Fitch Ratings has assigned PT BRI Asuransi Indonesia (BRI Insurance) a National Insurer Financial Strength (IFS) Rating of ‘AA(idn)’ for the first time. The agency has also given the insurer a Stable Outlook.
The ‘AA(idn)’ rating indicates BRI Insurance’s very strong capacity to meet policyholder obligations compared to other issuers within Indonesia. This rating reflects several key factors driving the insurer’s financial health and market position.
Company overview
BRI Insurance holds a 3% market share by gross premiums written (GPW) in the Indonesian non-life insurance sector as of 2023. The company’s primary focus areas are property and credit insurance, which represented 46% and 31% of its total GPW in 2023, respectively.
Fitch said that a significant factor in BRI Insurance’s favour is its relationship with PT Bank Rakyat Indonesia (Persero) Tbk (BRI), one of Indonesia’s largest state-owned banks, which is rated ‘BBB/AAA(idn)/Stable’. BRI contributed over 40% of BRI Insurance’s total GPW in 2023, showcasing strong business synergy between the bank and its insurance subsidiary.
Ratings drivers
BRI Insurance’s profitability remains stable, with a combined ratio of 55% in 2023 and a return on equity averaging 26% over 2021-2023.
GWP saw a 27% increase in 2023, notably from a surge in credit insurance business from BRI. Importantly, for the credit insurance line, the insurer has implemented a risk-sharing policy where 30% of claims are borne by the bank, aligning interests and mitigating risk exposure.
BRI Insurance employs a strategic approach to reinsurance to mitigate its exposure to catastrophe risks. The insurer’s premium retention ratio, stood at 48% in 2023, showing a slight decrease from 51% in 2022. This ratio has averaged 51% between 2021 and 2023.
Despite this approach providing a measure of risk mitigation, Fitch Ratings has expressed caution regarding BRI Insurance’s reinsurance recoverables due to the weak credit quality of some domestic reinsurers that lead BRI Insurance’s reinsurance treaties.
Notably, the ratio of reinsurance recoverables to capital was reported at 110% at the end of 2023, marking an increase from 96% in 2022, and positioning it higher than other Fitch-rated Indonesian insurers.
BRI Insurance’s regulatory risk-based capital (RBC) ratio showed a significant increase to 359% at the end of 2023, up from 299% at the end of 2022, far exceeding the regulatory minimum of 120%. This improvement reflects a robust capital position, underpinned by a marked growth in surplus and a strong underwriting performance, with the latter evidenced by a combined ratio of 55% in 2023, improving from 66% in 2022.
Despite these positive indicators, it’s important to note, as Fitch does, that in comparison to its peers, BRI Insurance’s total capital base remains on the smaller side.
Finally, BRI Insurance adopts a conservative investment strategy, with around 90% of its invested assets in cash, equivalents, and fixed-income securities at the end of 2023. The majority of its investment portfolio is in government bonds, significantly above the 20% regulatory requirement.
