Mapfre takes control of Indonesian insurer in search for growth

Mapfre bought 20% of ABDA back in 2013. It has now agreed to buy a further 31% to give it the controlling stake of 51%. Completion of the deal is subject to obtaining the relevant administrative authorisations. “The transaction facilitates Mapfre in increasing its presence in Southeast Asia and positioning itself in a market with high potential,” stated the insurer. Under Indonesian legislation, once the acquisition has been formalised, Mapfre must make a public takeover bid for the remaining shares in the company.hideMapfre explained that in 2015, ABDA was ranked fifth in the country’s automobile insurance market, with a market share of 6.4%. This generated premium volume and net earnings of €93m and €18m respectively. ABDA, which was founded in 1982 and is headquartered in Jakarta, is listed on the Indonesian securities market. It operates across the auto, home, transport, health and accident lines and has 36 offices and 578 employees in Indonesia. Mapfre will also be able to use its expanded presence in Indonesia to help service its expanding global corporate business managed by Mapfre Global Risks, a rated entity that is 100% owned by the Spanish insurance group. Mapfre Asistencia, the group’s travel, assistance and specialty operation, has already been active in Indonesia and will also now be able to raise its business and profile. The Spanish insurer sees great potential in the country. “Indonesia, with a population of 250 million people, is the fourth most populous country in the world, and the market for automobile insurance shows significant growth potential, based on strong vehicle sales in recent years, driven by increased consumer wealth and the changing regulatory environment,” stated Mapfre. The Indonesian insurance market has huge potential but companies like Mapfre will have to work hard and smart to fully realise that potential and deliver good profits. Consulting firm PwC, for example, recently published its first Indonesian Insurance Survey, based on interviews with executives with leading local non-life and life insurance companies representing close to 60% of total market premium. In its report, it concludes that it is “moderately optimistic” on market opportunity. The consulting firm says that innovation and branding is important in this market and one of the key challenges, as elsewhere in the region, is attracting and retaining talent. Regulation and basic awareness of the value of insurance are also challenges in this huge and diverse territory. “Indonesia continues to be seen as the most attractive market in Southeast Asia. Almost all respondents felt the market was either the most attractive or somewhat more attractive, driven by the low market penetration and sheer size of the country. Raising market awareness and regulation were seen to be the key issues for the market as a whole,” states PwC’s report. The consulting firm found that the main focus on financial performance in this market is growth. Some 50% said they expect growth to exceed 20% this year, and only 16% expected the growth to fall below 10%. In the non-life sector, PwC reports that price competition is the main challenge. GDP growth for the first quarter of 2016 was 4.9%, ahead of the same period last year but below the original target of 5.3%. “Based on our discussions with insurance executives across Indonesia, there is a cautious optimism about the economy and in particular about an increasingly open posture of the government towards new investment,” states PwC. “Nonetheless, macroeconomic conditions remained a top-three concern of respondents to our survey, in terms of achieving growth. Interestingly, there is little to no concern about capital levels needed to fuel growth. This perhaps highlights the need for insurers to build robust models on how variations in growth, claims and operating costs can impact expected capital levels and solvency,” states the report. Regulation is something that regional and international risk managers will need to watch closely as it is fast changing in Indonesia. PwC points out that during the past two years, the pace of regulation in the Indonesian insurance market has increased “significantly”. “The single presence policy, commission limits, domestic reinsurance requirements, tariffs and capital requirements to name a few [regulatory changes]. Our expectation is that this pace will not slow down in the near future and we will see a continued focus on the sector by OJK (national insurance supervisor) as it matures,” states the consulting firm. Respondents to its survey noted regulation as the number one risk to the life sector and the number two risk to the non-life sector. Some 58% also expected an increase in legal and compliance risk this year, almost entirely related to new regulations. “Even though regulation is one of the top challenges to growth and operating business in Indonesia, almost 70% of respondents felt the current wave of new regulation is good for the sector,” points out the report. PwC also says respondents are looking for a much greater level of clarity in respect of tax, with one third rating this the number one area where progress is needed. “This was followed by the need for comfort around foreign ownership limits and whether those regulations will change in the future,” adds the firm. Talent is a perceived problem in Indonesia, just as it is across the region, based on PwC’s survey. Most respondents felt that their level of resources was somewhat or very adequate (88%), but one third felt (lack of) human talent was the number one or number two main risk to their achievement of growth targets for 2016. “Likewise, in terms of risks facing the industry over the next two to three years, human talent was the third most popular response. In our 2015 Insurance Banana Skins survey, human talent was seen to be the fourth biggest risk to the industry among respondents in the Far East region. Particularly in the technology area, companies are finding it increasingly difficult to attract and retain the right talent,” states PwC. Product innovation is also seen as an important topic in the Indonesian insurance market, based on this survey. “Innovation will intersect with digitalisation as insurers seek more cost-effective ways to acquire, reach and interact with customers, who in Indonesia are rapidly becoming more mobile and smartphone savvy. The distribution channels of today may not be the distribution channels of tomorrow, with face-to-face interaction giving way to more direct customer acquisition and servicing. This highlights the need for a robust IT strategy and an agile response to cyber risk,” states PwC.

Mapfre takes control of Indonesian insurer in search for growth

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