OREANDA-NEWS. Fitch Ratings says in a new report that it expects growth in the insurance sector in Indonesia to stabilise in 2016 as economic growth is likely to recover.

The agency estimates that Indonesian real GDP growth will improve to 5.3% in 2016 and 5.5% in 2017 from 4.8% in 2015. This follows the recent wave of reforms introduced by the government to improve business sentiment and strengthen the country's financial fundamentals.

The rating outlook for Indonesia's life and non-life insurance sectors in 2016 is Stable, underpinned by steady demand, manageable investment risks among insurers, and adequate buffers against catastrophe losses through reinsurance coverage.

The sector outlook is stable, reflecting Fitch's view that the low insurance penetration and growing awareness will continue to support life insurance growth. Generally conservative investment allocation is likely to mitigate the volatility in the insurers' operating results. Meanwhile, the non-life insurance sector is supported by rising affluence and disposable incomes among the population, economic recovery and protection from reinsurance coverage.

Fitch believes that several initiatives taken by the regulator to optimise local reinsurers' capacity could widen the sector's operating scale and raise the level of competitiveness among domestic players. Nonetheless, managing risk accumulation and enhancing risk management are key to ensure maintenance of healthy underwriting margin among reinsurers.

The industry also faces changing regulatory requirements and an increase in competition. The regulator has indicated plans to implement an enhanced version of the current capitalisation framework, while the implementation of the ASEAN Economic Community (AEC) at end-2015 will encourage greater market liberalisation among insurers operating in the Association of Southeast Asian Nations (ASEAN).

The report, "2016 Outlook: Indonesia Insurance Sector" is available at www.fitchratings.com or by clicking on the link in this media release.