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Insurance law unlikely to stem foreign M&As
Indonesiaâs new comprehensive insurance law, due to take effect on Oct
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ndonesia's new comprehensive insurance law, due to take effect on Oct. 23, has added restrictions to foreign investment in the sector, but is unlikely to discourage future M&A activity involving international insurers, says Fitch Ratings.
Foreign-investor interest in Indonesia's insurance sector will remain high because of its low market penetration rate, the country's large population and the expected growth of its middle class, Fitch's statement reads.
The new law provides greater clarity on regulations and the government's policy focus with regard to the industry, replacing the much broader and more general terms written into the previous insurance law passed in 1992, according to the agency.
The 80% cap on foreign investment in Indonesian insurers remains in place in the insurance law, despite earlier speculation that this might be reduced. The cap is higher than those in several of the large peer nations in South and Southeast Asia, and is a key factor encouraging foreign interest in the sector. By comparison, Malaysia has a limit of 70%, while the cap is 49% for Thailand and India.
'Maintaining the 80% limit provides the clearest indication yet that the government remains open to foreign investment in the insurance sector,' Fitch said in a statement. 'As such, Fitch maintains that international interest in Indonesian insurance will remain strong, with M&A activity expected to continue in the short to medium term.
In addition to the potentially large scale of the market owing to the country's large population, the relatively low insurance penetration rate of only 2.1% of GDP, and an average annual economic growth rate of 5.6% [forecast for 2014-2017], should contribute to steady growth for the sector over the long term.'
