Industry hails Prudential victory
Industry hails Prudential victory
Zakki P. Hakim, Jakarta
The Indonesian Insurance Council (DAI) welcomed on Tuesday the
decision of the Supreme Court to annul a bankruptcy ruling
against insurance firm PT Prudential Indonesia Assurance, saying
it would have a positive impact on the industry and encourage new
investment in the sector.
"It is the right decision," DAI chairman Hotbonar Sinaga told
The Jakarta Post.
Hotbonar said the decision would help restore the people's
trust and investor confidence in the domestic insurance industry.
The Supreme Court overturned the bankruptcy ruling on Monday
following an appeal made by Prudential.
A Supreme Court judge, Mariana, was quoted by the Koran Tempo
daily as saying the case was a contractual dispute between
Prudential and its former agent, and should not have been filed
with the commercial court.
The commercial court declared the local insurance unit of
British financial group Prudential bankrupt on April 23 after its
former agent Lee Boon Siong accused the company of failing to pay
him a bonus, and demanded compensation of about Rp 366 billion
(US$44 million).
The bankruptcy ruling was made despite the fact that
Prudential is a financially strong insurance firm with a risk-
based capital ratio of 255 percent, well above the 100 percent
required by the Ministry of Finance.
The bankruptcy ruling had disappointed not only the company
but also many other parties including the Ministry of Finance and
the British government.
In 2002, the Supreme Court also overturned a similar
bankruptcy ruling against a solvent local subsidiary of Canadian
insurance giant Manulife Financial Corp. which found itself
involved in a local dispute.
The two cases had further damaged the image of the country's
weak legal system, which has been seen as one of the factors
deterring badly needed new investment.
Meanwhile, Prudential manager T.J. Timotius said the company
had not yet received a formal letter from the Supreme Court on
the ruling.
Nevertheless, lawyer Amir Syamsuddin praised the Supreme Court
for its decision as he asserted that the case was beyond the
jurisdiction of the commercial court.
According to Amir, Lee's case was more of a dispute instead of
a default, or a company's failure to fulfill its maturing
financial obligation.
"The dispute should had been taken to the district court
instead," he told the Post.
Amir also said that the current amendment of Law No. 4/1998 on
bankruptcy was crucial to avoid a reoccurrence of a similar case
in the future.
The government has proposed that the Ministry of Finance have
the final say in declaring an insurance company bankrupt.
"The ministry has full knowledge of the solvency of an
insurance company," Hotbonar said, adding that the association
would continue to push lawmakers to quickly complete the
amendment.
"After the Manulife bankruptcy case in 2002, we were worried
that a similar case would emerge," he said.
According to Hotbonar, several foreign investors had planned
to enter the local insurance market but they decided to put on
hold their investment plans following the Prudential case.
Hotbonar said there were at least 20 million insurance
policyholders in the country with a total premium value of
US$944.5 million in 2002.