On May 23, 2008, Ministry of Finance of Indonesia or Depkeu had issued a revised insurance regulations covering several important aspects. The most important area affected is the minimum paid capital required for conventional and syariah based insurers. The regulator had set Rp100 billion and Rp50 billion as minimum paid up capital for conventional and syariah based insurer, respectively. Moreover, syariah window operator is required to maintain a minimum of Rp25 billion as their paid up compared to none previously. Consequently, I foresee few insurers may restructure their equity and operation accordingly in order to comply with the new requirement. Based on preliminary findings, it is estimated that at least 37 insurers whether life or general plus 2 reinsurers failed to meet with the new capital requirement.
For instance, a conventional insurer needs to maintain a minimum of Rp125 billion if they intend to continue their syariah window. If their existing paid up is say Rp75 billion, the additional capital required is Rp50 billion. Should they decide to withdraw their syariah window license and focus on conventional license solely they just need to add a minimum of only Rp25 billion against Rp50 billion.
Perhaps, the main objective of the above revised regulation is to reduce the number of syariah insurance operators from 42 currently where only 3 are full-fledged whilst the rest are just windows. The 3 full-fledged syariah operators are PT Asuransi Takaful Keluarga, PT Asuransi Takaful Umum and PT Asuransi Syariah Mubarakah. The first two capture about 65% of takaful market share in Indonesia and being the pioneer syariah insurance since 1994.
This new development in the insurance industry in Indonesia can be viewed by investors as potential for mergers and acquisitions of those without sufficient capital to meet the new regulations.
