Minister for State-Owned Enterprises (SOEs) Erick Thohir should think again about the scheme to rescue Asuransi Jiwasraya, which was planned by his predecessor. Under the leadership of Rini Soemarno, four state companies were asked to contribute funds to funding Jiwasraya Putra, a subsidiary of the state-owned insurance company which defaulted on Rp802 billion of debt in October 2018.
Forcing companies to bear the risk of losses by another company is an unhealthy economic practice. Jiwasraya’s problems were caused by the failure of its management to invest properly in the bancassurance policy, JS Proteksi Plan. Therefore, it is not right that the state assumes responsibility for the mistakes in a financial institution. Unlike banks, insurance companies do not possess institutes for borrowing and saving. The plan to rescue Jiwasraya will set a bad precedent that that losses by any financial institutes will be borne by the government.
Even if it succeeds, it is thought that the scheme to establish a subsidiary will only help with the financial restructuring of Jiwasraya in the next 5 to 10 years, after the subsidiary is sold to investors. The question is: do Bank Tabungan Negara, Kereta Api Indonesia, Pegadaian and Telekomunikasi Selular have the financial strength to bear the risk of Jiwasraya failing to pay its obligations, which are said to total Rp16 trillion? The rescuing of the financial institution by other bodies can only go ahead if these bodies are strong enough. If not, they will also be dragged into financial difficulties.
However it is done, the problems in Jiwasraya need to be put right soon, especially since the pockmarked face of life insurance in Indonesia has attracted international attention. The World Bank has also highlighted the financial problems of Asuransi Jiwa Bersama Bumiputera, which must immediately be resolved by the Financial Services Authority (OJK). The financial difficulties of Bumiputera, which ended in the company failing to pay claims, have not shown any meaningful improvement in the last three years.
Despite this, the resolution of Jiwasraya’s problems needs to be carried out using the right methods. The suggestion of a capital injection from the government, which was proposed, is an even worse choice. With the problems of liquidity and debt due for repayment, Jiwasraya is almost certain to use this fresh injection of funds from the governments to pay off debt. Ultimately, these funds will be used up and the state could lose out.
The SOEs ministry as the shareholder could carry out an investigative audit of Jiwasraya together with the OJK. This audit could follow up on the findings of the Supreme Audit Agency (BPK), which in 2016 detected improper investments, namely the purchase of shares in Trikomsel Oke worth Rp449.5 billion, in Sugih Energy worth Rp318.1 billion and in Eureka Prima Jakarta worth Rp118 billion. The BPK took the view that these transactions were unwise because of the weak fundamentals of these companies. However, not a single person has been found to have done wrong. The negligence of the OJK, as the watchdog of the capital markets and insurance, also played a part in this case.
There is still another way to deal with Jiwasraya’s problems. For example, it could liquidate its financial assets. According to the most recent financial report in 2017 – the 2018 financial report has yet to be published – the company has Rp19.2 trillion in mutual funds, Rp6.6 trillion in shares, Rp4.3 trillion in timed deposits, Rp3.1 trillion in treasury bills and Rp1.8 trillion in corporate bonds. There are also assets in the form of property worth Rp6.6 trillion, including the Cilandak Town Square shopping mall in South Jakarta. Liquidating these assets could restore the trust of clients in Jiwasraya, and perhaps also in other insurance companies.
The sickness in Jiwasraya, and also Bumiputera, has reduced public trust in insurance. At the start off his leadership of the SOEs ministry, Erick Thohir needs to take the right measures. Public trust in insurance must be restored, because the main asset of insurance is trust.
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