SINGAPORE--(BUSINESS WIRE)--AM Best has revised its market segment outlook on Indonesia’s non-life insurance market to negative from stable, citing a weaker-than-expected economy recovery, which likely will delay the segment’s recovery to pre-pandemic growth levels, along with the increased likelihood of depressed investment returns and heightened credit insurance risks.
The Best’s Market Segment Report, “Market Segment Outlook: Indonesia Non-Life Insurance,” notes that a resurgence of the COVID-19 virus, coupled with slow vaccination progress, has led to a reinstatement of stringent mobility restrictions, hampering near-term economic recovery. Weaknesses in the economy and the potential inability to contain the pandemic could mute insurance demand in a number of product lines, such as property, engineering, motor, transportation and travel insurance. Although premium income increased by approximately 2% to IDR 38.5 trillion (USD 2.74 billion) in the first half of 2021, compared with the same prior-year period, the growth lagged behind pre-pandemic levels, and may remain constrained as a result of the latest round of mobility restriction measures.
Credit insurance, a key line of business in Indonesia’s non-life insurance market, is under pressure as well with further economic weaknesses arising from the escalation of COVID-19 infections. This could weaken the debt repayment abilities of debtors and lead to higher default rates, and therefore, higher credit insurance claims, particularly for the more vulnerable small and medium-sized enterprises. Insurers with higher exposure to credit insurance and weaker underwriting risk management may face outsized losses that could weaken their financial profile.
The low interest rate environment also continues to impede the investment performance of Indonesia’s non-life insurers. The report states that investment risks could trend higher as prolonged pandemic conditions erode the financial strength and earnings abilities of debt and equity issuers.
AM Best expects the mandatory tariffs within the non-life insurance market for property - including business interruption - and motor lines of business to remain a supportive element of the market. The mandatory tariffs for these lines of business has helped to limit the level of unhealthy price competition often seen in other liberalised markets. Additionally, greater investment in and usage of technology to support improvements in distribution and operational efficiency should help Indonesia’s non-life carriers achieve competitive advantages over the medium to long term.
To access the full copy of this report, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=312882.
AM Best is a global credit rating agency, news publisher and data analytics provider specialising in the insurance industry. Headquartered in the United States, the company does business in over 100 countries with regional offices in London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City. For more information, visit www.ambest.com.
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