Fitch Ratings-Jakarta/Singapore-19 November 2013: Fitch Ratings says in a new report that the Rating Outlook for Indonesia's life and non-life insurance sectors in 2014 is Stable, underpinned by steady market growth, manageable exposure to equity risk, and stable operating margins.

The Sector Outlook is Stable, reflecting Fitch's view that the vast and underpenetrated market continues to offer attractive growth opportunities and that sector demand is supported by a growing

middle class and rising affluence. In addition, the operating performance of insurers was not significantly affected by losses from catastrophes in 2013.

Fitch expects growth prospects to remain attractive in the medium- to long-term, driven by low penetration, improving risk awareness, and rising affluence. Swiss Re estimates total insurance penetration at only around 1.77% of Indonesia's GDP - much lower than the 6.03% for Singapore

and 4.8% for Malaysia, for example. Both Indonesia's life and non-life insurance gross premiums grew more than 10% yoy, respectively, in the first half of 2013, industry statistics show.

Strong M&A activity is expected in the short- to medium term as more foreign investors are drawn to the growth opportunities. M&A will be driven by the requirement for insurers to hold minimum capital of IDR100bn by end-2014 compared with IDR70bn currently, as well as local insurers trying to increase their size to improve competitiveness ahead of market liberalisation. Indonesia's foreign ownership limit, at 80%, is more generous than in many other regional countries.

The Stable Rating Outlook reflects Fitch's expectation that Indonesia's economic conditions remain manageable. The Outlook could be revised to negative in the event of any extreme exogenous shocks. Equity market volatility that translates into huge operating losses and severe capital erosion for the

sector as a whole could also change the outlook.

In view of Indonesia's exposure to catastrophic risks, a significant, unexpected rise in insured losses from catastrophes in the country could also lead to downward pressure on operating profitability, especially in the non-life sector.

The report, "2014 Outlook: Indonesian Insurance Sector - Sustaining Growth Momentum Amid Growing Pressure to Enhance Competitiveness", is available at www.fitchratings.com or by clicking on the link above.