Insurance Industry of Indonesia

Dozens of smaller life and general insurance firms may have to be merged with bigger ones or seek new investors to meet the new minimum equity-capital requirements, industry players and experts say.

“Merger-and-acquisition activities will be necessary in the future to ensure the continuity of the insurance industry in Indonesia,” Adi Purnomo Wijaya, director of PT Manulife Indonesia, said on Wednesday during an industry seminar.

The government issued a regulation in 2008 requiring domestic insurance companies to have minimum equity capital of Rp 40 billion ($4.44 million) by the end of this year, and Rp 70 billion by the end of 2012. The level will be increased to Rp 100 billion by the end of 2014.

Companies failing to comply with the regulation will have to shut down.

Experts said some small insurance companies were finding it difficult to meet the end-2010 capital requirement.

“This would mean that the smaller insurance firms would have to merge [with bigger ones] to meet the new requirement and continue operating,” said Alberto Hanani, an analyst with consultancy Beda & Company.

He estimated that 14 life insurance companies would not be able to meet the 2010 requirement if their owners failed to inject fresh capital or find new investors. “Out of the 14 companies, five of them actually have negative equity,” Alberto said.

Meanwhile, 24 general insurance companies are facing a similar fate, he said, adding that at least one had negative equity.

Based on the latest data, there are 90 general insurance companies and 46 life insurance companies in Indonesia.

Fuad Rahmany, chairman of the Capital Market and Financial Institutions Supervisory Agency (Bapepam-LK), said the tougher requirement was intended to improve the financial health and competitiveness of the country’s insurance industry.

Evelina Pietruschka, chairwoman of the Indonesian Life Insurance Association (AAJI), said the domestic insurance industry was alluring to investors, both domestic and overseas, because of the huge room for growth.

She said the market size of the industry was about Rp 89.5 trillion. “By 2015, we hope that it will grow to Rp 500 trillion,” she said.