AJB Bumiputera Liquidity

The Ministry of Finance has highlighted the need for insurance supervisors and relevant stakeholders to take quick steps to resolve long-standing liquidity problems at the life insurance mutual, AJB Bumiputera 1912 (AJBB). If solutions cannot be found soon, the insurer's assets and the rights of policyholders will potentially be further eroded and the new funding for the insurer will be hampered.

Demutualization - AJBB's capital problem could be settled through demutualization. However, the demutualization option creates new issues, including the potential for low share ownership and a fall in the value of protection benefits for policyholders.

Demutualization option is challenging considering the stages and requirements that need to be met and whether there are still investors who will enter and inject capital. In addition, it is also necessary to ascertain whether the impact on the dilution of ownership and benefits to post-demutualization policyholders can be accepted by all parties.

Alternative solutions - Other options for the insurance mutual to improve its solvency level, include generating premium income from new policies, distributing losses to policyholders and existing members, improving reinsurance arrangements, or issuing surplus notes.

However, for AJBB, the first two options are considered quite difficult to adopt because of the insurer's financial condition and performance which continue to decline. Meanwhile, another option is to issue surplus notes. However, this is not easy to carry out, considering that it is relatively new and there is no related regulatory framework in Indonesia yet.

AJBB, with more than 6m policyholders most of whom are government employees, has been restructuring under the stewardship of Indonesia’s Financial Services Authority (OJK) since 2013. The insurer has also attempted to find a strategic investor, a move which is also unsuccessful so far.