Fitch Ratings: Indonesia's takaful sector backed by economic developments

Fitch Ratings-Jakarta-26 February 2020: Premium growth in Indonesia's sharia insurance business will be sustained by the country's economic development, with government support as a key driver, Fitch Ratings says.

Amendment of a 2018 foreign-shareholding rule in January 2020 will make it easier for insurers to carry out a mandated spin-off of their sharia units by 2024. The amendment allows an insurer to spin off its sharia unit by exempting the unit from the statutory 80% foreign-ownership cap. The insurers are under no obligation for capital increases to be made in the 80:20 shareholding ratio, a relief for some of them.

Fitch expects the takaful industry to also benefit from the concrete guidelines of the Indonesia Islamic Economic Masterplan 2019-2024 published by the government in May 2019. Government support is also crucial to smoothen the IFRS 17 transition as takaful operators remain uncertain over the interpretation and application of the rules to their business as the January 2021 implementation deadline draws nearer.