SINGAPORE, November 10 – 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. AM Best notes that it expects the segment to exhibit higher growth in 2022, supported by the resumption of domestic activity.
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.
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. In addition, business growth in motor insurance may be dampened by factors that negatively impact the demand for motor vehicles over the near term. AM Best could revise the outlook to stable should these challenges diminish in the future.
