Indonesian credit insurers to face increased claims: Fitch

Despite this, they are still expected to comply with regulatory requirements for capitalisation.

Weaker economic conditions will lead to Indonesian credit insurers and guarantors facing increased claims, Fitch Ratings reported. The increase in the risk of default amongst debtors may affect claim development, particularly after the second wave of infections in June 2021.

“Fitch expects credit insurers to be able to comply with regulatory requirements for capitalisation despite the increase in claims and business growth. The requirements include maintaining risk-based capital above 120% and total maximum gearing ratio and maximum productive gearing ratio at 40x and 20x, respectively,” Fitch said.

There has been an increase in financial technology peer-to-peer (fintech P2P) lending in Indonesia in the last five years, offering credit insurers and guarantors room to expand by insuring or guaranteeing lenders’ funds. However,  Fitch said that the weak economic conditions and more vulnerable borrowers in the fintech lending segment mean that there is a higher risk of non-performing loans, which could affect the stability of lenders and the underwriting performance of insurers and guarantors that back the lenders.

Prudent underwriting and selective portfolio expansion helped credit insurers and guarantors in Indonesia to limit the spike in claims due to the economic downturn during the pandemic, Fitch Ratings reported.

Indonesian credit insurers and guarantors are expected to manage their underwriting risk from new businesses as credit insurance grows and continues to contribute significantly to the country’s non-life industry in the past five years, even as other business lines such as fire and motor stagnated.