Indonesia Insurance Report Q2 2008

As was the case in Q108, the main focus of this report is BMI's proprietary Insurance Business Environment Rating (IBER). The rating brings together a number of pieces of relevant quantitative data, together with BMI's Country Risk Rating (CRR). The IBER makes it easier for the insurance sector business environment in a particular country to be compared with the business environment for any other BMI-monitored industry in that country. The IBER also allows an objective and meaningful comparison of the insurance sector business environment between countries.

Over the coming months, we will substantially change the format of the BMI insurance reports. In essence, we will focus to a much greater extent on the companies that are active in the non-life and life segments.

Indonesia's IBER is 50.7. On this measure Indonesia is a medium-sized insurance market for foreign companies. In relation to other countries in the region, Indonesia continues to lag - especially in the areas of structure, regulatory framework and risk. It is further hampered by the high level of political volatility, the lack of reliability in the legal process, and the opaque nature of the bureaucracy; all of these factors drag on the overall rating.

Over the forecast period, we anticipate that non-life premiums will grow by 13% annually in local currency terms and by 15% in US dollar terms. Life premiums are expected to increase by 15% annually in local currency terms and by 17% in US dollar terms. The key drivers of growth in the non-life segment in 2007-2012 are the anticipated rise in nominal GDP from around US$422bn to US$592bn and an expected increase in non-life penetration from 0.60% of GDP to 0.85%. The key driver of growth in the life segment is the envisaged rise in life density from US$16.75 per capita in 2007 to US$35.00 per capita in 2012. Over the same period, Indonesia's population will grow from 228mn to 241mn.

The competitive landscape, in both the non-life and the life segment, is fragmented. Both segments are open to participation by foreign groups. There are a number of local firms but no single firm dominates in either the life or non-life sectors. Although many of these firms remain quite small, they have demonstrated their resilience by surviving the ongoing political and economic turmoil that has constituted much of Indonesia's recent past. The market is comparatively open to new entrants and a number of the major multinational firms are represented in both sectors.

Indonesia's non-life segment is dominated by motor vehicle insurance - accounting for 45% of total premium income - and property/fire, which accounts for another 20%. By international standards, the overall non-life market is small, but growing, and we consider it to have significant long-term potential. A number of major international insurers appear to share the view that, while not especially attractive at present, the prospective market size makes it simply too big to ignore.

Currently the life sector is 35% larger than the non-life sector and continues to grow at a faster rate.