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)