Fitch estimates 70% sharia units of insurance to spin off
JAKARTA. Fitch Ratings estimates only 70% of sharia business units of insurance currently existing will remain standing following the new policy of capital requirement and spin-off to become a full fledge unit.
As is known, Financial Services Authority (OJK) has issued OJK Regulation (POJK) No. 23/2023 concerning license and institutions.
Based on said regulation, sharia insurance companies must meet minimum capital of IDR 100 billion by 2026, from the initial requirement of IDR 50 billion. Furthermore, the equity must be IDR 200 billion by 2028. OJK also orders mandatory spin off of sharia units no later than December 31, 2026. This mandatory spin off regulation is stated in POJK No. 11/2023.
Femmy Novaryani, Senior Analyst of Fitch Ratings, said that with the new capital requirement, as well as the mandatory spin off regulation for sharia units to be a completely new entity, there will only be 70% of existing businesses that will remain the same. Another 30% will transfer their portfolios to other sharia insurance companies.
Fitch also mentioned that as of now, there has only been 15 insurance companies that are fully operated as sharia entity. The other 39 companies still operate under sharia business unit, followed by 3 sharia business units of reassurance companies.
“We wish that spin-off requirement issued by OJK will drive takaful companies to optimise their business development,” as quoted from research issued today (22/2).
Another challenge of sharia insurance is its declining business condition. Until Q4 2023, sharia life insurance saw losses of IDR 759 billion. It was in contrast with the condition in 2022, in which they booked profit of IDR 1.6 trillion. The condition seemed better in general insurance sector, as it still managed to generate profit.
OJK data also shows that in Q4 2023, total premium collected by sharia life insurance clocked up to IDR 6.5 trillion, and sharia general insurance’s premium was IDR 1.7 trillion. Meanwhile, in 2022, sharia general insurance scored premium income of IDR 22.9 trillion, and sharia life insurance booked IDR 4.7 trillion of premium.
“We project sharia insurance’s contribution will grow by up to 5%-10% in 2024,” Novaryani added.
In the long run, Novaryani further predicts that sharia insurance will gain strength in Indonesia, especially considering the potential of Indonesia, which is the sixth biggest market for takaful globally. This rank is possible even with a deficient insurance penetration rate of only 1.4% in 2022. Other chances of growth lie in the increase of halal business, on top of sharia insurance products that offer potential market.
In the meantime, OJK mentioned that the institution will make sure that all insurance and reassurance companies meet the minimum equity requirement Phase I by December 2026.
“It may be done through capital increase from shareholders, the company’s organic growth, or company consolidation,” added Ogi Prastomiyono, Executive Head of Insurance, Guarantee, and Pension Fund Supervision.
Prastomiyono also highlight the detail of regulation regarding Insurance Company Group Based on Equity (KPPE) and Insurance Business Group (KUPA) that will begin to take effect in Phase II, December 2028. OJK plans to issue a more detailed regulation in an OJK Circulating Letter (SEOJK) before Phase I took place, some time between 2025 and 2026. (PP/ZH)
