Challenges of the Actuarial Profession in Indonesia IAA Seminar Kuala Lumpur Kim Yeoh PT Prudential Life Assurance Indonesia 10 October 2011

2 2 Agenda 1.Life Insurance in Indonesia 2.Personal Experience 3.Insights 4.Challenges

3 3 Agenda 1.Life Insurance in Indonesia 2.Personal Experience 3.Insights 4.Challenges

4 4 Indonesia Life Insurance Landscape – Competitive position Developed markets are generally more fragmented than emerging ones, with more insurance companies relative to population of market Despite being a developing market, Indonesia is less concentrated than many other developed and emerging markets in Asia, representing healthy competition from customers perspective 27 out of 46 life insurance companies have market share of less than 1%, highlighting need for market consolidation Indonesia Life market is relatively fragmented, representing a healthy competitive landscape and potential for consolidation Comments Top 5 insurers 6 th to 10 th insurers Rest of market Emerging market More Developed Market Penetration (%) <1 Population (mn) ,23289 No. of insurers Population / insurer (mn)

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%+) mainly driven by commodity exports and domestic demand Economy showed high resilience to recover quickly after 2009 economic crisis, posting 6.1% growth in 2010 Steadily growing insurance penetration, but well below other large emerging markets (China: 3%, India: 4%) One of the best performing stock markets from developing countries leading to high investor confidence Top 5 players dominate market share in a highly fragmented market ILP continues to drive industry growth as all JV 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 Q * Weighted new premiums is used as proxy for APE, as per available reported data from AAJI, the Life Insurance Association of Indonesia Mkt growth Penetration(GDP) 1 Penetration(Popul.) 2 GDP growth 3 10-year bond rate 4 Inflation Stock mkt ind 19% 0.8% N/A 5.5% 9.8% 6.6% 1,806 40% 1.1% N/A 6.3% 10.0% 6.6% 2,746 10% 1.0% N/A 6.0% 11.9% 11.1% 1,355 8% 1.1% N/A 4.6% 10.9% 2.8% 2,534 53% 1.2% N/A 6.1% 7.8% 7.0% 3,704

Life Market APEObservation GDP growth expected to remain strong at about 6% for Strong potential for industry grow with insurance penetration expected to remain fairly low at 1.2% Stock market expected to continue steady growth from growing foreign inflows and high investor confidence Top 5 players expected to further consolidate dominance of market share ILP expected to continue driving industry growth Increasing interest from Chinese and Japanese insurance players (e.g. Mitsui Sumitomo – Sinarmas JV) Indonesia Life Insurance Landscape – Forecast Robust economic outlook with low insurance penetration make Indonesia a very attractive life insurance market 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 Mkt growth Penetration(GDP) 1 Penetration(Popul.) 2 GDP growth 3 10-year bond rate 4 Inflation Stock mkt ind 21% N/A 5.9% 7.6% 5.5% 3,889 12% 1.2% N/A 5.9% 7% 5.0% 4,260 12% 1.2% N/A 5.8% 7% 5.0% 4,899 12% 1.2% N/A 6.2% 7% 5.0% 5,633 12% 1.2% N/A 6.3% 7% 5.0% 6,478

7 7 Macroeconomic indicators Positive and robust economic outlook is favorable for the industry GDP continues to show resilience with growth forecast at 6%+ for , largely driven by domestic demand (infrastructure, automotive, oil & gas, mining) 4 th 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 Peer comparisonComments Insurance penetration Population (mn) 2011 GDP Growth Forecast 6.2%5.3%4.5%1.5% 2011 Real GDP Forecast, USD bn ,683 Sources: Swiss Re, BMI, IMF

8 8 Demographics Population by Sex and Age Group (current & future)Comments Low insurance penetration and a growing young segment provide significant opportunities Customer Demographics: 4th most populous country in the world million Young population with an increasing yr age bracket Approximately million people within the AB market segment Significant Growth Opportunities Moving Forward: Individual insurance penetration is still very low at 2.9% (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 Total population: 227 million Total population:284 million Source: US Census Bureau

9 Product Trend ILP continues to dominate customer & distributor demand Market Product MixCommentary Investment linked products continue to dominate demand (2010 growth 48%) All JV players have now entered ILP market 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 from bank partners Syariah continues to grow by mirroring conventional products Increasing interest in micro-insurance (credit life) but lacking in distribution infrastructure CAGR 16.9% 8.7% 12.7% (5.3%) 1.3% 4.3%

10 Distribution Channel Trend Market Distribution MixCommentary Agency remains leading channel with over 50% share Recently introduced licensing and professional development requirements support the development of a professional agency force Significant recent growth in Bancassurance, largely driven by Single Premium sales – 89% of all Bancassurance sales are SP Steady growth in DM/TM channel as banks maximize revenue potential from customer database Agency remains leading channel, though Bancassurance has shown rapid recent growth CAGR 4.1% 13.9% 14.3%

11 Life Insurance Premiums Strong economic fundamentals have fuelled industry growth Source : BMI, Swiss Re; AAJI; internal projections Premiums per capita, USD Premiums (IDR trn) Economic Growth GDP (IDR trn)Real GDP Growth Rate GDP per capita, USD 1,9162, ,9633,2703,5323,822 Industry outlook

12 Key Industry Insights Positive outlook for industry with premiums expected to grow at CAGR 22% for 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 Bancassurance channel emerging with 24% of industry APE Life Insurance CompaniesKey Insights Sources : BMI; Swiss Re; AAJI Industry Growth % 66%19%5%53% No. of companies

13 Market Characteristics & Evolution Indonesia is still at its early growth stage but crucial to prepare for the next phase InfancyEarly GrowthMaturingMatured Product Simple traditional life products Simple investment linked, traditional life products Sophisticated investment linked products (e.g. life cycle) Unbundled investment and protection, variable annuities, equity release Distribution Proprietary sales forceProprietary sales force, emergence of brokers Multi-channel distribution, penetration by brokers and IFAs Alternate channels (e.g. internet), high advice ingredient, increased compliance Compensation High up front commission High up front, with some renewal Reduction of up front, more emphasis on renewal Fee for service, renewal, AUM fees Source of Profit Scale of sales force and underwriting drives profits Competitive pressure erodes underwriting profits Investment performance and brand drives profits Ownership of customer relationship drives profits Countries ChinaIndia Indonesia MalaysiaSingapore Hong Kong USUK Australia Germany Source : McKinsey Japan

14 Industry SWOT – Strengths & Weaknesses Strengths Indonesias 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

15 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 Cross-border life insurers are better placed than local players to weather any future storms in Indonesias 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 business Terrorism threat needs to be taken into account when underwriting risks

16 Agenda 1.Life Insurance in Indonesia 2.Personal Experience 3.Insights 4.Challenges

17 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

18 Agenda 1.Life Insurance in Indonesia 2.Personal Experience 3.Insights 4.Challenges

19 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

20 Agenda 1.Life Insurance in Indonesia 2.Personal Experience 3.Insights 4.Challenges

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