IQPlus - Indonesian insurance is unlikely to be dented by the January floods, says Fitch Ratings. Moreover, long-term benefits could accrue from recent tariff regulations which are positive for the stability and improvement of non-life underwriting margins, and which could sustain a healthier bottom-line performance.

Preliminary industry estimates suggest that budgeted flood-related claims are likely to reach IDR1.5 trillion, or just half that of similar floods a year ago. The total insured loss borne by Indonesian insurers is almost certain to be lower than the IDR638 billion in early 2013, provided flood conditions remain manageable through the remainder of the monsoon season up until the end of March.

Claims are expected to be lower because most of the floods occurred in suburban areas with relatively low insurance coverage - albeit covering about the same land area (about 30% of Jakarta). Meanwhile, in contrast with early 2013, central business areas with greater concentrations of office, retail and residential properties - as well as higher insurance coverage - were not as badly affected.

Another credit buffer was due to the coverage from reinsurance activity. Industry statistics reveal that around 50% of the non-life industry's total gross premiums in 2012 were being ceded. Most of this is to foreign reinsurers and retrocessionaires, as the low capital base of domestic reinsurers prompts reliance on overseas retrocessions.

Lastly, flood risks are not automatically included in many of the motor and property insurance policies in Indonesia. This lowers the full scope of potential claims - which could otherwise weigh on the development of an infant industry.

Overall insurance coverage remains at a nascent stage, with penetration at just under 2% of Indonesia's GDP. Not only is the industry able to surmount near-term challenges from natural disasters, but we also believe it is also poised for further, steady growth.