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Government relaxes foreign ownership rule for insurers
Foreign investors can now own a more than 80 percent stake in Indonesian insurance companies after the authorities that oversee the industry currently embroiled in cases of financial mismanagement committed to making regulatory reforms and tightening oversight in an effort to restore public trust
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span>Foreign investors can now own a more than 80 percent stake in Indonesian insurance companies after the authorities that oversee the industry currently embroiled in cases of financial mismanagement committed to making regulatory reforms and tightening oversight in an effort to restore public trust.
Government Regulation No. 3/2020 on the insurance industry, signed by President Joko “Jokowi” Widodo on Jan. 16, revises an earlier rule that caps foreign ownership in local insurers at 80 percent.
The new regulation allows foreign investors to purchase a more than 80 percent stake in local insurers if they wish to add paid-up capital, but only through initial public offerings via the Indonesia Stock Exchange (IDX) and only if no domestic investors are interested.
Indonesia Insurance Council chairman Dadang Sukresna said the regulatory relaxation would provide leeway to attract foreign investors to help save troubled state insurer Asuransi Jiwasraya. The government is opening up bids for investors to buy Jiwasraya’s subsidiary Jiwasraya Putra to rescue the state insurer, which has failed to pay Rp 12.4 trillion (US$908 million) in matured policies to its customers. The government also plans to inject state funds into Jiwasraya Putra.
“I do not see this regulation as being intended to save Jiwasraya, but it could be a way to attract foreign investors to buy some of Jiwasraya Putra’s shares and inject money into the insurer,” Dadang said after a meeting with House of Representatives Commission VI overseeing state-owned enterprises.
Indonesia’s insurance industry is in turmoil with the Attorney General’s Office and the Supreme Audit Agency investigating corruption allegations implicating former Jiwasraya executives and two business tycoons, which analysts warn has the potential to cause systemic risk in the financial sector.
At the same time, state-owned insurer Asabri incurred Rp 10 trillion in losses attributed to investment mismanagement, while Asuransi Jiwa Bersama Bumiputera has not paid out Rp 9.6 trillion for matured policies.
Insurance expert Hotbonar Sinaga said on Tuesday that the relaxation of the foreign ownership regulation could improve supervision of local insurers and, in turn, restore public trust.
“Foreign insurance firms and investors have a lot of supervisors and they can reject a report if one of the supervisors sees any discrepancies in the report,” he told the press after the same session with the House Commission VI.
Hotbonar also said the public’s trust in the insurance industry was on the decline, which could affect the growth of new policies this year, particularly in the life insurance segment.
“Life insurance policies will probably continue to grow, but I think the growth will likely be limited to single digits,” he said.
To restore public trust, authorities are making regulatory interventions and stepping up oversight. The Financial Services Authority issued on Dec. 31, 2019, a new regulation requiring all insurance companies to have a director of compliance and a designated compliance division that ensures good corporate governance practices are followed.
The IDX halted last week the trading of some so-called pump-and-dump stocks associated with Jiwasraya.
Finance Minister Sri Mulyani Indrawati, speaking on behalf of the Financial System Stability Committee, also said plans were underway to establish a new state agency to protect insurance holders against defaults. The Policy Guarantee Agency would act similarly to the Deposit Insurance Agency for the banking sector, she added.
In addition to looking out for potential investors for Jiwasraya Putra, State-Owned Enterprises Minister Erick Thohir also plans to use state funds to establish a state-owned insurance holding company.
Hotbonar said expediting the establishment of a state-owned insurance holding company would be more effective than waiting for an investor to become interested in the ailing Jiwasraya.
“That way, Jiwasraya can slowly improve its financial health before it attracts foreign investors to invest in the company, or its subsidiary,” added Hotbonar.
