Insurance firms ready to meet 5% target

JAKARTA (JP): A new solvency margin requirement recently introduced by the Ministry of Finance is unlikely to create difficulties for insurance companies, an industry figure said on Monday.

Indonesian Insurance Council executive A.W. Ismed said most insurance companies were prepared to meet the target.

"We're confident that life insurance companies will have no difficulty in achieving the 5 percent target next year," he said.

He said some local insurance companies, especially ones of a medium size, had already adopted the new solvency level.

The government, through Ministry of Finance decree number 481, dated Oct. 17, requires local insurance companies to have a 5 percent solvency margin in the first quarter of next year.

According to the decree, insurance companies must gradually adjust their solvency margin from 5 percent in the first quarter next year, to 15 percent by the end of next year, 40 percent in 2001, 75 percent in 2002, 100 percent in 2003 and 120 percent in 2004.

The new solvency margin is the ratio of current assets against the minimum funds to recover claims and possible losses calculated under the risk based capital (RBC) method.

Life insurance companies are currently required to have a solvency ratio of 1 percent of its premium reserves and 10 percent of its net premium. Loss insurance and reinsurance companies are only required to have a solvency ratio of 10 percent of the company's net premium.

Ismed said most life insurance companies were able to achieve a 15 percent ratio under the RBC method, well ahead of the government's deadline set for the end of next year.

Director Cevi Sudarto of Asuransi Ikrar Loyd said the implementation of the RBC-based solvency calculation was in anticipation of global competition.

Cevi said the government should consider the macroeconomic conditions on which insurance investments depended.

"If the investments are unhealthy, we can't expect insurance companies to have good solvency margins," he said.

Cevi said he did not envisage any problems for insurance companies in complying with the RBC-based solvency margin, as long as economic conditions remained supportive.

Finance manager Adnin Adnan from Asuransi Yasuda Indonesia said most joint insurance companies would not experience difficulties adopting the new requirement.

"Joint venture insurance, like our company, faces no difficulties because part of our insurance risks are also covered by parent companies," he said. (03)