News eDaily21 Apr 2017

Indonesia:Foreign investment ceiling in insurers proposed at 80%

| 21 Apr 2017

Finance Minister Sri Mulyani Indrawati has proposed to allow foreign investments in the insurance industry to be up to 80%.

The foreign ownership restriction of 80% in an insurance company is proposed in a Government Regulation Draft on insurance presented to lawmakers at a working meeting this week, according to local media reports.

Ms Sri Mulyani said that given foreign investors' large capacity to absorb risk, the government considers the role of foreigners to be needed to some extent. “That role will not threaten our economic sovereignty," she said.

At present, as many as 19 insurance companies have exceeded the proposed 80% foreign investment ceiling. When they raise capital, local shareholders will be encouraged to participate.That way, the percentage of foreign ownership will decrease automatically as the proportion of locally held shares grows. "So, we do not ask them (foreign insurance companies) to change now," said Ms Sri Mulyani.

She said that based on 25 years of government studies, domestic investors are reluctant to invest in the insurance industry because of the long-term nature of the business.

"The domestic investor's risk appetite is limited. If he has the money, he is conservative; he does not want to invest long-term even though the returns are good," she said.

However, several members of the House of Representatives object to the proposal. They want the foreign ownership limit to be set at 49%.

The Parliament in 2014 passed a new law that called for curbs on foreign ownership in the industry, but left the task of setting the limit to the government. A regulation passed in 1992 capped foreign ownership at 80%. But in 1999, authorities allowed foreign investors to exceed the ceiling.



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