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Indonesia Insurance Report Q1 2009
Business Monitor International, March 2009, Pages: 95
The Indonesia Insurance Report provides independent forecasts and competitive intelligence on Indonesia's insurance industry.
Indonesia's economic growth remained resilient in Q308, registering a still high 6.1% y-o-y increase, moderating slightly from the 6.4% and 6.3% expansion achieved in Q208 and Q108, respectively. As such, the economy appeared on track to reach our 6.1% forecast for 2008. Although the latest figure was reasonably sanguine given sharper slowdowns in other countries in the region, slowing growth in exports will inevitably prove a drag on Indonesia's economy. However, a surprising pick-up in private consumption, which rose by 1.9% q-o-q in Q308, has cushioned the impact of the slowing external sector. Nonetheless, we emphasise that the latest data has not captured the full effects of deteriorating global economic conditions that led to the sharp sell-off in the world's stock markets in Q408 and heightened risk aversion among investors.
Indonesia has enjoyed high growth rates averaging around 6.0% y-o-y in most quarters since the end of 2006, but this feat is unlikely to be repeated in the medium term as the country continues to struggle with high inflation, a poorly performing rupiah and weak external demand. In spite of Bank Indonesia's (BI) six consecutive rate hikes in 2008 which took the benchmark BI Target Rate to 9.50%, inflation has remained uncomfortably high. Consumer price inflation (CPI) actually hit a two-year high of 12.14% y-oy in September 2008, before moderating slightly to 11.77% y-o-y in October and 11.68% y-o-y in November. This is in line with the central bank's year-end inflation target of between 11.50-12.50%. Going forward, inflation should continue to ease on the back of falling oil prices, and the government has already reduced gasoline prices, providing timely relief for consumers, who are key for growth.
President Susilo Bambang Yudhoyono had revealed an optimistic 6.2% growth target for 2009 in August 2008, but we believe that the adverse external conditions facing the economy will limit growth to just 5.0%. Unsurprisingly, on November 25 2008, Finance Minister Sri Mulyani Indrawati remarked that the government will adjust its growth targets to between 4.5-5.0% for 2009, taking them in line with our own forecast. However, on December 2 she told parliament that 6.0% is possible. BMI still sees risks firmly skewed to the downside, as growth in the 5.0% area will likely be achievable only if domestic demand maintains its current growth trajectory.
Since the last quarter, we have made two major changes to the data in this report. First, we have – to the greatest extent possible – incorporated hard figures that have been made available by the regulator(s) and trade association(s) in each country. In some cases, therefore, we have begun to include numbers that pertain to the development of the insurance sector through the early stages of the global financial crisis. Second, we have extended our forecasts out to 2013. In all cases, we have reviewed the key growth drivers – non-life penetration and life density – that we had incorporated in our forecasts.
The global financial crisis is likely to affect the various segments of the global insurance industry in different ways. In many countries – especially in Europe – the coming recession points to softness in the non-life segment. In many cases, the numbers of policies may fall: there should be downwards pressure on premiums. By contrast, the main problem for the life segment – in almost all countries – is the extreme volatility of financial markets. Over the longer-term though, the fortunes of life insurance will recover, thanks to the secular growth of organised savings in most countries. China, where the larger insurance companies continue to achieve double digit growth in premium income, is a good example of this. Some particular niches should also do well in the current environment, such as legal liability insurance. In the Asia Pacific, we profile 23 companies. These are AEGON, AIG, Allianz, Aviva, AXA, Cardif, Fortis, Generali, Groupama, HDI-Gerling, HSBC Insurance, ING Group, Liberty Mutual, Manulife, MetLife, Prudential Financial, Prudential plc, QBE, RSA, Sun Life Financial, The Hartford, Principal Financial Group and Zurich Financial Services.
We estimate that, over 2008, total premiums in Indonesia rose by 43% to IDR78,267,000mn. Non-life premiums rose by 6% to IDR23,867,000mn, while life premiums rose by 66% to IDR54,400,000mn. Between now and the end of the forecast period, we expect that annual non-life premiums will grow by IDR29,108,828mn, while annual life premiums should increase by IDR134,207,264mn. Growth in nonlife premiums should be driven by the general growth in nominal GDP plus a rise in non-life penetration from the current level of 0.49% to 0.75%. Growth in life premiums should be driven by the change in the overall population and a rise in life density from US$21.88 to US$90.00 per capita. BMI’s Insurance Business Environment Rating is 52.8.
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