Mega Insurance seen to shift reinsurance strategy amidst domestic concerns

Its investment portfolio has been 90% cash equivalents and fixed-income securities.

Despite robust business expansion, Indonesia-based Mega Insurance's regulatory risk-based capital (RBC) ratio declined to 233% by the end of June 2024, down from 309% at the end of 2022. This decrease was attributed to higher reserves following the premium growth, according to Fitch Ratings. 

The company aims to maintain an RBC ratio above 200%, well above the regulatory requirement of 120%.

Mega Insurance recorded significant growth in gross premiums written (GPW), which surged by 75% year-on-year (YoY) in 2023, compared to a 63% YoY increase in 2022. This growth was driven by higher contributions from its affiliates in motor, property, and multipurpose credit insurance lines. 

Notably, premiums for multipurpose credit insurance, covering individual loan payments, skyrocketed to IDR530b in 2023 from IDR46b in 2022, accounting for 31% of total GPWs. 

However, this proportion decreased to 19% by June 2024 due to the company’s efforts to reduce high claims and stricter credit insurance regulations issued in December 2023, which led to a 3% decline in annualised total GPW.

The company's market share, measured by GPWs, stood at approximately 1.6% in 2023, supported by multiple distribution channels.

The insurer experienced volatility in its loss ratio, with the combined ratio rising to 97% in 2023, up from 87% in 2022, primarily due to an increase in the net loss ratio to 74% amidst high claims from multipurpose credit insurance and motor insurance. 

In response, the company has taken steps to limit exposure to these high-risk areas, leading to an improvement in the combined ratio to 85% by June 2024.

Operating efficiency also saw improvement, with the operating expense ratio decreasing to 14% in 2023 from 27% in 2022, and it remained steady at 13% in June 2024, driven by the company’s digitalisation and process automation efforts.

Fitch expects Mega Insurance to continue its prudent investment strategy, maintaining a satisfactory level of liquid assets. The company’s investment portfolio has consistently been composed of over 90% cash equivalents and fixed-income securities from 2021 to 2023.

However, Fitch noted some concerns about the credit quality of domestic reinsurers in Mega Insurance’s reinsurance panel, which has deteriorated over the past two to three years. 

Mega Insurance has responded by reducing its reliance on these domestic reinsurers, ceding a portion of its premiums through several proportional and excess-of-loss reinsurance treaties led by national reinsurers. 

The company’s exposure to reinsurance recoverables was 48% of its capital base at the end of 2023, up from 43% in 2022.