Government urges insurance mergers

Government urges insurance mergers

JAKARTA (JP): The government has called on domestic insurance
firms to merge to increase their capital and strengthen their
international competitiveness.

The Ministry of Finance's insurance director, Suyoto, said
yesterday Indonesian insurance companies should win more foreign
insurance deals to help reduce the insurance service deficit.

Suyoto said mergers were the best way to improve Indonesia's
insurance capacity and competitiveness.

"Mergers would not only increase their capital, but also
improve their efficiency," Suyoto said during a break at a
workshop on mergers in the insurance industry.

But he said the government needed to revise merger regulations
to encourage mergers.

The government was preparing a new ruling on insurance
industry mergers, he said.

The ruling is being drafted together with a regulation
requiring insurance firms to increase their capital so they can
underwrite large projects and reduce Indonesia's current account
deficit.

Insurance and shipping services account for a big portion of
Indonesia's deficit.

The current account deficit is projected to rise to more than
US$8 billion, or 4 percent of gross domestic product, this fiscal
year.

Sources said the draft regulation would increase the minimum
capital requirements for non-life insurance firms from Rp 3
billion (US$1.23 million) to about Rp 15 billion.

Yesterday's workshop addressed the challenges insurance firms
might face when merging.

The one-day workshop was organized by the Insurance Council of
Indonesia and was attended by 26 people from law firms, stock
exchanges, accounting firms and the tax office.

The workshop's conclusion would be submitted to the government
as input for the new regulation, Suyoto said.

The Insurance Council of Indonesia's chairman, B. Munir
Sjamsoeddin, said many insurance companies avoided merging
because they feared losing ownership or management control.

Complex technical and administrative processes also
discouraged mergers, he said.

A merger requires asset reevaluation which usually results in
extra income tax on revalued assets, Munir said.

"The additional tax does not improve the liquidity of the
companies," he said.

Publicly listed insurance firms also faced difficulties when
merging, he said.

He cited a Capital Market Supervisory Board decree requiring
insurance companies to give priority to existing shareholders
every time they offered new shares. (das)