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)