Jakarta. Indonesia now allows foreign investors to own more than 80 percent of shares in locally-listed insurance companies, loosening a rule that has for a long time stopped foreign insurance companies from expanding their business in Indonesia.
Under previous regulations, the government capped foreign ownership at 80 percent, undermining the insurers' ability to expand.
Foreign investors have long lobbied the government to change the rule, arguing they had not been able to inject new capital when the time came for expansion. Their local partners, more often than not, did not have enough money to keep their ownership from being diluted.
So now the government has agreed to change its tack. President Joko "Jokowi" Widodo signed a presidential regulation on Jan. 16 to allow an exemption from the cap for foreign investors if they could raise their capital through an "initial public offering in Indonesia."
The rule also drops the requirement for a local partner, which, according to the old rule, had to be a locally-based entity wholly controlled by Indonesian citizens.
Dody Dalimunthe, the executive director of the Indonesian General Insurance Association (AAUI), welcomed the new rule, saying foreign investors' local partners are often individuals with either shallow pockets or little expertise to commit more capital in the insurance industry.
"The government's latest policy seems to accommodate the real needs of the insurance business, [to help it] maintain its stability and sustainability," Dody said on Monday.
The new regulation comes as the local insurance industry is once again in crisis. Asuransi Jiwasraya, the largest state-controlled life insurer, currently needs Rp 32 trillion ($2.4 billion) in capital injection to keep it afloat following years of mismanagement and alleged fraud.
The State-Owned Enterprises Ministry has said it is seriously considering the option of selling Jiwasraya's healthy subsidiaries to either local or foreign investors to save the insurer.