handful of domestic reinsurers. Market participants, including Indonesia Re’s president director, have described reinsurance as a central pillar for the country’s insurance stability, with capital rules intended to reinforce the sector’s resilience.
Fitch has noted that consolidation could reshape the market’s structure and competitive balance, particularly if supported by adequate capital inflows.
Property reinsurance in Indonesia has seen rate increases ranging from 5% to 40% in recent years, driven by higher natural catastrophe losses and inflationary pressures. Indonesia Re expanded its catastrophe coverage capacity from $175 million to $615 million to address this demand, reflecting a shift toward greater capital allocation for disaster risk protection.
Nasional Re, the second-largest of the three, recorded negative equity of IDR2.1 trillion ($129 million) at the end of June 2025, deepening from its first reported deficit in 2022, driven by reserve increases in its credit insurance business. The company’s regulatory risk-based capital (RBC) ratio stood at -156%.
Indonesia Re’s RBC ratio was 133%, just above the 120% regulatory minimum, while Tugure reported a higher 173%.
Fitch said Nasional Re’s significant negative net asset position would weigh on the merged company’s capital. A regulation issued in December 2023 requires reinsurers to have minimum capital of IDR1 trillion by 2026, rising to IDR2 trillion by 2028.
Only Indonesia Re, with equity capital of IDR2.6 trillion, meets the 2028 threshold, while Tugure’s IDR1.6 trillion meets only the 2026 requirement. On a combined basis, the merged entity would narrowly meet the thresholds. The group’s capacity is expected to be constrained, with the combined net premiums-to-capital ratio projected at 4.9x on a pro forma basis, compared with 1.4x for Indonesia Re and 1.7x for Tugure in 2024.
Ownership of the three reinsurers is spread across different state-controlled entities. Danantara holds 99.9% of Indonesia Re, with the remaining 0.1% owned directly by the state. PT Asuransi Kredit Indonesia (Persero), part of the Indonesia Financial Group, owns 99.9% of Nasional Re. Tugure is 51% owned by PT Tugu Pratama Interindo, which is ultimately controlled by the state through PT Pertamina (Persero) (BBB/Stable), the national energy company.
A 2015 regulation from the Financial Services Authority required insurers to source 100% of reinsurance for simple risks, such as motor, from domestic reinsurers. That requirement was removed in 2021.
Fitch noted that weak capitalization among domestic reinsurers limits their ability to take on large or complex risks, opening opportunities for overseas reinsurers to expand in the Indonesian market.
According to Fitch, the Indonesian reinsurance market has been supported by improved treaty structures and steadier pricing, benefiting domestic primary insurers. However, overseas reinsurers are expected to remain competitive, offering coverage at prices that continue to challenge local capacity.
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