The Jakarta Post
The State-Owned Enterprises (SOEs) Ministry is planning to restructure state-owned insurance company PT Asuransi Jiwasraya’s policies before carrying them over to a new company and dissolving the ailing insurer.
Deputy Minister Kartika “Tiko” Wirjoatmodjo said the ministry made a proposal to the House of Representatives to restructure all of Jiwasraya’s life insurance policies.
Should the House agree to the scheme, the ministry will instruct state-owned insurance holding firm PT Bahana Pembangunan Usaha Indonesia (BPUI) to start negotiations with policyholders in August. The negotiations are expected to conclude in December 2021.
In the meantime, BPUI will establish a new life insurance company, PT Nusantara Life, which will then hold all of Jiwasraya’s restructured policies. Following the transfer, the ministry will then completely dissolve the ailing insurer.
Prior to holding the restructured policies, the new company would need a state capital injection to balance out its liabilities and assets as it can no longer rely on Jiwasraya due to its negative equity, which reached Rp 35.9 trillion (US$2.5 billion) as of May 31.
“With a negative figure that big, it’s impossible for the ministry to create a new company without a state capital injection,” Tiko said as quoted by Kontan.
The amount of state capital will depend on the result of negotiations between policyholders and the House Commission VI on SOEs, trade and industry and Commission XI on financial affairs.
Jiwasraya is embroiled in a corruption and money laundering case following its failure to pay out Rp 18 trillion in matured policies due in May to its policyholders. The insurer is accused of investment mismanagement when it invested its premium revenue from the JS Saving Plan, one of the company’s insurance products, in pumped-and-dumped stocks.
The JS Saving Plan product offered a return of between 9 and 13 percent, almost twice the amount of return offered by the time deposit of 5 percent to 7 percent.
Tiko said the ministry would ensure the health of the new company by reducing the amount of policy returns offered to its customers.
“Several policies can enjoy high returns of up to 13 percent. We have to lower this to around 6 percent to 7 percent,” he said.
Insurance expert Irvan Rahardjo said on Thursday that establishing a new company might be the most feasible scheme to solve Jiwasaraya’s problems.
“Relying on capital injection from the government will be the most sensible thing to do to establish Nusantara Life because the proceeds of the sales of the insurer’s subsidiary, Jiwasraya Putra, will not be enough to pay for the overdue claims,” he said.
Life insurer PT Taspen Life would reportedly buy 70 percent of Jiwasraya Putra’s shares for Rp 2.6 trillion, while state-owned Bank Tabungan Negara (BTN) would buy the remaining 30 percent, said Jiwasraya president director Hexana Tri Sasongko as reported by Kontan.
Irvan said that Jiwasraya’s assets, which were confiscated and then recovered, would not be sufficient to cover for the Rp 18 trillion in claims as the value of many of the shares and mutual funds had depleted significantly. The government would also need time to sell other illiquid assets, such as properties confiscated from the suspects.
“Now the question is: How much will the capital injection be and how soon can [the government and the House] agree to provide it during this pandemic?” he told The Jakarta Post, adding that he projected the government would need around Rp 10 trillion.
Other than recording negative equity, Jiwasraya also recorded high liabilities and depleted assets.
As of May, the insurer recorded total liabilities of Rp 52.9 trillion, which consisted of Rp 36.4 trillion in conventional policy liabilities and Rp 16.5 trillion in JS Saving Plan liabilities. Its assets depleted to Rp 17 trillion from Rp 23 trillion in 2018.
Tiko said the greatest liquidity pressure came from its JS Saving Plan, which caused the company’s unpaid claims to reach Rp 18 trillion as of May despite the fact that it had paid Rp 470 billion in March.
At the same time, the insurer’s risk-based capital ratio slumped to minus 1,907 percent, well below the minimum ratio of 120 percent required by the Financial Services Authority (OJK).