Local business leaders and foreign investors alike are expressing confidence in the outlook for Indonesia?s insurance sector despite a traditionally low base. Continued economic growth, low levels of penetration and good performances from leading firms so far this year are all upside indicators.

The IMF expects GDP growth of 6.1% in 2012 as Indonesia continues to power ahead, despite the uncertainty surrounding the global economy. The country benefits from both strong domestic demand on the large local market and demand for its exports, particularly commodities, from abroad. As the performance of the insurance sector is closely linked to overall economic conditions and incomes, there is upside potential that investors are looking to realise.

?The industry has experienced significant growth this past year, primarily due to the country?s strong macro-economic fundamentals,? William Kuan, the president director of Prudential Indonesia, the local subsidiary of the UK-based insurer, told OBG. ?Therefore, we are optimistic that the sector?s expansion will continue in the medium term, as the economic conditions are likely to remain very similar in 2012.?

As of December 31, 2011, Prudential Indonesia announced that its premium income had grown 47% against 2010, to Rp14.8trn ($1.5bn), while income from new business surged 63% to Rp7.9trn ($828.5m). Total funds under management grew to Rp27.5trn ($2.8bn), up 23%. The company has a licensed sale force of over 143,000, which served more than 1.4m clients at the close of 2011.

Manulife Indonesia, part of the Canada-based financial services company, also announced better than expected results for the first three quarters of 2011. New business premiums rose to Rp3.8trn ($400.14bn), up from Rp2.1trn ($221.13bn). Annual premium equivalent (APE) rose to Rp822bn ($86.57m) from Rp553.4bn ($58.27m), while total insurance premium grew 49% to Rp5.6trn ($589.68m).

Alan Merten, the CEO and president-director of Manulife Indonesia, said that the company expected to perform even better in 2012. He noted that an expansion in staffing had played an important role in its growth, with a 21% increase in the number of agents over the past 12 months. In a rapidly expanding and increasingly competitive market, recruiting and retaining staff is both a priority and a challenge for insurers.

?Potential new entrants, as well as the expanding operations of existing players, all of whom have ambitious growth expectations, have created an extremely competitive environment, resulting in a strain on the availability of quality human resources,? said Merten.

With growth rates high and the outlook bright, international investors are showing considerable interest in the Indonesian insurance sector. In April, MS&AD, Japan?s biggest property and casualty insurer, acquired a 50% stake in the life insurance wing of Indonesian conglomerate Sinar Mas for more than $800m.

On November 10, 2011,the international press reported that LeapFrog Investments, a US-based investment fund with an insurance focus, was looking into buying minority stakes in Indonesian insurers. Andrew Kuper, the founder and president of LeapFrog, said that the fund has up to $20m to invest in the country, which it sees as one of the best-performing markets in Asia and Africa.

LeapFrog is particularly seeking opportunities in the micro-insurance segment, which is an area of rising interest in Indonesia. While growth levels are impressive, insurers continue to wrestle with the question of how to increase penetration to strengthen the potential for long-term success. Penetration levels are still small, largely due to low incomes, and micro-insurance is seen as a possible means of increasing the potential market.

There is also scope for the expansion of the reinsurance industry, which is also small, as the majority of insurers reinsure abroad. Local press reports earlier this year suggested that international reinsurers were looking to expand their presence in Indonesia, but domestic players are also hoping to take the chance to grow.

?The opportunity for growth in the local reinsurance industry is substantial,? Moro Budhi, the president-director of Indonesian reinsurance firm TuguRE, told OBG. ?Local insurance companies would prefer to deal with local players but the capacity is not present. The capital flight overseas for reinsurance capacity is the competition; therefore the local industry players need to work together to increase capacity domestically. The government has not placed as great an emphasis on developing the insurance industry as it has placed on the banking industry.?

 

Source: oxfordbusinessgroup

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