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No foreign ownership cap in new insurance law
The House of Representatives has backed down from capping foreign ownership in local insurance firms in a new insurance bill that will be passed into law in one month
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he House of Representatives has backed down from capping foreign ownership in local insurance firms in a new insurance bill that will be passed into law in one month.
Foreign investors will still be able to own insurance firms through the share-purchase mechanism at the stock exchange, according to the new insurance bill, which on Monday was approved by House Commission XI overseeing finance.
The bill will be passed into law at a House plenary session soon.
The bill obliges all insurance firms to take the form of a legal entity, locally known as Perseroan Terbatas (PT), unlike in the current Insurance Law that allows the operation of insurance firms in the form of cooperatives or mutual companies.
As the bill mentions no specific clause regulating a foreign ownership cap, foreigners will still be able to own up to 80 percent of local insurance firms, in line with a 2008 government regulation on the insurance business.
Previously, lawmakers stated their intention to revise the rule, suggesting foreign ownership in local insurance firms be capped at a maximum 49 percent, effectively limiting foreigners from becoming controlling shareholders.
- Foreign investors can own insurance firms through stock exchange
- All insurance firms must be legal entities
- Foreign ownership cap will be defined in government regulation
The new Insurance Law comes with the spirit of 'attracting foreign investment' in the country's insurance business and strengthening the insurance system nationwide, Indonesian Democratic Party of Struggle (PDI-P) lawmaker Indah Kurnia told a House hearing on Monday.
A foreign ownership cap would be defined in a new government regulation, which will be discussed first with lawmakers and the Financial Services Authority (OJK).
'Consultation with the House is intended to gauge people's thoughts on foreign ownership in the insurance business, while consultation with the OJK is intended to identify [the capacity] of domestic capital,' said Kamaruddin Sjam, a Golkar Party lawmaker.
However, the Finance Ministry, which is responsible for the government regulation, signaled that it might not impose a stricter limit on foreign investment in the local insurance business.
'If an insurance firm wants to thrive, then it will need big, strong capital that could come from domestic or foreign [investors], which we will soon define in a government regulation,' Finance Minister Chatib Basri told reporters after the hearing with lawmakers.
In the domestic life insurance business, the 10 largest firms according to premiums are dominated by joint ventures backed by multinational firms, namely the UK's Prudential plc, Canada's Manulife Financial and Germany's Allianz. State-owned Jiwasraya is the only local company competing in the top tier.
Many foreign financial firms have ventured into the domestic insurance industry to get a share of the lucrative business pie and capitalize on the country's fast-growing market.
In December 2013, Japan's Sumitomo Life Insurance Co. bought a 40 percent stake in state-run BNI Life Insurance, following in the footsteps of its compatriot competitor Dai-ichi Life, which bought a 40 percent ownership in Panin Life in June of the same year.
Firdaus Djaelani, an OJK commissioner overseeing the non-banking financial industry, said on Monday that a reduction in the foreign ownership cap from the current 80 percent cap would be possible in the new government regulation, but it would not be lowered to an extent that prevented foreign investors from becoming majority owners.
