Merger without recapitalisation puts Indonesian reinsurers under strain

Written by Adam Cadle

15/08/2025

The potential merger of three Indonesian reinsurers could dilute the capital profile of the domestic reinsurance market in the absence of fresh capital inflows, Fitch Ratings has said.

Danantara announced in June 2025 that it plans to consolidate three reinsurers - PT Reasuransi Indonesia Utama (Persero) (Indonesia Re), PT Reasuransi Nasional Indonesia (Nasional Re) and PT Tugu Reasuransi Indonesia (Tugure, A+(idn)/Stable) - which are ultimately owned by the Indonesian Government. The proposal follows Danantara’s strategy to streamline state-owned entities, reducing them from 889 to about 200.

"We estimate the merged entity will reduce domestic reinsurance capacity as a result of dilution, although the industry’s competitive intensity will ease if the merger were to be completed," Fitch stated.

"Two of the three reinsurers have weak capital positions, with one in a negative net asset position."

The details of Danantara’s plan have not been announced, including the timeline, the surviving entity or the possibility of additional capital injections. The Government’s previous plan in 2013 to merge state-owned reinsurers did not materialise.

"Any developments in the Government’s latest plan and the potential effect on Tugure’s credit profile could affect our assessment of the company," Fitch added.

"We affirmed Tugure’s rating in November 2024, reflecting its adequate regulatory capital position, 'Moderate' company profile and volatile financial performance. Tugure says it remains focused on surplus growth to meet its 2028 equity requirement."

Nasional Re, the second-largest of the three, had negative equity of IDR2.1trn (US$129m) at end-June 2025, widening from the first time it was reported in 2022, due to significant reserve top-ups in its credit insurance business. Nasional Re’s regulatory risk-based capital (RBC) ratio was -156%. Indonesia Re’s regulatory RBC ratio of 133% at end-June 2025 was just above the regulatory minimum of 120%. Tugure’s ratio was a higher 173%.

"We believe Nasional Re’s large negative net asset position will dilute the capital profile of the merged entity," Fitch stated. "New regulation, announced in December 2023, requires reinsurers to have a higher minimum capital of IDR1trn by 2026 before rising to IDR2trn by 2028. Only Indonesia Re, which had an equity capital of IDR2.6trn at end-June 2025, meets the new thresholds, while Tugure, with an equity capital of IDR1.6trn, meets only the 2026 requirement. The merged entity will marginally meet the new thresholds. However, we believe the capacity of the merged group will be reduced, with the three reinsurers’ combined net premiums/capital rising to 4.9x on a pro forma basis, from 1.4x and 1.7x in 2024 for Indonesia Re and Tugure, respectively."

The three reinsurers are owned by the Government through various entities. Danantara holds 99.9% of Indonesia Re, while the remaining 0.1% is held directly by the state. PT Asuransi Kredit Indonesia (Persero), a member of Indonesia Financial Group, a state-owned holding company for insurance and underwriting entities, owns 99.9% of Nasional Re. Tugure is 51% owned by PT Tugu Pratama Interindo, which is ultimately owned by the state through PT Pertamina (Persero) (BBB/Stable), a state-owned energy company.

The Financial Services Authority’s 2015 regulation required all insurers to obtain 100% reinsurance support from domestic reinsurers on simple risk coverage, such as motor. However, an updated regulation starting 1 January 2021 removed the 100% domestic reinsurer requirement. Domestic reinsurers’ weak capitalisation restricts their ability to absorb large or complex risks and Fitch said this will enable more overseas reinsurers to enter the Indonesian market.

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