Jiwasraya's Investment Mistake Led to Default

Penulis: Safrezi Fitra

Editor: Amal Ihsan Hadian

24/10/2018, 13.31 WIB

Jiwasraya placed its funds in high-interest equity repos from 2007 to 2012, but problems came up when the capital market weakened.

Concept of Crisis with Unstable Statistics Bars - Telaah

PT Asuransi Jiwasraya, the oldest life insurance company in Indonesia, is forced to delay payment of insurance policies due this month. The postponement of payment was carried out to 711 bancassurance products worth Rp 802 billion. Investment mistake is suspected to be the cause of the company’s liquidity difficulties, leading to a failure to pay the policies.

Seven banks sold Jiwasraya’s bancassurance product, JS Proteksi Plan, which was issued five years ago. They are Bank Tabungan Negara (BTN), Standard Chartered, Bank KEB Hana Indonesia, Bank Victoria, Bank ANZ, Bank QNB Indonesia, and Bank Rakyat Indonesia (BRI).

“We as a state-owned company together with shareholders are seeking funding to fulfil obligations to policyholders,” as quoted from a copy of Jiwasraya’s letter to one of the banks selling the JS Proteksi Plan on 10 October.

In the letter, Jiwasraya said the payment was postponed due to liquidity difficulties in its finances, even though the state-owned insurance company showed a positive performance in the 2017 financial report, with a profit of Rp 2.4 trillion.

There is a possibility of fraud in Jiwasraya’ case, a reliable source told Katadata.co.id. Hence, the Minister of State-Owned Enterprises (SOE) Rini Soemarno asked the Supreme Audit Agency (BPK) and the Development and Finance Comptroller (BPKP) to conduct an investigative audit.

According to her, liquidity pressures that made Jiwasraya fail to pay bancassurance policies occurred due to investment errors. The company placed its funds in equity repos. Repo transactions (repurchase agreement) are loans provided with stock collateral. The loans offer high interest rates because of its high risk. This is why Jiwasraya was bold enough to issue insurance products, such as JS Proteksi Plan in 2013, by offering high interest rates.

Problems came up when the capital market weakened and stock prices plummeted. The company cannot sell the shares that became collateral for the loan because its value declined. Jiwasraya, as the lender, will suffer a financial loss if it forces to sell the stock when its price is low.

The SOE Ministry detected this irregularity after getting a report from Asmawi Syam, who was just appointed as President Director of Jiwasraya in May 2018. There were discrepancies in assets and liabilities in last year’s financial report.

Based on the report, Jiwasraya’s net profit was recorded at Rp 2.4 trillion, rising 37.64 percent compared to the previous year. Net premium reached Rp 21.8 trillion, up 21.52 percent. Investment return rose 21.09 percent to Rp 3.86 trillion.

However, Asmawi saw irregularities in the financial report and asked PricewaterhouseCoopers (PWC) to re-audit the report. Based on the audit results, Jiwasraya’s net profit did not reach trillions, but only Rp 360 billion last year.

When confirmed, Asmawi refused to give a full explanation about the causes of liquidity pressures that led to delay in payment of maturing policies. “We are currently being audited by BPK and BPKP. If we get the results, we will release it,” he said. So far, the indication is that Jiwasraya’s liquidity difficulties occurred due to mistakes in investment management. Most of the managed funds were invested in securities in the capital market, while the rest was placed on land and properties.

According to the Financial Services Authority (OJK), two things that make Jiwasraya experience liquidity difficulties. First, the investment performance trend has declined along with the recent weakening of the capital market performance. On the other hand, Jiwasraya promised high returns to its customers.

Jiwasraya cannot simply sell its investment shares when the price is low. “If it [investment] is disbursed now to pay it [policy], the result is a cut loss. If there is a cut loss in a SOE, it could be accused of harming the state,” said OJK Deputy Commissioner for Non-Banking Financial Industry Moch Ihsanuddin in Jakarta, Thursday (18/10).

Second, the premium revenue also fell. Jiwasraya’s total premium revenue was Rp 21.9 over the past year, but it has not reached Rp 8 trillion until this month. These two things worsen the company’s liquidity. Revenue from investment and premium cannot cover the liquidity difference. OJK has actually warned Jiwasraya to maintain liquidity so that its obligations to policyholders can be fulfilled.

As a result of this late payment, Jiwasraya’s management offers two options to the policyholders. First, roll over which means a one-year contract extension on the customers’ fund. It provides a 6 percent interest per year for this option. As of 15 October 2018, Jiwasyara had paid interest of Rp 96.58 billion for 1,286 JS Proteksi Plan insurance policies. The payment is the interest from the maturing premium worth Rp 802 billion.

Second, Jiwasraya is asking for more time to do the payment in the next few days to its customers who still want to withdraw their investment funds. The delay in payment will be compensated with an interest of 5.75 percent per year. This additional daily interest is calculated based on the number of days of delay starting from the due date until the claim is paid. “We are doing our best to pay it. Hopefully, it can be completed soon,” Asmawi Syam said.

OJK will continue to monitor the solutions offered by the company to its policyholders and wait for the completion of BPK’s investigations. The financial authority cannot make its own decisions in Jiwasraya case. A coordination is required with the SOE Ministry and Finance Ministry that represents the government as the shareholder of Jiwasraya.

“OJK has taken care of this issue to make people calm. Delay (in payment) is only for bancassurance products,” said OJK Chief Executive for Non-Banking Financial Industry Riswinandi.

Almost Bankrupt

Jiwasraya's financial difficulties are not only happening now. Four years ago, Dahlan Iskan revealed a bankruptcy issue in the company, which was founded in 1859. Dahlan, who was the SOE Minister at the time, said Jiwasraya in 2014 had escaped the threat of bankruptcy for having to bear its previous financial burden of Rp 6.7 trillion.

The burden stemmed from the 1998 financial crisis, which brought difficulties to the banking and financial world. Banking was made easier due to massive bailout from the government, while the insurance industry did not get it. The problems experienced by Jiwasraya can be solved in two ways – addition of capital or zero coupon bond. At the time, the government was not able to provide additional capital due to limitation of state finances.

The Finance Minister had actually reviewed and processed the provision of zero coupon bond facilities, but it was cancelled following the emergence of Bank Century case that also needs bailout. There is no other way, Jiwasraya must find its own solution. This company must be able to save the future of its agents (almost 10,000 people) and employees (more than 1,200 people).

Telaah-Asuransi (123rf.com/Marko Kujavic)

Technically, Jiwasraya should have been declared bankrupt in 2009. The company’s assets were much smaller than its obligations to policyholders. The difference reached Rp 6.7 trillion. Jiwasraya’s management under the leadership of Hendrisman Rahim believes they will rise from adversity.

As a result, Jiwasraya managed to improve its operational performance and secured the trust of policyholders, shareholders, reinsurers, OJK, Taxation Directorate General, and all related parties. “The trust was ultimately “sold” or “reinsured” to international insurance institutions,” as quoted from Dahlan Iskan’s article “Free of Rp 6.7 Trillion at the Age of 155” published on 18 August 2014.

With this good performance, the Taxation Directorate General gave approval for Jiwasraya to carry out asset revaluation with special facilities. OJK also continued to assist the company’s restructuring efforts. In a short time, Jiwasraya eventually managed to get out of the entanglement of financial burden and was able to pay big taxes in 2014.

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