Challenges of the Actuarial Profession in

Indonesia

IAA Seminar
Kuala Lumpur

Kim Yeoh
PT Prudential Life Assurance Indonesia
10 October 2011
 Agenda

1. Life Insurance in Indonesia

2. Personal Experience
3. Insights
4. Challenges

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2
 Agenda

1. Life Insurance in Indonesia

2. Personal Experience
3. Insights
4. Challenges

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3
Indonesia Life Insurance Landscape – Competitive position

Indonesia Life market is relatively fragmented, representing a healthy competitive

landscape and potential for consolidation
Rest of market Comments
6 to 10
th th

insurers  Developed markets are generally

more fragmented than emerging
ones, with more insurance
companies relative to population of
market
Top 5  Despite being a developing market,
insurers
Indonesia is less concentrated than
many other developed and emerging
markets in Asia, representing healthy
competition from customers’
More
Emerging
perspective
Developed
market  27 out of 46 life insurance
Market
Penetration companies have market share of
10 7 3 1 4 <1
(%) less than 1%, highlighting need for
Population market consolidation
7 5 29 237 1,232 89
(mn)
No. of
56 18 16 46 22 10
insurers
Population /
0.1 0.3 1.8 5.2 56.0 8.9
insurer (mn)

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Indonesia Life Insurance Landscape – Recent Trend
Robust economic outlook with low insurance penetration make Indonesia a very
attractive life insurance market
Life Market APE* Observation

 Strong GDP growth over the 5-year period (5%+)

24.0 mainly driven by commodity exports and domestic
demand
Life market APE, LCb

20.0

16.0  Economy showed high resilience to recover quickly

Rest after 2009 economic crisis, posting 6.1% growth in
12.0
Top 5 2010
8.0
 Steadily growing insurance penetration, but well
4.0 below other large emerging markets (China: 3%,
0.0 India: 4%)
2006A 2007A 2008A 2009A 2010A
Mkt growth  One of the best performing stock markets from
19% 40% 10% 8% 53%
developing countries leading to high investor
Penetration(GDP)1 0.8% 1.1% 1.0% 1.1% 1.2%
confidence
Penetration(Popul.)2 N/A N/A N/A N/A N/A

GDP growth3 5.5% 6.3% 6.0% 4.6% 6.1%

 Top 5 players dominate market share in a highly
fragmented market
10-year bond rate4 9.8% 10.0% 11.9% 10.9% 7.8%

Inflation 6.6% 6.6% 11.1% 2.8% 7.0%  ILP continues to drive industry growth as all JV
Stock mkt ind 1,806 2,746 1,355 2,534 3,704 players have entered the segment
1. As a % of GDP; 2. As a % of population with life insurance coverage; 3. Based on nominal GDP; 4. Local corporate bond rate (S&P rating A and above)
Source: BMI , Indonesia Bond Pricing Agency, Indonesia Stock Exchange, AAJI Report Q2 2011
* Weighted new premiums is used as proxy for APE, as per available reported data from AAJI, the Life Insurance Association of Indonesia
Indonesia Life Insurance Landscape – Forecast
Robust economic outlook with low insurance penetration make Indonesia a very
attractive life insurance market

Life Market APE Observation

32.0  GDP growth expected to remain strong at about

28.0 6% for 2011-2014
Life market APE, LCb

24.0
20.0  Strong potential for industry grow with insurance
16.0
Rest penetration expected to remain fairly low at 1.2%
Top 5
12.0
 Stock market expected to continue steady growth
8.0
from growing foreign inflows and high investor
4.0
confidence
0.0
2011YTD 2011F 2012F 2013F 2014F
 Top 5 players expected to further consolidate
Mkt growth 21% 12% 12% 12% 12%
dominance of market share
Penetration(GDP)1 N/A 1.2% 1.2% 1.2% 1.2%
Penetration(Popul.)2 N/A N/A N/A N/A N/A  ILP expected to continue driving industry growth
GDP growth3 5.9% 5.9% 5.8% 6.2% 6.3%
 Increasing interest from Chinese and Japanese
10-year bond rate4 7.6% 7% 7% 7% 7%
insurance players (e.g. Mitsui Sumitomo –
Inflation 5.5% 5.0% 5.0% 5.0% 5.0%
Sinarmas JV)
Stock mkt ind 3,889 4,260 4,899 5,633 6,478

1. As a % of GDP; 2. As a % of population with life insurance coverage; 3. Based on nominal GDP; 4. Local corporate bond rate (S&P rating A and above)
Source: BMI , Indonesia Bond Pricing Agency, Indonesia Stock Exchange, AAJI Report Q2 2011, PLA internal projections
Macroeconomic indicators

Positive and robust economic outlook is favorable for the industry

Peer comparison Comments
Population (mn) Insurance penetration  GDP continues to show resilience with growth
forecast at 6%+ for 2011-2013, largely driven by
domestic demand (infrastructure, automotive, oil &
gas, mining)
 4th most populous country in the world (237 million)
with increasing urbanization and growing
household income levels
 Largest Muslim population in the world – significant
Syariah opportunity
 Low insurance penetration of 1.1% (vs. 3% in
Malaysia and 7% in Singapore) represents
significant growth opportunity

2011 GDP Growth

Forecast 6.2% 5.3% 4.5% 1.5%
2011 Real GDP
Forecast, USD bn 777 237 233 5,683

Sources: Swiss Re, BMI, IMF

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Demographics
Low insurance penetration and a growing young segment provide significant
opportunities
Population by Sex and Age Group (current & future) Comments

2008 Customer Demographics:

Total population: 227 million  4th most populous country in the world - 240 million

 Young population with an increasing 45 - 65yr age

bracket

 Approximately 25-30 million people within the AB

market segment

Significant Growth Opportunities Moving Forward:

2028
 Individual insurance penetration is still very low at 2.9%
Total population:284 million
(6.6 million)

 Most Indonesians are in need of financial planning for

education, health, retirement, and protection

 IL products remain in demand

 Tremendous Syariah opportunity leveraging largest

Muslim population in the world
Source: US Census Bureau

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Product Trend

ILP continues to dominate customer & distributor demand

Market Product Mix Commentary
2012-14  Investment linked products continue to dominate
CAGR
demand (2010 growth 48%)
16.9%
(5.3%)
1.3%  All JV players have now entered ILP market

4.3%
 Growth in low-margin group health and group life
products

 Regular premium remains preferred mode for large

segment of customers

 Increasing demand for SP endowment/ILP products

2012-14
CAGR
from bank partners
8.7%
 Syariah continues to grow by mirroring conventional
products
12.7%
 Increasing interest in micro-insurance (credit life) but
lacking in distribution infrastructure

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Distribution Channel Trend

Agency remains leading channel, though Bancassurance has shown rapid recent
growth
Market Distribution Mix Commentary
 Agency remains leading channel with over 50% share

 Recently introduced licensing and professional

2012-14
CAGR development requirements support the development of
a professional agency force
4.1%

 Significant recent growth in Bancassurance, largely

13.9%
driven by Single Premium sales – 89% of all
Bancassurance sales are SP
14.3%
 Steady growth in DM/TM channel as banks maximize
revenue potential from customer database

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Industry outlook

Strong economic fundamentals have fuelled industry growth

Life Insurance Premiums Economic Growth

Premiums (IDR trn) GDP (IDR trn) Real GDP Growth Rate

Premiums per GDP per

21.5 22.0 25.3 35.5 45.0 54.6 70.0 1,916 2,238 2.329 2,963 3,270 3,532 3,822
capita, USD capita, USD

Source : BMI, Swiss Re; AAJI; internal projections

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Key Industry Insights

Life Insurance Companies Key Insights

No. of companies  Positive outlook for industry with premiums

expected to grow at CAGR 22% for 2008-2013
46 45 46 45

 Fragmented market with 45 life insurance

companies

 Market share :

 Top 5 companies – 54.1%

 Domestic companies – 45.2%

 Foreign JV companies – 54.8%

 High demand for ILP continues, contributing 51% of

industry APE (Q4 2010)

 Agency remains dominant distribution channel

contributing 43% of industry APE, while
Industry
Bancassurance channel emerging with 24% of
66% 19% 5% 53%
Growth % industry APE
Sources : BMI; Swiss Re; AAJI

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Market Characteristics & Evolution
Indonesia is still at its ‘early growth’ stage but crucial to prepare
for the next phase

Infancy Early Growth Maturing Matured

Product Simple traditional life Simple investment Sophisticated Unbundled investment
products linked, traditional life investment linked and protection, variable
products products (e.g. life cycle) annuities, equity
release
Distribution Proprietary sales force Proprietary sales force, Multi-channel Alternate channels (e.g.
emergence of brokers distribution, penetration internet), high advice
by brokers and IFAs ingredient, increased
compliance
Compensation High up front High up front, with Reduction of up front, Fee for service,
commission some renewal more emphasis on renewal, AUM fees
renewal

Source of Profit Scale of sales force and Competitive pressure Investment Ownership of customer
underwriting drives erodes underwriting performance and brand relationship drives
profits profits drives profits profits

Countries
China India Malaysia Singapore Germany US UK

Indonesia Hong Kong Australia Japan

Source : McKinsey

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Industry SWOT – Strengths & Weaknesses
Strengths
 Indonesia’s large population, growing
economy and insurance sector growing
strongly of small base
 Industry is relatively fragmented, and
while majority of market is held by well-
established firms, none has a dominant
position
 Economic conditions are, and are likely
to remain, favorable
Weaknesses
 Very small market with low product
density per capita of USD 32
 Unemployment, terrorist threats and lack
of institutional transparency remain
concerns for businesses considering
operations in Indonesia
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Industry SWOT – Opportunities & Threats
Opportunities
 Several local players are owned by
shareholders who are not naturally in the
business of providing life insurance or long-
term savings solutions
 If government is perceived to strengthen the
legal system and reform bankruptcy laws,
there could be significant influx of cross-
border life insurers
 business
Cross-border life insurers are better placed
than local players to weather any future
storms in Indonesia’s underdeveloped capital
markets
 Large uninsured or under-insured population
 Potential for growth in Takaful and Micro-
insurance segments
Threats
 Foreign investment inflows have been
volatile, and country depends on foreign
capital markets to fund industrial and
infrastructure developments
 Volatile politics, challenging macroeconomics
and structural problems mean Indonesia is
usually rated as one of the more difficult
countries in the region in which to do
 Terrorism threat needs to be taken into
account when underwriting risks
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 Agenda

1. Life Insurance in Indonesia

2. Personal Experience
3. Insights
4. Challenges

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 Personal Experience

Experience in Indonesia:
 Since Jan 2009
 Worked for 2 large multinational life insurance companies
 Led teams of actuarial students and qualified actuaries
 Participated in industry events

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 Agenda

1. Life Insurance in Indonesia

2. Personal Experience
3. Insights
4. Challenges

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 Insights

 A dynamic, growing market

 Developing regulatory environment
 Intensifying competition
 New entrants and more to come
 Actuaries
– A scarce resource
– A small-ish pool of talent
– Mainly technical in focus

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 Agenda

1. Life Insurance in Indonesia

2. Personal Experience
3. Insights
4. Challenges

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 Challenges

 Actuaries
– Recruiting and retaining
– Training and developing
– Professionalism
 Product innovation
 Regulatory uncertainty

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