News Non-Life09 Jul 2024

Indonesia:Asuransi Sinar Mas sees rising profitability

| 09 Jul 2024

Asuransi Sinar Mas (ASM), one of Indonesia's biggest non-life insurance companies, achieved higher profitability in 2023 despite its consolidated premium declining by 2%, noted Fitch Ratings Indonesia (Fitch).

The insurer’s return on equity increased to 13% in 2023 from 8% in 2022, (three-year average 2021-2023: 8%), backed by better non-life underwriting performance and lower life insurance claims. The 'combined ratio' improved to 94% (2022: 98%), averaging 98% over 2021-2023.

The drop in ASM premiums was due mainly to slower business at its life insurance subsidiary, Asuransi Simas Jiwa (ASJ). The life insurer’s premiums fell by 47% due to a decline in the unit-linked business and a switch to new unit-linked products to comply with more stringent regulations on unit-linked insurance implemented in 2023.

Fitch expects ASM to review its credit insurance products continuously to maintain profitability and ensure premium rates and reserve adequacy. The credit insurance business, which is dominated by working capital loan insurance, rose to around 29% of the total GPW (2022: 1%), offsetting lower property business of 19% (2022: 23%).

Ratings affirmed

Fitch has affirmed ASM’s National Insurer Financial Strength (IFS) Rating at 'AA+(idn)'. The outlook is ‘Stable’.

'AA' National IFS Ratings denote a very 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.

Aside from profitability, other factors driving ASM’s ratings include:

'Favourable' Company Profile: Fitch's 'Favourable' company profile assessment compared with that of other domestic insurers is based on its 'Favourable' business profile and 'Neutral' corporate governance. ASM is a leading Indonesian non-life insurer with a market share of around 9% by gross premium written (GPW) in 2023. Its robust market position stems from strong branding, multiple distribution channels, and solid infrastructure.

Fitch regards ASM as a composite insurer due to the large premium contribution from its life insurance subsidiary, ASJ. The life insurer's GPW portion was 26% of ASM's total GPW on a consolidated basis. ASJ has a market share of around 5%, based on life domestic GPW.

Satisfactory Capital Buffer: Fitch expects ASM to maintain an adequate capital buffer to support its business expansion. Capital adequacy, measured by the regulatory risk-based capital (RBC) ratio, was 335% at end-2023 (2022: 330%), while ASJ's RBC was 931% (2022: 795%), well above the 120% minimum regulatory requirement. Capital quality is sound, as it consists of ordinary capital and is underpinned by continued surplus growth.

Diverse Investment Portfolio: Fitch expects ASM to maintain prudent investment practices and manage its 'risky-asset' exposure, given its varied investment mix. Mutual funds made up 27% of ASM's investment portfolio on a consolidated basis, followed by cash equivalents and fixed-income securities at 33% and 40%, respectively. The remainder comprised a variety of instruments, including unaffiliated stocks, property, and mortgages. Investments in unaffiliated common stock were low, at around 1% of total invested assets at end-2023.

Domestic Reinsurance Panel: ASM cedes a portion of its premiums through several proportional and excess-of-loss reinsurance treaties to mitigate catastrophe risks, and its reinsurance treaties are led by national reinsurers. Fitch believes the credit quality of some of the domestic reinsurers in ASM's reinsurance panel has deteriorated. The exposure of its capital base to reinsurance recoverables fell to 67%, from 78% at end-2022.

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