Indonesia’s non-life insurance outlook grim: AM Best

Growth is still expected due to Indonesia's economic expansion.

Indonesia's non-life insurance outlook remains on the negative side due to increased reinsurance credit risk and potential pressure on underwriting margins, AM Best forecasts.

This is caused by rising reinsurance costs, more restrictive coverages, and the weakened financial strength of domestic reinsurers, resulting from significant losses in various insurance lines. 

As the reinsurance market hardens, primary insurers are expected to face challenges in maintaining underwriting margins. 

In response to higher reinsurance costs, Indonesian insurers might opt to raise their retention levels, but this decision increases income volatility and exposes them to more significant catastrophe risks, considering the country's susceptibility to natural disasters.

ALSO READ: Insurance sector to take on carbon exchange opportunities in Indonesia: Report

Additional factors contributing to this negative outlook include underwriting losses in the credit insurance line, slower premium growth in property insurance, and an uptick in health insurance claims. 

“Indonesia is still a developing market, with relatively low non-life insurance penetration. AM Best expects Indonesia’s insurers to identify and meet coverage needs, as well as explore various distribution channels to close the gap and bring about strong growth in premiums over the long term” AM Best said in a statement.

Nevertheless, over the long term, AM Best anticipates growth in the non-life insurance segment due to Indonesia's economic expansion and ongoing development of its insurance market, leading to increased non-life insurance penetration.