Insurance firms capital requirement must go up

Insurance firms capital requirement must go up

JAKARTA (JP): The government should raise the paid-up capital
requirement of insurance companies to enable them to compete with
their foreign rivals, an insurance executive said yesterday.

President of PT Jasindo, the state-owned loss insurance
company, Amir Imam Poero, said many premiums and commissions had
gone to foreign insurance firms because local ones -- due to
their small capital -- could not underwrite large insurance
risks.

Amir was speaking after signing a cooperation agreement to
improve Jasindo's human resources with Wagiono Ismangil,
executive director of the Institute of the Indonesian Management
Development.

Under the agreement, Jasindo, a leader in Indonesian insurance
with a 19 percent market share, will send about 30 managers to
the institute's MBA program.

At present the minimum paid-up capital for a wholly domestic
insurance firm is Rp 3 billion (US$1.25 million), a foreign joint
venture must have Rp 15 billion.

"I think this is too small. How can they compete with the
foreign firms which have a lot of capital," he said.

Amir said small insurance companies should be forced to merge
if their shareholders could not meet the larger capital
requirement.

He said that for a small insurer, a merger could be the only
alternative if they wanted to survive the industry's increasingly
tougher competition.

"If we don't do something to improve our competitiveness, I'm
afraid we'll lose when the ASEAN Free Trade Area (AFTA) is fully
implemented in 2003," he said.

Jasindo's director of operations, Mustafa Ashari, said the
government should require insurance firms to have paid-up capital
of up to Rp 30 billion.

He also said local firms should improve their human resources
and pursue synergies.

Currently, there are 105 insurance companies in Indonesia,
more than 20 have less than Rp 3 billion working capital.

Amir said the inefficiency of local insurance firms had caused
a sharp increase in the deficit of Indonesia's current account
insurance services.

Data from the Indonesian Council of Insurance shows
Indonesia's insurance deficit has increased steadily over the
last six years.

The deficit in 1990 was Rp 211.34 billion, rising to Rp 282.5
billion in 1991, to Rp 353.85 billion in 1992, to Rp 398.74
billion in 1993, to Rp 456.70 billion in 1994, to 826.15 billion
in 1995 and to about Rp 1.2 trillion last year.

It is estimated that this year's insurance deficit will
increase.

In 1995, Indonesian insurance firms paid about Rp 1.71
trillion in premiums, commissions and claims to foreign
companies. And the Indonesian firms made only Rp 882.27 billion
from them.

Amir said Jasindo projected a net profit of about Rp 26
billion this year, the same as last year.

He said the company's premium target this year was Rp 445
billion, an increase of about 2.5 percent from last year.
(bnt)