Capital increase no problem for insurance firms

JAKARTA (JP): An increase in paid-up capital in the insurance industry will not pose problems for local insurance firms, an insurance executive said yesterday.

Life insurance firm Dharmala Manulife's vice president, Adi Purnomo, said he was optimistic that local insurance firms would be able to meet the planned rise in capital requirement.

"I don't think the planned new capital requirement will force smaller local insurance firms to close down, as predicted by people. I am sure they will be able to find an alternative to raise their paid-up capital," Adi said.

The government plans to raise the capital requirement of insurance companies in order to strengthen their underwriting capacity. The minimum paid-up capital for non-life insurance companies will, for example, be raised to Rp 15 billion (US$6.14 million) from the current Rp 3 billion.

Adi said small insurance companies would more likely merge with local firms or foreign insurance firms to enable them to meet the new capital requirement.

However, the Insurance Council of Indonesia's chairman, B. Munir Sjamsoeddin, said earlier that some local insurance firms were opposed to merging because they feared losing ownership or management control.

Complex technical and administration processes also discouraged mergers, Munir said.

Adi said these challenges were relatively minor problems.

"Merging is not as complicated as it sounds, if there is a problem, it probably would be nontechnical," he said.

It is unlikely the government will impose the new regulation right away, it will probably give companies time to raise capital, he said.

Insurance firms will be given a grace period -- for example for five years -- before they have to come up with the required capital, he said.

Adi said Dharmala's paid-up capital totaled Rp 4.5 billion, with equity reaching Rp 55.4 billion.

Adi was speaking after the signing of a cooperation agreement between Dharmala and Bank Central Asia's (BCA) Master and Visa cards yesterday.

Under the agreement, Dharmala's clients can pay their premiums by BCA Mastercard or Visa credit card.

This is the second cooperation between the two companies after the first one in 1995, which allowed Dharmala's clients to pay premiums using BCA ATM cards.

Adi said the company aimed at improving its services to clients, of which 70 percent were holders of BCA Visa or Mastercard.

Dharmala, which claims to cover 9 percent of the country's life insurance market, is 51 percent owned by The Manufacturers Life Insurance Company of Canada, 40 percent by Dharmala Group, and 9 percent by the International Finance Corporation.

The company recorded Rp 20.5 billion in net profit last year, up from Rp 17.8 billion in 1995.

Its assets rose 52.7 percent last year to Rp 375 billion and its premiums grew 27.53 percent to Rp 167.7 billion.

Its underwriting value rose 23.4 percent last year to Rp 7.9 trillion.

The company expects to collect Rp 53 billion in new premiums this year, up 30 percent from Rp 39.5 billion last year. (das)