Jakarta. State-owned life insurer Asuransi Jiwasraya's recent financial strife has been years in the making, fed by deceits, recklessness and greed, according to audit results announced by the Supreme Audit Agency on Wednesday. 

The audit agency (BPK) found many indications of fraud in Jiwasraya's bancassurance product and manipulations in the insurer's financial report, BPK head Agung Firman Sampurna said in a press conference in Jakarta.

The BPK has carried out two investigations in the past four years. The first one, a special purpose audit in 2016, had looked into Jiwasraya's management, investment, revenue and operational costs in 2014 and 2015.

The 2016 audit found 16 anomalies, most of them involving investment in several risky stocks – loss-making mobile phone retailer Trikomsel Oke, scandal-ridden oil and gas firm Sugih Energy and real estate developer Eureka Prima Jakarta – that was not supported by sufficient studies. 

The audit also found Jiwasraya did not monitor their mutual fund investments sufficiently. As it turned out, the insurer also invested in products that had never performed well in the market.

Based on these findings, the BPK then launched a preliminary investigative, aka forensic, audit last year, which led to further findings that have since led to a criminal investigation.

Agung said the BPK found several instances of financial report engineering, indications of possible fraud in the insurer's bancassurance product – Jiwasraya Saving Plan – and collusion in the insurer's investment management.  

"For example, in 2017 Jiwasraya announced a profit of Rp 360 billion [$26 million]. But [the statement] attracted adverse opinion for its inaccuracies, including omitting Rp 7.7 trillion in reserve funds," Agung said.

According to Agung, Jiwasraya should have been in the red if the reverse funds were calculated according to the rule. 

In 2018, Jiwasraya booked an unaudited loss of up to Rp 15.3 trillion, and by September last year the insurer had accumulated losses of Rp 13.7 trillion.

Jiwasraya Saving Plan was the main culprit for the insurer's loss, Agung said. The company offered the bancassurance product on a high interest – higher than bank deposit or government bond interest – that at first attracted many customers and improved its cash flow but later swelled the insurer's cost of fund.

Jiwasraya then invested the proceeds from the bancassurance product in stocks and mutual funds, whose value depreciated drastically in the past few years. 

The BPK also found that Jiwasraya's board of directors bypassed the proper procedures in determining the interest for the saving plan without any consideration of potential returns from the company's investments or paying the interests to customers.

"Also, we suspected conflicts of interest in the marketing of the saving plan product, since certain parties within Asuransi Jiwasraya would have benefited from the sale fees," Agung said.

The preliminary forensic audit also led the BPK to suspect collusion in Jiwasraya's investment in loss-making stocks and mutual funds. The audit concluded that those investments were not based on valid or objective analyses.

Agung said transactions related to Jiwasraya's investments were done between affiliated parties. Such transactions often indicate market manipulation. 

Agung said the BPK continues to work on calculating potential state losses from this case as requested by the Attorney General Office.

Attorney General Burhanuddin said his team has already interrogated 98 witnesses and will continue to collect evidence. Burhanuddin said the people responsible would be announced to the public, along with the total state losses, within the next two months.

"[The investigation] has uncovered actions that are against the law. We already have the evidence for them," Burhanuddin said. 

Systemic Damage

BPK's Agung hoped the case would do little damage to the investment climate in Indonesia, saying that investors should know they are always under the protection of the law.

Agung said his team would work hard to prevent Jiwasraya's slip-up from causing lasting damage to the system. 

"In the [Bank] Century case, the initial loss [to the state] was only Rp 678 billion, but it ballooned to Rp 6.7 trillion [after settlement]. We don't want this case to go that far," Agung said.

Agung was referring to the government's decision to bail out Bank Century more than a decade ago to avoid the collapse of the domestic banking system during the financial crisis of 2008.

Agung nevertheless admitted that failure in an insurer as large as Jiwasraya could erode public trust in Indonesia's financial system and harm investment climate in the country.