T

he Financial Services Authority (OJK) is planning a series of measures to help the country'€™s insurance industry weather the volatility of the rupiah and the current global economic slowdown.

The measures, which come into effect today, are seen as highly urgent, with a number of insurance companies having been hit hard by the weakening currency.

OJK executive head for non-banking financial institutions Firdaus Djaelani said the regulator had decided to act after recent slumps in the rupiah and in stock prices affected the solvency of some insurance companies.

The rupiah weakened to 14,000 against the US dollar for the first time since the 1998 financial crisis on Aug. 25 as the Jakarta Composite Index, the main price indicator on the stock exchange, lost almost 4 percent.

The OJK, Firdaus said, would relax certain regulations, including on risk-based minimum capital (MMBR), in an effort to boost the industry.

'€œWe will allow insurance companies to meet only 50 percent of the minimum capital requirement, instead of 100 percent,'€ Firdaus said.

The OJK, he went on, had performed a simulation test few months ago to calculate the risk-based capital (RBC) of insurance companies as of June based on several scenarios, such as what would happen if the rupiah slid to Rp 14,000 per US dollar, stock prices fell by 20 percent and mutual funds and bonds declined by several percentage points.

The stress-test, Firdaus said, suggested that there would be four or five insurance companies whose RBCs would fall below 120 percent. The current average RBC ratio in life and general insurance companies was 450 percent and 250 percent, respectively, he added.

'€œThere are several companies with decreasing solvency levels. Some have RBCs near 120 percent and they will be hit harder if the rupiah, stock prices and bond yield decrease further. However, many more companies have RBCs around 400-700 percent currently,'€ Firdaus said.

He added that the temporary measure, which would be in place until the end of the year, was expected to help insurance companies through a relaxation, rather than obliging them to inject more capital.

'€œWith this measure, we don'€™t need to issue periodic warnings. We'€™ll give time for insurers to improve themselves,'€ he said.

As for the multifinance industry, Firdaus said the OJK had found that gearing ratios in several companies had surged to around eight or nine times, near the maximum level of 10 times, after the plunging rupiah increased their levels of foreign reserves.

The OJK'€™s stress test also found that the gearing ratios of two multifinance companies would reach 10 times if the rupiah slid to Rp 15,000 to Rp 16,000 per dollar, Firdaus added.

A gearing ratio is a financial ratio that compares one form of an owner'€™s equity or capital to the amount of borrowed funds. With a gearing ratio set at 10 times, a multi-finance company is allowed to provide financing up to 10 times its total capital.

'€œWe have asked the companies'€™ shareholders to inject fresh capital to decrease the ratios,'€ Firdaus said, adding that the OJK would also allow multifinance firms to offer refinancing for customers who had already paid their loans, given that many companies were in a position of over-liquidity as financing decreased on a weak economy.

'€œWe will allow them to offer refinancing, with some requirements, such as a certain percentage of collateral,'€ Firdaus said.