50% of local insurance companies unhealthy
50% of local insurance companies unhealthy
JAKARTA (JP): About 50 percent of Indonesian insurance
companies are insolvent because they fail to meet a government
requirement on the ratio of their investments against technical
reserves, according to insurance consultant Thomas Turula.
Turula, president of insurance consulting firm PT Bumi Citra
Cempaka, told reporters yesterday the minimum ratio of a solvent
insurance firm's technical reserves against its investments,
according to Law No. 2/1992 on the insurance industry, should be
1:1.
"The insolvent companies would not be able to pay a client's
claim immediately after it was submitted because they do not have
adequate cash reserves," he said.
There are currently 158 insurance companies in Indonesia,
comprising 55 life insurers, 99 loss insurers and four
reinsurers.
Turula said the government told all insurance companies to
meet the investment-technical reserves requirement by the end of
this year to guarantee the future of their operations and to
improve their competitiveness against foreign rivals,
particularly after the globalization of the insurance industry
comes into effect at the beginning of the next century.
He said the Ministry of Finance has also advised insurance
companies to diversify their investments and avoid speculation.
Insurance companies, according to Turula, have a tendency to
invest heavily in real estate besides time deposits, stocks and
bonds.
He said these had often caused financial problems to many
insurance companies because property gave only long-term returns.
Through a decree the ministry has set the ceilings for the
investments made by insurance companies in various sectors to
guarantee their solvency and to protect the interests of policy
holders.
Purely domestic insurance companies are required to secure a
minimum capital of Rp 1 billion (US$418,000) and joint insurance
ventures Rp 3 billion, while the minimum capital of pure domestic
reinsurance companies is set at Rp 7 billion and joint
reinsurance ventures at Rp 30 billion. (10)