News eDaily27 Nov 2017

Indonesia:New scheme to save AJB Bumiputera expected in 2018

27 Nov 2017

The Financial Services Authority (OJK) will be reviewing a new scheme to save the beleaguered mutual insurer, AJB Bumiputera 1912 (AJBB), after more than a year of attempting to restructure the insurer's operations.

Mr Riswinandi, Executive Director of the Non-Banking Financial Industry unit at OJK, told the local media that the regulator targets the new AJBB rescue scheme to start in 2018. He did not elaborate on the details of the proposed scheme nor give a timeline for when the review would be completed.

He said that the OJK had asked the statutory managers to prepare a new scheme more oriented to policyholders.

AJBB was created by a group of teachers in 1912 and has remained the country’s only mutual insurance company. It is Indonesia's oldest life insurer. The insurer was placed under restructuring by OJK in 2013 after its premium revenue could not meet claims payments.

The Board of Commissioners of OJK decided to take over the management of AJBB on 21 October 2016 after restructuring efforts by the management of the company were judged to have made little progress. OJK appointed seven statutory managers to replace the directors and commissioners of the company.

Last year, a rescue plan was proposed. However, the implementation of the restructuring scheme has encountered legal and business obstacles.

The existing rescue scheme involved capital injection by PT Evergreen Invesco, which has since been renamed Bumiputera Investasi Indonesia. However, apart from IDR500 billion injected into the restructuring, another IDR1.5 trillion that had been pledged has yet to be received.

The statutory managers had also been working on a bancassurance contract with a state-owned bank no later than mid-2017. However, the bancassurance plan has not been realised yet.

As part of the restructuring, a new entity, Asuransi Jiwa Bumiputera (AJB), was launched in February 2017. Under the arrangement, AJB handles new business of AJBB. All AJBB's assets such as its brand, regional offices and branch offices, and its employees, were transferred to the new insurer. High value properties located in strategic areas worth IDR4.16 trillion were transferred from AJBB. The value of property left in AJBB was only IDR2.34 trillion.

The transfer of the IDR4.16 trillion of property assets was agreed on, to be paid in cash of IDR860 billion and the remaining IDR3.3 trillion to be in the form of promissory notes that will mature within three years.

AJB will also give 40% of its profiits to AJBB for 12 years. AJB is controlled by PT Pacific Multi Investama, a subsidiary of publicly listed investment and textile company PT Evergreen Invesco, brought in to rescue AJBB.

Meanwhile, AJBB is in a run-off position, except for the continued premium contributions of existing policyholders.

Critics argued that the deal did not take into account the goodwill and the branding of AJBB. They also said that the cash settlement of IDR860 billion would have no significant effect for AJBB. In addition, profits of AJB are not assured.

Meanwhile, the inability of AJBB to fulfill its obligations to policyholders numbering around 6.7 million potentially poses a risk to the financial system. There is also the risk of class action.


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