Fitch Ratings has affirmed KB Insurance Indonesia’s National Insurer Financial Strength (IFS) Rating at ‘AA-(idn)’, with a Stable Outlook.
KB Insurance Indonesia (KBII) is a subsidiary of South Korea-based KB Insurance. Its main business lines are property and motor, which in 2023 accounted for 58% and 22% of gross written premiums (GWP), respectively.
Fitch considers KBII an ‘Important’ subsidiary of its parent company due to support and synergy with domestic affiliates. The company leverages its parent’s brand and expertise, including risk management, the rating agency said.
In 2023, KB Insurance Indonesia received around 18% of its total GWP from the KB group.
Fitch considers the insurer’s company profile to be ‘Moderate’ compared to that of its peers. This is supported by the KB group’s brand strength and channels, risk appetite aligned with the sector, and somewhat diversified business lines.
Key rating drivers
The insurer’s GWP grew 27% in 2023, slightly above the non-life industry’s 24% in Indonesia, driven by its property and motor businesses.
KB Insurance’s combined ratio remained stable at 77% in 2023, benefitting from high reinsurance commissions, Fitch said. This compares to its three-year average combined ratio of 76% over 2021-2023.
Return on equity was 6% in 2023, averaging 6% over the last three years, supported by stable investment income.
Fitch noted that KB Insurance Indonesia cedes a large share of premiums to reinsurers due to its small scale and exposure to catastrophe-prone property insurance.
Its premium retention averaged 27% over 2021-2023, compared with the non-life industry’s 59%. Retention rose to 31% in 2023 due to a larger motor business. Fitch expects this figure to increase gradually as the company focuses more on motor insurance.
The exposure of the capital base to reinsurance recoverables increased to 102% by end-2023, from 71% at end-2022. Fitch noted that “reinsurance recoverables may increase the insurer’s risk in light of the weak credit quality of its reinsurance panel.”
Due to business expansion, KB Insurance Indonesia’s capitalization, measured by the regulatory risk-based capital (RBC) ratio, declined to 356% by the end of 2023 from 451% at the end of 2022.
However, the ratio remains well above the minimum regulatory requirement of 120% and the Indonesian non-life insurers’ average RBC ratio of 320%. Fitch noted that the absolute amount of capital is lower than that of rated peers.
The insurer adopts a conservative investment strategy, with 90% of total invested assets in cash and equivalents and fixed-income securities.
Most of its fixed-income portfolio is in government bonds, with the rest in various instruments, including stocks and mutual funds. Fitch noted that the insurer’s exposure to risky assets is manageable relative to its equity.
Overall, Fitch’s affirmation of KB Insurance Indonesia’s rating at ‘AA-(idn)’ with a Stable Outlook underscores the insurer’s strong capacity to meet policyholder obligations, supported by its moderate company profile, stable financial performance, and conservative investment approach.
