Challenges of the Actuarial Profession in Indonesia IAA Seminar Kuala Lumpur

1. Challenges of the Actuarial Profession in IndonesiaIAA SeminarKuala Lumpur Kim Yeoh PT Prudential Life Assurance Indonesia 10 October 2011

2. Agenda Life Insurance in Indonesia Personal Experience Insights Challenges 2

3. Agenda Life Insurance in Indonesia Personal Experience Insights Challenges 3

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 Rest of market Comments 6th to 10th insurers Top 5 insurers More Developed Market Emerging market 4

5. Mkt growth Penetration(GDP)1 Penetration(Popul.)2 GDP growth3 10-year bond rate4 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 Indonesia Life Insurance Landscape – Recent Trend 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 * Weighted new premiums is used as proxy for APE, as per available reported data from AAJI, the Life Insurance Association of Indonesia

6. Mkt growth Penetration(GDP)1 Penetration(Popul.)2 GDP growth3 10-year bond rate4 Inflation Stock mkt ind 21% N/A 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 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

7. Macroeconomic indicators Positive and robust economic outlook is favorable for the industry Peer comparison Comments Population (mn) Insurance penetration • GDP continues to show resilience with growth forecast at 6%+ for 2011-2013, largely driven by domestic demand (infrastructure, automotive, oil & gas, mining) • 4th 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 Sources: Swiss Re, BMI, IMF 7

8. Demographics Low insurance penetration and a growing young segment provide significant opportunities Population by Sex and Age Group (current & future) Comments 2008 Customer Demographics: • 4th most populous country in the world - 240 million • Young population with an increasing 45 - 65yr age bracket • Approximately 25-30 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 2028 Total population:284 million Source: US Census Bureau 8

9. Product Trend ILP continues to dominate customer & distributor demand 2012-14 CAGR 16.9% (5.3%) 1.3% 4.3% 2012-14 CAGR 8.7% 12.7%

10. Distribution Channel Trend Agency remains leading channel, though Bancassurance has shown rapid recent growth 2012-14 CAGR 4.1% 13.9% 14.3%

11. Industry outlook Strong economic fundamentals have fuelled industry growth Life Insurance Premiums Economic Growth GDP (IDR trn) Real GDP Growth Rate Premiums (IDR trn) Source : BMI, Swiss Re; AAJI; internal projections 11

12. Key Industry Insights Life Insurance Companies Key Insights • Positive outlook for industry with premiums expected to grow at CAGR 22% for 2008-2013 • 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 No. of companies 46 45 46 45 Sources : BMI; Swiss Re; AAJI 12

13. Market Characteristics & Evolution China India Indonesia Malaysia Singapore Hong Kong US UK Australia Germany Japan Indonesia is still at its ‘early growth’ stage but crucial to prepare for the next phase Source : McKinsey 13

14. Industry SWOT – Strengths & Weaknesses Strengths Indonesia’s 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 14

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 Indonesia’s 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 15

16. Agenda Life Insurance in Indonesia Personal Experience Insights Challenges 16

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 17

18. Agenda Life Insurance in Indonesia Personal Experience Insights Challenges 18

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 19

20. Agenda Life Insurance in Indonesia Personal Experience Insights Challenges 20

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