T

he Financial Services Authority (OJK) has called upon joint-venture insurance firms to go public to comply with a prevailing regulation.

OJK commissioner for the non-banking financial industry Firdaus Djaelani said that insurers with significant foreign ownership might choose to divest their shares through an initial public offering (IPO) or by directly seeking local strategic investors.

“They can start small by floating 10 to 15 percent of their shares on the stock market. Finding local partners can be another option for them to reduce foreign ownership,” he said recently.

The call is a follow-up to a 2014 law on insurance that requires a cap on foreign ownership, but does not stipulate the exact percentage of the foreign shares.

During past deliberations of the law, legislators asked for a 49 percent foreign ownership cap, but dropped the percentage altogether when discussions reached the final stage.

The OJK is now waiting for a government regulation (PP) that will lay out the specific cap.

As the PP will be issued in 2017, the authority has reinstated the previous PP—issued in 2008—that limits maximum foreign ownership at 80 percent in an insurance firm.

It means that companies with foreign shares exceeding 80 percent will have to divest the stake, no matter what.

According to data from the OJK, there are more than 10 life and general insurance companies with foreign ownership shares standing above 80 percent.

The country’s 10-largest life insurance firms are dominated by joint ventures backed by multinational companies, such as 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.

The OJK has distributed a circular to inform the joint ventures of the ownership cap. It claims that their IPOs will help educate people on insurance and attract local investors in the stock market.

Indonesia Stock Exchange (IDX) president director Tito Sulistio said that the bourse was actively persuading insurance firms with majority foreign stake to consider floating their shares.

He said there were about six to seven joint-venture insurers with foreign ownerships above 80 percent that would help create additional market capitalization of Rp 600 trillion (US$45.3 billion) to the IDX.

Separately, Nini Sumohandoyo, Prudential Indonesia’s director of corporate marketing and communications, said the company would wait for the government to issue a new foreign ownership rule before commenting any further.

“We cannot comment on that since we don’t know the result yet, but we hope to provide the best to our existing and future policy-holders,” she said.

Meanwhile, Togar Pasaribu, acting executive director at the Indonesian Life Insurance Association (AAJI), said that insurers were in wait-and-see mode regarding the foreign ownership rule.

He argued that such a policy cap would go against the government’s efforts to attract higher foreign direct investment to the country.

According to the AAJI, the call to float the companies’ shares on the stock market will be equally ineffective as 70 percent of stocks on the local bourse are owned by foreign investors.