Merger not easy way out for RI insurers

Merger not easy way out for RI insurers

The Jakarta Post, Jakarta

Poorly trained human resources, weak capital, inadequate
information technology systems and low amounts of risk-based
capital (RBC) are stopping local insurance companies from
competing succesfully against foreigners in ASEAN, analysts say.

However, some industry players believe they have found the
solution to strengthen their capital and competitiveness --
mergers.

PT Asuransi Jasa Indonesia (Jasindo) public relations manager
Dewi Poedjiastuti said recently that mergers would increase the
size of the merged companies' assets, widen the scope of their
operations and make them more competitive internationally.

AJB Bumiputera 1912 director of technical and financial
affairs Maryoso Sumaryono said the stronger an insurance firm's
capital base, the better its business would be.

"The bottom line is to compete by offering good services to
policy holders, which in turn will attract more capital," he
said.

Indonesian life insurance association (AAJI) chairman Herris
Simandjuntak warned insurance companies wanting to merge that
they should check the legal requirements before doing so.

"According to Law No. 2/1992, insurance businesses offering
different services cannot be united. For example, a life
insurance company is not allowed to be merged with a general
insurance company," Herris told The Jakarta Post.

PT Asuransi Wahana Tata president Rudy Wanandi told the Post
recently that merger decisions relied on the cooperation of the
company's shareholders.

Rudy said in Indonesia, a merger would not necessarily mean
insurance companies could open branch offices or reduce their
workforce. In foreign countries a merger target company would
often improve efficiencies by culling 30 percent of its workforce
after a merger, he said.

University of Indonesia economics lecturer Alberto Hanani said
mergers were not easy to arrange.

"Firstly, it is difficult for the owners (of a company) to
get the right partner easily and second, there is a tendency from
the management of both companies not to support the merger
process as they are likely to be afraid of losing their
positions," he said.

Indonesian Insurance Council (DAI) chairman Hotbonar Sinaga
said in his recently published book Membangun Asuransi Membangun
Indonesia (Building Indonesia through the Insurance Industry)
that only 27 percent of merged insurance companies in the world
in the 1990s managed to increase their performance and share
price.

Two British companies, he said -- Royal Insurance and Sun
Alliance -- had succesfully merged to become Royal Sun Alliance.

In Indonesia only 12 percent of the country's 220 million
people hold insurance policies, compared to 40 percent of 23
million people in Malaysia and most of the 127 million people in
Japan, many who hold three or more policies, Hotbonar said as
quoted by the Republika daily.

"The opportunity to grab a bigger portion of the potential
domestic market is high. This year, the market is likely to grow
by 1 percent," Maryoso told the Post.

Meanwhile, the price of insurance premiums is predicted to
rise by 30 percent, the same rate as last year.

"With increases in banking loans, foreign investment and
consumer prices, insurance premiums are likely to increase
significantly this year," Dewi said.

She said other business opportunities would come from the
construction industry through the creation of highways, the
Jakarta Outer Ring Road and monorail facilities.

According to DAI, the insurance industry during the first six
months of 2004 took in Rp 10.4 trillion (US$1.1 billion) in
premium revenues, 54 percent higher than the same period in 2003.
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