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tate-owned reinsurance firm Reasuransi Umum Indonesia (RUI) has been merged into its counterpart Reasuransi Indonesia Utama (Indonesia Re) as part of the government'€™s drive to establish a unified national reinsurer.

State-Owned Enterprises Minister Rini Soemarno said the merger, based on a 2013 policy of combining related state-owned enterprises to reduce administrative overhead, marked a '€œhistoric moment'€ in the country'€™s reinsurance industry.

The merger was expected to pave a way for the establishment of a local giant reinsurer that would be able to compete at the regional level, Rini said during the launch on Friday.

'€œWe already have a roadmap for the [new company'€™s] establishment, as we face more open trade flows of goods and services in the ASEAN Economic Community [AEC], including in the financial services sector,'€ Rini said.

Rini added that the roadmap extended to the post-merger process and included a transfer of the non-Islamic reinsurance portfolio owned by RUI'€™s subsidiary Reasuransi Internasional Indonesia (ReINDO) into Indonesia Re as the main engine of the new company.

Meanwhile, ReINDO'€™s remaining Islamic reinsurance portfolio would be transformed into a new full-fledged sharia-based reinsurer.

'€œWith the merger, I hope that Indonesia Re'€™s management upholds its integrity and seeks synergies with other state-owned companies, so that [the new company] will be able to compete regionally and globally,'€ Rini said.

Firdaus Djaelani, executive head for non-banking financial institutions at the Financial Services Authority (OJK), said the government'€™s vision to build a giant reinsurance firm was based on years of study, which had revealed that the absence of a strong local reinsurer had hurt the country'€™s balance of payments.

Firdaus said most domestic demand for reinsurance was met by overseas reinsurers because of their massive capacities, especially when the domestic insurance industry saw speedy growth in the past few years in line with the country'€™s overall development.

According to OJK data, offshore reinsurance premiums would reach Rp 35 trillion this year, up from Rp 20 trillion in 2013. The imbalance in premiums, commissions and claims have led to a net reinsurance premium deficit of US$1 billion in the country.

Firdaus said the OJK had recently issued a regulation that would push insurance companies to increase the domestic retention of reinsurance premiums, which was expected to help create a larger market for the new national reinsurer.

'€œWith the new regulation, we hope there will be around Rp 12 trillion to Rp 17 trillion in additional domestic reinsurance premiums, which will keep increasing each year,'€ he said.

Firdaus said the OJK would join the government to discuss with the House of Representatives the need to increase Indonesia Re'€™s capital, which currently stood at Rp 1.5 trillion ($107.9 million), so as to raise the company'€™s capacity to meet the country'€™s growing reinsurance needs.

According to Indonesia Re CEO Frans Y. Sahusilawane, the company would need a capital injection of at least Rp 500 billion next year and boost its capital by Rp 2 trillion to Rp 2.5 trillion in 2017 to absorb reinsurance premiums repatriated from overseas.

Gatot Trihargo, the ministry'€™s deputy for business services, said the government was seeking the best solution to increase Indonesia Re'€™s capital to an ideal range of between Rp 5 trillion and Rp 10 trillion over the next two years.

'€œState-owned social insurers, such as Jasa Raharja, Taspen, Jamkrindo and Asabri, will be invited as Indonesia Re'€™s stand-by suppliers [of fresh capital],'€ Gatot said.