New investment for ailing insurers unlikely: AAUI

The Jakarta Post, Jakarta

Local ailing insurance companies would have to either merge with stronger ones or their owners would have to inject fresh funds to avoid closure as seeking new investors would be difficult amid the current poor investment climate here, according to an industry expert.

"There is no other way. They (ailing insurers) have to strengthen their financial condition. Bringing in new investors is an option, but so far I have not seen that," Chairman of the Indonesian General Insurance Association (AAUI) Frans Sahusilawane told The Jakarta Post Friday.

A finance ministry official revealed earlier that some 30 percent of the country's 170 insurance companies were in serious danger of not being able to meet the minimum 75 percent Risk- Based Capital (RBC) requirement by the end of this year. The government will close down insurers which do not meet this requirement.

RBC is the ratio between capital and investment exposure.

Frans said that Indonesia was among the first countries in Asia to have applied the new concept of RBC to measure an insurer's financial solvency.

The government will further tighten the minimum RBC requirement to 100 percent next year, and to 125 percent in 2004 in a bid to clean up the country's messy insurance industry and to consolidate the over-crowded industry.

The move is crucial as local insurance companies must be strengthened to be able to compete with foreign firms amid the current financial sector liberalization drive.

The finance ministry earlier said that nine insurance companies would be closed down before the end of this year. Six of them have long been in a poor financial state, while the owners of the other three had returned their licenses to the ministry.

Frans said that seeking foreign investors to strengthen the capital situation of the ailing insurers was an almost impossible task, unless the government moved swiftly to resolve the various problems which were deterring foreign investors.

"It's hard enough to retain existing investors, let alone to secure new ones," he said, adding that there were already some investors fleeing the country because of the problems, particularly the legal system debacle.

The finance ministry is not backing down from its plan to restructure the insurance industry.

The government has argued that the move to clean up the country's financial institution was necessary ahead of the planned establishment of the Financial Sector Authorities Institution (FSAI) in early 2004, which would be in charge of supervising the country's financial industries.

Aside from supervising banks, FSAI will also oversee service- based financial industries, such as insurance, pension funds, securities and other institutions or corporations managing public funds.