T

he government is seeking to boost the capacity of newly established state insurer Indonesia Re through a state capital injection (PMN) program next year, an official at the State-Owned Enterprises (SOE) Ministry is saying.

According to Wahyu Kuncoro, the assistant deputy for banking and insurance at the ministry, the plan will be included in the upcoming talks over the 2016 State Budget.

'€œThe ministry plans to inject around Rp 1 trillion [US$76.13 million] worth of capital into Indonesia Re. The higher capital will give it leverage to handle domestic reinsurance needs,'€ he said on Friday.

As reported earlier, the government decided to establish Indonesia Re to manage domestic reinsurance needs.

It claimed that the absence of a strong local reinsurer had hurt the country'€™s balance of payments, as most of the domestic needs are still met by companies from abroad because of their massive capacities.

In a document on Indonesia Re'€™s establishment, the government states that the amount of reinsurance premiums placed offshore reached Rp 19.95 trillion in 2013, a stark contrast to the Rp 6.47 trillion in reinsurance premiums reported by local reinsurers.

Driven by the imbalance in premiums, commissions and claims, this year has seen the amount of the net reinsurance premium deficit stand at Rp 8.19 trillion, which was a further widening from the Rp 4.99 trillion posted in 2012.

'€œWe want to see the deficit slowly decrease now that we have Indonesia Re,'€ Wahyu said.

Indonesia Re is the final entity that emerged as a result of consolidation among several companies, namely PT Reasuransi Umum Indonesia (RUI), PT Reasuransi Internasional Indonesia (ReINDO), PT ASEI Re, PT Asuransi Kredit Indonesia (Askrindo) and PT Reasuransi Nasional Indonesia (Nasre).

The Law and Human Rights Ministry is currently reviewing the drafting of a government regulation (PP) to be the legal basis of Indonesia Re and the SOE Ministry expects to see the reinsurer up and running in June, with paid-up capital of about Rp 1.24 trillion.

Part of that capital came from mandatory convertible bonds worth Rp 900 billion that were issued by ReINDO in December and were purchased by state-owned Jamkrindo, Jasa Raharja and Taspen.

According to Wahyu, Indonesia Re may be able to increase its capacity to between three to four times its capital.

'€œBut that is not enough considering the deficit that we recorded. That'€™s why we are looking to inject more funds next year through the PMN,'€ he said.

The document shows that Indonesia Re is predicted to have Rp 14.04 trillion in total assets and Rp 5.39 trillion in equities next year, supported by the capital injection.

This year, the assets are estimated to amount to Rp 6.31 trillion and the equities to Rp 1.23 trillion.

Wahyu added that the government hoped to inject Rp 1 trillion of capital into Indonesia Re every year over the next few years, so that the net reinsurance premium deficit would only narrow to around Rp 3.6 trillion by 2019.