SINGAPORE--(BUSINESS WIRE)--AM Best is maintaining its negative market segment outlook on the Indonesia non-life insurance segment, citing challenges in credit and motor insurance and ongoing macroeconomic uncertainties. Claims frequency normalization, which has the potential to dampen the segment�s profitability, also underpins the negative outlook.

In a new Best�s Market Segment Report, �Market Segment Outlook: Indonesia Non-Life Insurance,� AM Best notes that it expects the segment to exhibit higher growth in 2022, supported by the resumption of domestic activity and demand as Indonesia transitions to treating COVID-19 as endemic and moves away from strict lockdowns seen up to 2021. However, market growth is likely to fall short of the levels seen prior to the pandemic given the downside risks to domestic economic expansion, including a potential global recession, inflationary pressures and domestic monetary tightening.

In AM Best�s view, the poor underwriting performance in the credit insurance line is a systemic issue that continues to affect the market. �Underwriting losses stemming from credit insurance have led to financial strain for several industry players, as the economic impact from COVID-19 hampered the debt repayment abilities of consumers,� said Chris Lim, senior financial analyst, AM Best. �In turn, this has led to higher default rates, and therefore, higher credit insurance claims.�

Premium rate inadequacy, weaknesses in underwriting risk management and overexposure to credit insurance during a period of significant economic stress have weakened the financial profiles of various mid-to-large domestic insurers and reinsurers. This has led to a capital event for some and may continue to pose a drag on the operating performance of others.

Inflationary pressures are also anticipated to constrain the underwriting margins for insurers. In particular, AM Best expects claims inflation to weigh on the underwriting margins for motor and health insurance. �Rising inflation is expected to lead to an increase in motor claims costs, driven by the higher cost of labour and spare parts,� said Myles Gould, director, analytics, AM Best. �Medical cost inflation in Indonesia is also estimated to be rising at a pace notably faster than general inflation.�

In addition, business growth in motor insurance may be dampened by factors that negatively impact the demand for motor vehicles over the near term. Business expansion in motor insurance in 2021 and the first half of 2022 benefitted in part by an increase in new car sales, which was stimulated by a temporary reduction of luxury goods sales tax. However, this tax incentive has been terminated.

AM Best could revise the outlook to stable should these challenges diminish in the future.

To access the full copy of this market segment report, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=325505.

AM Best is a global credit rating agency, news publisher and data analytics provider specializing 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.

Copyright � 2022 by A.M. Best Rating Services, Inc. and/or its affiliates. ALL RIGHTS RESERVED.

Contacts

Chris Lim
Senior Financial Analyst
+65 6303 5018
[email protected]

Myles Gould
Director, Analytics
+44 207 397 0304
[email protected]

Christopher Sharkey
Manager, Public Relations
+1 908 439 2200, ext. 5159
[email protected]

Al Slavin
Communications Specialist
+1 908 439 2200, ext. 5098
[email protected]