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Positive Mood for Reinsurance

In House Magazine
01 Oct 2021
Positive Mood for Reinsurance

Asia Insurance Review - October 2021

The Indonesian reinsurance sector is going through a significant development phase – occasioned by regulatory updates, the recent Jakarta floods and the pandemic. We spoke to Tugu Re’s Mr Adi Pramana for expert insights on how the situation is likely to develop.

Watchers of Indonesian reinsurance have been kept busy in the recent past with Reasuransi Nasional Indonesia (Nasional Re) being subsumed by the state-owned insurance and underwriting entity Indonesia Financial Group. But none of this changed Tugu Reasuransi Indonesia’s (Tugu Re) vision of becoming the leading reinsurance company in Indonesia with a regional capability. Tugu Re is owned by Tugu Pratama Interindo (50.74%) and Asriland (49.26%).

Time for reflection

We caught up with Tugu Re president director Adi Pramana to find out about significant developments in the past year that affected the reinsurer. “Last year we had the pandemic and business slowed down with our income reducing a little,” said Mr Pramana. “Last year we also had some significant claims from the Jakarta floods in January and February. We also had some serious health insurance claims, especially relating to COVID-19. “That’s the perfect time for underwriters to reflect on their portfolio - portfolio management and their underwriting policy - and that’s what we did,” said Mr Pramana. “We had reviewed our underwriting policies in 2019 so that was the second time that we had reviewed them and we took the opportunity to rebalance the portfolio. “We have also become more mature in dealing with risk this year and we expect risk will continue to change. From last year we learnt that we need to expect future risks to be different,” he said. The year ahead is likely to be equally uncertain, but Mr Pramana remains unperturbed. “With the pandemic, there will be some variations, but we expect the pandemic to continue,” said Mr Pramana. “In terms of premium growth, last year was impacted very significantly compared to the previous year. But this year, while business is still slowing down, the curve is flattening. “If this year is the bottom of the curve, next year will be fantastic because growth will be much stronger simply based on the nominal numbers. There could still be variations in the how we deal with the pandemic. We’re still in a positive mood for next year although we have to be cautious about what might happen.”

Nat CAT and cyber

Longer-term development of Nat CAT cover in Indonesia has simply become part of doing business for insurers and reinsurers. “Climate change will affect the whole of the region, but I think we are still in a very good shape in Indonesia,” said Mr Pramana. “We are already reducing our Nat CAT exposures.” Cyber, on the other hand, could be different proposition. “It’s still in ‘very slow mode’ up to now,” said Mr Pramana. “The first part of cyber lies in rectifying losses and I think we can develop that further and talk more about the potential in Indonesia. If we are talking about business interruption, for example, that’s something that we would like to explore more. “Looking to the future, Indonesia is one of the most prolific in terms of digital platforms and we are experiencing significant growth in that area. Awareness will continue to increase and that’s something that we would like to exploit. There will have to be forensic IT engineers and databases developed to help calculate losses in the future.” Mr Pramana seems sanguine. “Cyber cover will increase, but I’m not sure it will increase significantly. Perhaps in two or three years we will see a jump in terms of coverage,” he said.

Strength of domestic reinsurance

The dynamic between domestic and foreign reinsurers in Indonesia is another area that receives a lot of attention. “Within the ASEAN free trade area, we will be much more open to our neighbours,” said Mr Pramana. “But in reality, you also have to adjust for current account deficits, especially because of the pandemic. Every country will need to utilise what they have first and then speak to other countries. Finding the perfect balance is quite difficult and this is what the government is trying to do. “In the longer term, I’m quite sure there will be significant change in the dynamic between domestic and foreign reinsurers, but in the shorter term I’m not forecasting there will be significant change,” he said. “In Indonesia we will be applying IFRS17 in 2025 so probably after that, yes, we will see some change because everybody can see everybody else’s books, but not before 2025. If foreign entities want to enter the Indonesian market, they would probably be better off taking equity in a (re)insurance company,” said Mr Pramana.

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