AM Best believes that the upcoming establishment of an insurance holding company by Indonesia’s government will lead to greater corporate governance of state-owned insurers.
Indonesia’s Ministry of State-Owned Enterprises is in the process of establishing an insurance holding company, to be led by state-owned investment holding company PT Bahana Pembinaan Usaha Indonesia.
AM Best considers state-owned enterprises to be an important part of emerging markets, serving as drivers of economic and strategic interests by managing and transferring the risks of infrastructure developments, energy, credit guarantee, health care and agricultural projects, among others.
The entity will aim to improve the efficiency of Indonesia’s state-owned insurers and enhance the quality of risk management and supervision, as well as provide financial support to distressed state-owned life insurer PT Asuransi Jiwasrayav (Jiwasraya).
Analysts expect the holding company to be a key solution in saving Jiwasraya, given that the funds channeled via the holding entity can help fulfil Jiwasraya’s policyholders’ obligations.
However, Jiwasraya is currently excluded from the holding group given the magnitude of its financial issues.
And according to AM Best, the risk management approach needs to be able to reflect the unique characteristics of the business segments and risk profiles in order to be effective.
The rating agency noted Better transparency and improvements to financial reporting quality do not change the underlying fundamentals of an insurer, but a clearer picture of insurance companies’ operations is likely to emerge over time.