Fitch Ratings has released a report indicating that forthcoming regulations for Indonesian insurers and reinsurers are poised to reshape the sector, potentially leading to a reduction in the number of companies operating within it and fostering a more robust competitive landscape.
According to the report, the Financial Services Authority of Indonesia plans to implement significant increases in minimum equity requirements, beginning from the conclusion of 2026.
Presently, Indonesian insurers are mandated to maintain a minimum equity capital exceeding $6 million, a figure that is anticipated to surge to nearly $16 million by the end of 2026.
Subsequently, a second phase will be rolled out by the close of 2028, wherein the minimum requirement will escalate again to almost $32 million for all insurers.
Insurers offering a broader array of products, such as credit insurance, will face an even higher minimum capital requirement, reaching almost $32 million by the end of 2028.
Similarly, reinsurers will encounter an augmentation in their minimum requirements, climbing from over $6 million at present to almost $32 million by the end of 2026.
By the conclusion of 2028, a two-tier system will be introduced for reinsurers, with those offering basic products necessitating over $63 million, while those providing a wider range will require over $127 million.
Jessica Pratiwi, Associate Director at Fitch, remarked, “We believe consolidation of the sector would generally be credit positive for our rated issuers, which are likely to survive the process and would subsequently enjoy strengthened competitive positioning.”
These regulatory adjustments may prompt insurers unable to meet the new requirements to pursue additional funding or contemplate mergers and acquisitions.
Fitch estimates that approximately 90% of their rated insurers already fulfill the new requirements by the end of 2026, based on recent equity levels.
Nevertheless, around 62% of the rated portfolio, predominantly in the non-life and reinsurance sectors, would need to bolster their equity capital to meet the requirements by the conclusion of 2028.
Moreover, new credit insurance rules are anticipated to impact micro and consumer lending practices, as banks will now be mandated to retain 25% of the insured default risk, diverging from the previous model where insurers bore up to 100% of the insured risk.
Overall, through the elevation of minimum equity requirements for insurers and reinsurers, the regulations aspire to rationalize the industry, fostering consolidation among stronger players while bolstering overall financial resilience.
