Scandal-hit Indonesian insurer has US$2bn deficit

January 13 2020 by InsuranceAsia News Staff

Indonesia’s largest state-owned insurer, Asuransi Jiwasraya (Jiwasraya), has a US$2 billion deficit.

The deficit comes from “product mispricing, reckless investment activities, liquidity pressure and aggressive window dressing,” said Hexana Tri Sasongko, president director at the insurer.

Policyholders have called for a government bailout. Erick Thohir, Indonesia’s state-owned enterprises minister, has tried to reassure policyholders and noted the government may establish insurance holding company to ensure Jiwasraya has sufficient capital to pay customers’ matured policies, in addition to other state measures.

In December 2019, Jiwasraya announced they were unable to pay almost US$900 million of claims due to policyholders that month.

Indonesia’s Attorney General’s Office also recently opened an inquiry into potential corruption. S.T. Burhanuddin, attorney general, noted Jiwasraya’s former directors may have put company assets in risky instruments in order to pursue personal profit. This may have led to US$986 million in potential state losses by August 2019.

Jiwasraya held 22% of its financial assets in stocks– which were mostly third-tier, poor-performing stocks. Only 5% of its stocks produced good returns. 59% of its assets were invested in mutual funds, which performed even worse than its stock holdings. 98% of its mutual fund holdings were managed by underperforming investment managers.

Problems with Jiwasraya began as far back as 2006. Audit reports spotted indications of fraud and financial record manipulation; and the country’s Supreme Audit Agency (BPK) highlighted directors’ recklessness and greed.

BPK noted that the scandal has affected seven million clients and 17,000 buyers of investment products.

Another state-owned group– Japan Post– has also been hit with scandal due to its improper sales conduct.

MORE FROM: Legal/Regulatory