Government plans to close nine insurance companies

Government plans to close nine insurance companies

Dadan Wijaksana, The Jakarta Post, Jakarta

The Ministry of Finance is set to close nine ailing insurance
companies before the end of the year as part of its efforts to
clean up the country's messy financial industry.

The director for insurance at the ministry, Firdaus Jaelani,
said on Tuesday that the nine firms had so far failed to improve
their financial condition, therefore liquidation would be
unavoidable.

"Out of that total, three firms voluntarily returned their
licenses claiming they would no longer pursue the insurance
business," Firdaus told The Jakarta Post.

The remaining six firms, Firdaus said, have been suspended and
are banned from seeking new policyholders because of their poor
financial state.

The six firms are: PT Sakarukma Sinukarta, PT Asuransi Jiwa
Buana Putra, PT Asuransi Jiwa Namura Tata Life, PT Nasaba Life,
PT Asuransi Jiwa Berkah Harda Sentosa and PT Pura Nusantara.

Firdaus did not say how many policyholders would lose their
investments.

Unlike bank depositors, the government does not give a
guarantee to insurance policyholders.

Elsewhere, Firdaus said that the planned closure of weak
insurance firms was aimed at cleaning up the industry before it
was put under the supervision of the Financial Sector Authority
Institution (FSAI).

"We want the FSAI to perform well. So financial institutions,
including insurance firms to be supervised by the institution,
must be financially healthy," he said.

The FSAI is an institution that will be in charge of
supervising the country's financial industries, and it is
expected to come into effect in early 2004.

FSAI will take over the supervision of industries within the
financial sector, including the banking sector, which is now
supervised by the central bank.

It will also oversee other service-based financial industries,
such as insurance, pension funds, securities and other
institutions or corporations managing public funds.

The establishment of the institution was based on the need to
anticipate increasing challenges in financial service industries,
which face more complex problems from time to time.

In a related development, a survey conducted by the monthly
magazine Infobank disclosed that dozens of the country's insurers
were in serious danger of failing to meet the capital
requirement.

It said last week that 33 insurers would find it difficult to
fulfill the government's requirement of insurance firms having a
minimum 75 percent risk-based capital (RBC) by the end of the
year.

"This would force several of them to consider the option of a
merger and acquisition or else risk liquidation," it said, adding
that 19 were classified as life insurers.