T

he stability in market growth, controlled exposure to equity risk and stable operational margin will lead to Indonesia seeing stable prospects for the life and general insurance sector in 2014.

In its latest report, Fitch says that the expansive market and current low market penetration offers lucrative growth along with rising demand from increased middle class income and rising income in general. Additionally, insurance companies were not affected by major natural disasters in 2013.

It predicts that the medium and long term prospects will be lucrative due to current low penetration, better awareness of life'€™s risks and improved prosperity.

Global re-insurer Swiss Re estimates insurance penetration is only 1.77 percent of Indonesia'€™s GDP, which is far below Singapore'€™s 6.03 percent and Malaysia'€™s 4.8 percent. The industry'€™s statistics indicate a growth of 10 percent for gross premiums for both life and general insurance in the first semester of 2013.

Meanwhile, mergers and acquisitions will increase in the short and medium term due to the interest of foreign insurance companies in the business. This is also triggered by the need of local companies to increase their capital to a minimum Rp 100 billion for 2014 compared to this year'€™s Rp 70 billion, which is an opportunity for local companies to expand for better competitiveness to face coming market liberalization.

Indonesia limits foreign ownership to 80 percent, which is far higher than most countries in the region.

Indonesia Insurance Association (AAUI) chairman Kornelius Simanjuntak said that premiums would grow 15 percent in 2014 just like for the rest of 2013 assuming 6 percent economic growth with an inflation rate of 7.2 percent.

'€œThe underwriting will grow a little below the growth of gross premium, that is about 10 percent by the end of 2013. Investment will grow, albeit not significantly as investment yield in 2012 was only 7 percent, so investment growth for 2013 will be about 8 percent but will be slightly higher next year,'€ he said.

Until now the insurance market is still dominated by vehicle and property insurers. '€œBut in 2014 there will be new business, micro-insurance,'€ he added.

The insurance industry recorded gross premiums totaling Rp 39.4 trillion in 2012, which is an increase of 14.3 percent from 2011, while gross claims were Rp 17.9 trillion, an increase of 37.5 percent over 2011.

In 2012 there was an increase in investment and investment result, Rp 3.2 trillion from Rp 2.9 trillion in 2011, but the investment yield was 7 percent, which was lower than the 7.6 percent of 2011.

Kornelius said that there would be a number opportunities and challenges in 2014, such as increasing capital or company equity, regulations from the Financial Service Authority aimed to make companies healthier and the availability of actuary personnel.

PT Asuransi Adira Dinamika (Adira Insurance) targets its premiums next year will be Rp 2.3 trillion, which is an increase from this year'€™s estimate of Rp 1.9 trillion.

Adira Insurance president director Indra Baruna said the increase will be triggered by increased sales of cars especially low cost and green cars (LCGC). '€œThe arrival of LCGC will boost our premiums, as family cars contribute 80 percent of insurance for car loans,'€ he said.

He added that 60 percent of the company'€™s insurance premiums were from cars and the balance from properties, engineering and personal accident. The percentages are 8 for property, engineering 8, personal accident 15 and 60 percent for cars or vehicles.

The increased premiums will also boost the company'€™s net profit to about Rp 380-390 billion next year.

Property insurance will decline while Personal Accident (PA) will go up next year and will contribute 20 percent of the company'€™s premiums.

'€œThe PA will go up because it will be combined with purchase of cars,'€ he said.

PT Asuransi Kredit Indonesia (Askrindo) targets the People'€™s Businesses Credit (Kredit Usaha Rakyat '€“ KUR) for next year at Rp 40 trillion while this year it is optimistic to achieve the government'€™s target of Rp 36 trillion.

President director of Askrindo Antonius Chandra Napitupulu said his company has recorded funds guarantees until September amounting to Rp 16.4 trillion while it increased in October to Rp 17.8 trillion, which is a huge increase compared to last year'€™s Rp 12.1 trillion.

'€œThe national KUR target is Rp 36 trillion. From Askrindo there'€™s already Rp 16 trillion, while from Jamkrindo there'€™s also Rp 16 trillion, so the current total is Rp 32 trillion, hence we feel confident about reaching the target by the end of the year,'€ said Antonius.

He said on average the guaranteed value was Rp 3.5 trillion so by the end of the year at least there would be another Rp 9 trillion. The company is also confident due to the performance of disbursing banks.

The premiums of guarantee will also increase, he said, with the increased disbursing of guarantees. He said the premiums of Rp 18 trillion will be easy to achieve this year.

'€œThe claims trend is also positive because until September it is only 48 percent, which is lower than our target of 63 percent. We hope this can be maintained below 50 percent until year end,'€ he said.

According to him, the company focuses on middle class projects to keep prudent and in the near future will expand to general insurances as it has not yet dealt with land and buildings as collaterals.

At the national level, until September 2013 Askrindo has recorded profit before taxes amounting to Rp 292.8 billion, which is 83.6 percent of the company'€™s target of Rp 350 billion.

Revenue from underwriting until September 2013 is Rp 874.4 billion, which exceeds the target set for 2013 amounting to Rp 857 billion or 102 percent more than the target.