Fitch Ratings has affirmed Indonesia’s PT Meritz Korindo Insurance’s National Insurer Financial Strength (IFS) Rating at ‘A+(idn)’ with a Stable Outlook.
In its rating commentary, Fitch said the affirmation reflects Meritz Korindo’s satisfactory regulatory capital, which is offset by its ‘Less Favourable’ company profile and dependence on reinsurance.
In 2023, Meritz Korindo had a market share of 0.3% based on Indonesia non-life’s gross premiums written (GPW) in 2023, with a risk appetite higher than that of the sector, Fitch said, a key reason why its company profile is considered ‘less favourable’.
In addition, the insurer primarily underwrites property, which accounted for 81% of total GWP in 2023, with around 80% of its sources in the property business from Korean channels.
Despite its small business scale, Meritz Korindo is considered an important subsidiary of its parent company, South Korea-based Meritz Fire and Marine Insurance.
Key rating drivers
Meritz Korindo’s financial performance remains volatile due to its exposure to property and engineering. The company booked high claims from engineering losses, which led to a net loss ratio of 52% in 2023, following a net loss ratio of 64% in 2022 due to claims from a local property consortium.
Nonetheless, Meritz Korindo’s underwriting result has been positive for the past three years, supported by a reinsurance recovery and reinsurance commission. Its return on equity is also strong, benefitting from positive investment income, Fitch said.
The rating agency noted that Meritz Korindo cedes a large share of premiums to reinsurers due to its small business scale and high exposure to catastrophe risk stemming from the property business in Indonesia’s catastrophe-prone market.
Its premium retention ratio – the proportion of net premiums written/GWP – averaged 10% over 2021-2023, which is low compared to that of other rated peers, with the non-life industry at 59%.
In addition, the exposure of Meritz Korindo’s capital base to reinsurance recoverables remained high, at 125% at end-2023 (2022: 127%), on a greater share of reinsurance assets. This was due to claims from the local consortium property business, Fitch noted.
The rating agency believes the reinsurance recoverables ratio may increase the insurer’s risk due to the weak credit quality of its reinsurance panel.
Fitch also expects Meritz Korindo to maintain a sufficient capital buffer to support its business and offset its volatile underwriting performance.
Capitalisation, as measured by the risk-based capital ratio, was 512% at the end of 2023 (2022: 582%), well above the 120% minimum regulatory requirement.
In addition, the insurer’s equity balance is already above the new 2026 equity requirement of IDR250 billion. However, the absolute amount of capitalisation is low compared with Fitch-rated peers.
Finally, Meritz Korindo’s invested assets are mostly placed in cash and equivalents and fixed-income securities in the form of government bonds. Exposure to risky assets, which include unaffiliated stocks, is kept at a manageable level relative to equity, Fitch said.
