Bumiputra 1912 reluctant to re-evaluate its assets

JAKARTA (JP): The finance minister's decree on asset reevaluation does not benefit insurance firms with large admitted fixed assets, an insurance firm executive said Friday.

The president of mutual life insurance firm Bumiputra 1912, Suratno Hadisuwito, said his firm was reluctant to reevaluate its assets because of the capital gains tax burden which would result from a reevaluation.

"We have asked the Directorate General of Taxes to give us dispensation in the form of delayed tax payment until the property is really sold, but to no avail," Suratno said.

The minister's decree, issued on August 13 last year, made capital gains from asset reevaluation subject to a 10 percent tax.

But reevaluation is not mandatory, even for public companies. However, if a company reevaluates its assets, the Directorate General of Taxes has the authority to decide the assets market value and the tax due.

In addition, whenever a property is sold, the owner must pay five percent of the asset's value as income tax.

"Therefore, we decided not to reevaluate our assets. If we need to cash them, we prefer to sell them directly and pay the 5 percent income tax instead of 15 percent," Suratno said.

Ministry of Finance reports show Bumiputra's total assets were Rp 1.6 trillion (US$676 million) last September, consisting of Rp 893.2 billion admitted assets and Rp 723 billion non-admitted assets.

Meanwhile, its technical reserves (liabilities) -- reserves to pay claims and back up unearned premiums -- stood at Rp 1.5 trillion.

Suratno acknowledged Bumiputra had a relatively high amount of non-permitted assets because it had invested heavily in property, especially on branch offices to support its operation.

Bumiputra has 616 branch offices or sales offices.

"However, our non-permitted assets, especially property, have been the backbone of our operation so we could survive, even during bad times like the mid-1960s," Suratno said.

In 1995 the book value of Bumiputra's land and building assets was Rp 148.6 billion. But many were still undervalued, he said.

"The book value of our office on Jl. Cokroaminoto (Central Jakarta), for instance, is only Rp 89 million. In fact, if we sell it now, I believe, we can easily get not less than Rp 15 billion in cash," Suratno said.

Meanwhile, its investment in property is relatively high at slightly over 20 percent of its total admitted assets of Rp 893.2 billion last September -- more the government recommends.

Finance Ministerial Decree No. 224/1993 stipulates insurance firms' property investments should not exceed 15 percent of its admitted assets.

Bumiputra's investment director Hadiudin Nasution said the decree gave insurance firms limited investment options. Nevertheless, he promised to reorganize Bumiputra's investment portfolio to be in line with the decree's requirements.

The decree limits an insurance firm's investment in time deposits to 5 percent of its admitted assets per bank. Five percent is also the maximum figure per bank for investments in certificates of deposits, stocks per issue. The limit for debt securities longer than a year is 2 percent per issuer. For equity participation the figure is 20 percent per company and for loans to policy holders the figure is 80 percent.

In 1995, Bumiputra had Rp 803 billion of admitted assets. Of this Rp 176.7 billion was in property, Rp 165.9 billion in term deposit and Rp 165.9 billion in certificates of deposit.

It also had Rp 34.6 billion in public stocks, Rp 116.1 billion as equity participation in affiliated companies, Rp 3.4 billion in nonaffiliated companies, Rp 145.8 billion in loans to policy holders and Rp 72.2 billion in hypothecated loans.

In December Bumiputra recorded admitted assets of Rp 1.03 trillion, with technical reserves of Rp 1.7 trillion.

The company recorded an unaudited net profit of Rp 1.88 billion last year. (rid)