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Indonesia: Weaker rupiah will put some insurers under stress

Source: Asia Insurance Review | Nov 2015

The Indonesian financial sector would be hit hard should the rupiah exceed the IDR16,000-mark against the US dollar, according to the Centre of Banking Crisis (CBC) which is a private banking watch organisation.
 
   The conclusion was made recently by CBC after conducting a series of stress tests, reported The Jakarta Post. Based on the tests, CBC expects that if the rupiah weakened to IDR15,000 to the greenback, then one insurance company, which the centre declined to name, would go bankrupt as the Jakarta Composite Index was expected to lose 20% of its value. 
 
   CBC’s tests also predicted that if the rupiah depreciated further to IDR16,000 per US dollar, then three state-owned banks, which own shares in the insurance company, would be at risk of bankruptcy.
 
   The rupiah has weakened against the US dollar for several months, falling from 12,390 to the dollar at the start of the year to reach a low of 14,733 on 2 October and recovering a little thereafter.
 
Temporary relaxation in risk-based minimum capital
Last month, the Financial Services Authority (OJK) introduced a series of measures to help the country’s insurance industry weather the volatility of the rupiah and the current global economic slowdown.
 
   OJK executive head for non-banking financial institutions, Dr Firdaus Djaelani, said that the regulator had relaxed certain regulations, including those on risk-based minimum capital in an effort to boost the industry. He added that the temporary measures, which would be in place until the end of the year, are expected to help insurance companies through easing their operations, rather than obliging them to inject more capital. “With this measure, we’ll give time for insurers to improve themselves,” he said.
 
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