OREANDA-NEWS. Growth in the Indonesian insurance industry is likely to pick-up in 2016, as market sentiment towards the country's economy improves, says Fitch Ratings in a new insurance market report.

Industry premium growth weakened in 2015, especially in the non-life sector. This was mainly due to new tariff regulations and falling customer purchasing power during the economic slowdown. Nonetheless, the underwriting margin of non-life sector remained stable in 2015, supported by benign catastrophe losses. Fitch expects premium growth to pick up in 2016 as sentiment improves, which is in line with Fitch's expectation that Indonesia's annual real GDP growth will pick up to 5.1% in 2016, from 4.8% in the previous year.

Local reinsurers' premiums experienced strong growth in 2015, following a 2014 decree on reinsurance capacity optimisation. Fitch says sufficient capital buffers, prudent risk management and improved reserving techniques are essential for reinsurers to match their rapid growth and remain resilient against any potential catastrophe events in catastrophe-prone Indonesia.

Fitch says the Indonesian insurance industry is an attractive market for local and foreign investors, due to large potential untapped market, stable product demand and healthy financial underpinned by favourable underwriting margins. This is likely to drive merger and acquisition activities in the near-term.