Higher Equity Requirement can Shut Out Competition

Similar to what is planned for the banking industry, a planned increase of the minimum capital requirement for insurance companies should subdue solvency risks, especially for the smaller insurance companies. Financial Service Authority (OJK) implementation will be divided into 2 stages:

By 2026, insurance companies are required to hold a minimum equity of IDR250bn.
By 2028, KPPE 1 must have IDR500bn while KPPE 2 will need to show IDR1trn.

Such a steep barrier leaves the industry with just two options: either to raise capital or consolidate. In our view, insurers backed by conglomerates (bigger, more prominent groups) will not face any problem in bulking up capital, either through a rights issuance or private placement. However, smaller insurance companies will be impelled to consolidate to survive – thus reducing competition.

Undemanding Valuation with Consistent Dividend

TUGU published its 1H24 performance: gross premium rose 39% to IDR5.2trn, above FY19-23 industry CAGR of 8.6%. Excluding last year's one-off effect of IDR1trn, net profit in 1H24 rose c.90% to IDR407bn – implying 5x FY24 P/E (simple annualized). Also, Company is planning to bring in more motor-vehicle insurance through digital platform development, which will lower comissions and third-party distribution costs, especially as Government will require vehicles to have Third-Party Liability (TPL) insurance. Nevertheless, the valuation is still attractive, even before the implementation of new regulations, and Company has consistently distributed a dividend with a 40% payout ratio, providing c.8% yield.

TUGU - A Hard Sell to Indonesian Consumers

TUGU - A Hard Sell to Indonesian Consumers

Prosedur Transaksi

29 July 2024 - 07.00am

TUGU - A Hard Sell to Indonesian Consumers

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