December 17, 2014 / 1:01 AM / 3 years ago

Fitch: Rising Affluence to Sustain Indonesian Insurance Growth

(The following statement was released by the rating agency) Link to Fitch Ratings' Report: 2015 Outlook: Indonesian Insurance Sector here JAKARTA, December 16 (Fitch) Fitch Ratings says in a new report that the rating outlook for Indonesia's life and non-life insurance sectors in 2015 is Stable, supported by sustained market growth, manageable exposure to risky assets, healthy operating margins and developing regulatory environment. The sector outlook is Stable, reflecting Fitch's view that the low market penetration continues to offer attractive growth prospects; investment return volatility is likely to be minimised by manageable risky assets portfolios; and improving insurance awareness will support market expansion for the life sector. Meanwhile, the non-life insurance sector is underpinned by rising affluence, an expanding middle class and a growing economy. In addition, reinsurance protection and adequate capitalisation buffer are expected to minimise insured catastrophes losses in 2015, and a stronger regulatory regime is likely to enhance the industry's overall financial health. The penetration rate in Indonesia's insurance sector has increased gradually over the years. Swiss Re estimates total insurance penetration at 2.1% in 2013, compared with 1.77% in 2012 and 1.5% in 2010. Nonetheless, this is still considered low versus the penetration levels in neighbouring countries such as Singapore, Malaysia and Thailand that are above 4%. Indonesian insurance premiums accounted for 0.4% of the global market at end-2013. Fitch believes that the sector is poised for steady growth in the medium term, underpinned by a relatively large and untapped market of almost 250 million people and an expanding economy. The agency expects changes in the regulatory environment to drive further sector development. The Indonesian insurance sector has seen gradually tightening regulations in recent years including the introduction of new laws, tighter capital requirements, and tariff regulations. Media reports suggest there could be additional regulatory changes, such as the introduction of a new supervisory system and revision of some key policies. While the Stable rating outlook reflects Fitch's expectation that Indonesia's economic conditions remain manageable, the outlook may be revised to negative in the event of any extreme exogenous shock in the form of an economic or financial crisis to which developing economies like Indonesia more vulnerable. Potential equity market volatility which translates into huge operating losses and severe capital erosion for the overall sector, may also change the outlook. Fitch notes that the industry has demonstrated resilience in its ability to withstand losses from catastrophes such as flooding and earthquakes in recent years. However, a significant and unexpected rise in insured losses from future catastrophic events in Indonesia may potentially lead to downward pressure on operating profitability, especially for the non-life sector. The report, "2015 Outlook: Indonesian Insurance Sector - Evolving Regulatory Environment to Drive Sector Development", is available at or by clicking on the link in this media release. Contact: Cheryl Evangeline Associate Director +62 21 2988 6814 PT Fitch Ratings Indonesia DBS Bank Tower 24th Floor Suite 2403 Jl. Prof. Dr. Satrio Kav 3-5 Jakarta, Indonesia 12940 Media Relations: Leslie Tan, Singapore, Tel: +65 67 96 7234, Email: Additional information is available on ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

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