SINGAPORE--(BUSINESS WIRE)--AM Best believes that the upcoming establishment of an insurance holding company by Indonesia’s government will likely lead to greater corporate governance of government-owned companies in the country’s insurance industry.
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. A new Best’s Commentary, titled, “Indonesia Strengthens State-Owned Insurers with Holding Company Formation,” states that in general, state-owned enterprises form an important pillar 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). AM Best expects the setup of the new insurance 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. Nonetheless, Jiwasraya is presently excluded from the holding group given the magnitude of its financial issues. A premature inclusion of Jiwasraya may jeopardise the financial strength of the broader group.
According to the commentary, greater operational scale and business complexity would invariably require a more coherent and sophisticated approach to risk management. Given the diversified segments that the members of the holding company formation operate in, 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. Better transparency and improvements to financial reporting quality ultimately do not change the underlying fundamentals of an insurer, but a clearer picture of insurance companies’ operations is likely to emerge over time. AM Best expects the push for improved risk management and corporate governance to pay off over the long term to pave the way for a more resilient insurance industry.
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