New York-based Fitch Ratings, one of the three major global credit rating agencies, expects demand growth in Indonesia's life and non-life insurance sectors to occur over the medium term on the country's (currently still) low insurance penetration rate, improving risk awareness, and the expanding middle class segment within the rising population of Southeast Asia's largest economy. Meanwhile, the credit rating agency believes Indonesia's car and motorcycle sales will remain under pressure in 2016 due to weak consumer spending.
Indonesia's Life and Non-Life Insurance Sectors
In a report titled 'Indonesian Insurance Dashboard 2015', released this week, Fitch Ratings states that overall gross premiums written for the life and non-life segments in Indonesia grew by approximately 15 percent in 2014. Meanwhile, total industry premiums rose 7.8 percent (annualized) in the first half of 2015.
Indonesia's non-life insurance industry posted a favorable loss ratio consistently below the 50 percent mark over the period 2010-2014. Fitch Ratings further states that "most domestic reinsurers' underwriting margin, as measured by their combined ratios, has remained steady over the past three years, driven by manageable losses from catastrophe events".
Despite Indonesia's economic growth having slowed to around 4.7 percent year-on-year (y/y) in all three quarter so far in 2015, Fitch Ratings expects GDP growth to accelerate to 5.3 percent (y/y) in 2016, and to 5.5 percent (y/y) in 2017.
Car and Motorcycle Sales in Indonesia
Fitch Ratings is less optimistic about car and motorcycle sales in Indonesia as weak consumer spending is expected to drag down car and motorcycle demand. In a report released on Wednesday (26/11) the credit rating agency says Indonesia's car and motorcycle sales volume is estimated to post modest growth of about 3 percent (y/y) next year. So far this year, sales of cars and motorcycles have fallen between 18 and 20 percent amid the economic slowdown, low commodity prices and subsequent weaker purchasing power and consumer confidence.
Fitch Ratings states that Indonesia's consumer confidence may stay low if there occur further delays in the execution of government spending, further rupiah depreciation (due to monetary tightening in the USA) and continued uncertainty over the global economy (specifically China's economic slowdown).
Fitch advises Indonesian car and motorcycles dealers to have a sound inventory management to discourage competition and price wars in order to combat slowing demand. In turn, the inventory management will also help manage dealerships' cash flows.