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Global Conference on Insurance and Reinsurance for Natural Catastrophe Risk: Istanbul, December 8th - 9th, 2005

Natural Catastrophe Risk Management Policy in Indonesia

Presented by Werner Bugl, President DirectorPT. Asuransi MAIPARK Indonesia

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CONTENTS Potential Catastrophe Risks in Indonesia: Earthquake,

Tsunami & Volcanic Eruption Role of the Government & Insurance Industry in Dealing

with Catastrophe Risks: Establishment of Special Risks Insurance Company, PT. Asuransi MAIPARK Indonesia (MAIPARK)

Funding of MAIPARK Indonesian Standard Earthquake Insurance Policy:

Scope of Cover, Tariff Market Penetration of Catastrophe Risk Insurance Future Challenges New Initiatives

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Catastrophe Risks in Indonesia

Devastating Earthquake and Tsunami in Aceh in December 2004 killed 170.000 and displaced 550.000 people

Earthquake in Nias in March 2005 killed 1,300 people and displaced 22,000

3rd Strongest Earthquake Since Beginning of Instrumental Records Largest Tsunami in Documented History in Terms of Casualties

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One of the World’s Most Seismically Active Regions

Where to put your foot ?Not a place for the faint – hearted.

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Earthquake Record Subsequent to 26.12.2004

Since 26.12.2004 : 3,500 Recorded Earthquakes 183 Earthquakes > IV Richter Scale

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Home of 13% of World’s Active Volcanoes Indonesia is a country with more than 122 active volcanoes Eighty of these 122 active volcanoes have been classified “A” type

according to their recorded eruption since year 1600

One of the most beautiful regions in the worldOne of the most complex geological settings too

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Indonesian Volcanoes

Region Type A Type B Type C Total

Sumatra 12 12 6 30

Java 21 9 5 35

Bali 2 0 0 2

Nusa Tenggara 20 0 0 20

Sulawesi 11 2 5 18

Maluku 5 3 0 8

Banda Sea 9 0 0 9

Total 80 26 16 122

Beauty comes at a price

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Role of Government & Industry Establishment of a National Earthquake Pool in 2003 which

became PT. Asuransi MAIPARK Indonesia (MAIPARK) as from 23rd December 2003

All Non-Life Insurance and Reinsurance Companies operating in Indonesia are shareholders of the company; MAIPARK is owned by the Insurance Industry itself

Promote discipline and proper handling of Earthquake Insurance

Set a benchmark for Earthquake Insurance Pricing Collate national Statistics and Data Bases Build strong local Capacity for Earthquake Shareholders must cede a “Shareholder Cession” of each

earthquake risk underwritten to MAIPARK. At present they cede 5% to 25% of sum insured with a max. of USD 2,500,000 any one risk to MAIPARK depending on the location of the risks

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Funding of MAIPARK Registered Share Capital is IDR 50 billion Paid-up Capital is some IDR 45 billion received from 91 Non-Life

Insurance and Reinsurance Companies i.e. shareholders Shareholding of each company is determined by the Directorate of

Insurance, Ministry of Finance by a fixed percentage of Investment Funds of each company as of 31.12. 2002

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Indonesian Standard Earthquake Insurance Policy: Scope of Cover

The Indonesian Standard Earthquake Insurance Policy covers property loss or damage and business interruption as a consequence of earthquake shock, fire following earthquake, volcanic eruption and tsunami

Insurance Companies must issue a separate Earthquake Policy in addition to the Fire Insurance Policy

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Earthquake Tariff

The Indonesian Insurance Association has released a “Reference Earthquake Insurance Tariff”

Rate ranges between 0.104% to a maximum of 0.33% of the sum insured

Rate is priced depending on risk Zone / Location, Type of Occupation and Building Constructions

At present the average rate is approx. 0.12%

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Premium Computation

Premium rate for first loss policies is subject to short period premium scale of tariff

Premium is on annual basis or 12 calendar months. If period of cover is less than 12 months, premium is computed by using short-period premium scale

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Market Penetration of Catastrophe Insurance

Non-Life Insurance penetration rate in general is very low, despite growing from 0.69% in 2004 to 0.72% (Gross Premium in % of GDP) in 2004.

Increasing awareness for Catastrophe Cover after the Aceh Tsunami and Nias Earthquake. However, demand remains on the low side.

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Future Challenges

Gradual increase of “Shareholders Cession” to MAIPARK More Insurance Education of the Society is needed

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Future Challenges (continued)

Implementation of Building Code to improve Vulnerability of Building Stock and Insurance Underwriting Practices

Establishment of the Natural Disaster Law

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New Initiatives

Residential Earthquake Insurance Scheme Insurance / Reinsurance of Donor Funds for the

Rehabilitation and Reconstruction of Aceh and Nias Urgent Installation of Tsunami Early Warning System Flood Risks & Terrorism Cover to be administered by

MAIPARK in the coming years

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New Initiatives (continued)

Voluntarily Earthquake Risk Cession to MAIPARK in addition to the “Shareholders Cession”

Study on Sub-Soil Conditions

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Thank youTerima kasih