Still hanging in the balance, the restructuring of Indonesia’s troubled AJB Bumiputera 1912 mutual insurance company has raised hard questions about why successive governments allowed it to continue to hemorrhage cash for nearly two decades. President Joko Widodo’s government has yet to call in the Anti-Corruption Commission (KPK) to investigate the management of a firm boasting 6.7 million policyholders, many of them civil servants, whose operations have been likened by analysts to a giant Ponzi scheme. Sources familiar with the case say a PricewaterhouseCoopers (PwC) audit of Bumiputera, conducted last year, is a damning indictment of prolonged and questionable practises at the company going back to President Suharto’s New Order era. The sources, who spoke on condition of anonymity because the report has not been made public, tell of scores of red-flag findings, including alleged grossly inflated management costs and at least one suspicious multimillion-dollar stationery procurement contract. Bumiputera was created by a group of teachers in 1912 and has remained the country’s only mutual insurance company in a sector that even today has never been fully developed. The century-old outfit currently has liabilities of around 20 trillion rupiah (US$1.6 billion), way more than its 13.5 trillion rupiah of estimated assets, according to news reports quoting its state-appointed statutory manager and the company’s website. As far back as 2005, according to a Wikileaks-leaked US embassy cable, the Ministry of Finance was “losing sleep” over what the document called “a ticking time bomb,” with Bumiputera already counting US$500 million more in contractual liabilities than it had in assets. In reality that made Bumiputera insolvent by both domestic and international standards, but the cable said the ministry had been aware of the company’s difficulties much earlier, in 1999, when it was exempted from new capital requirements for financial institutions during the fallout from the 1997-98 Asian financial crisis. Criticism centered on the firm’s practise of paying maturing claims from the premium income of new customers. Raden Pardede, then head of the Financial Sector Stability Forum, an intra-government coordination agency, described it as “absolutely a Ponzi scheme” that urgently needed “restructuring, a buyer or a rescue program.” The Financial Services Authority (OJK), a government agency which oversees and supervises the financial services sector, finally took over the running of Bumiputera last October, setting in motion a major restructuring exercise that is being carried out by PT Evergreen Investama Tbk, a private Indonesian investment firm. That led to the February 12 launch of a new entity, Asuransi Jiwi Bumiputera (AJB), which will sign all future life insurance policies and assume most of Bumiputera’s assets, including more than 28,000 sales agents. The one exception will be the company’s main asset, its 6.5 trillion rupiah (US$450 million) real estate portfolio, which is being sold to a consortium of companies, including Evergreen and several leading Indonesian property firms. Bumiputera will be left with its existing policy inventory and a cash stream from AJB and the property arm, PT Bumiputera Properti Indonesia (BPI). But it remains under OJK’s statutory management, which will service the existing policies and eventually run down the business. As long as OJK acts as nursemaid, however, it leaves at least the implication that if things go wrong, the government will be there to bail out the firm – as hugely reluctant as it would be. Finance Minister Sri Mulyani Indrawati has an aversion to any state rescue given her innocent role in the 2008 Bank Century scandal, which ended in a controversial taxpayer bailout and her resigning the post she holds now to spend six years at the World Bank. Certainly, Bumiputera is not a done deal. Analysts say it still isn’t clear whether the anticipated cash flow, and better and leaner management practices will provide sufficient funding to meet maturing policies over the coming decades. If not, OJK might be forced to cut the benefits of millions of policyholders, a potential social force that could take its case to parliament and cause Widodo a massive political headache. It is understood Widodo was briefed on Bumiputera’s problems soon after he took power in 2014. But the new president appears so far to have followed his presidential predecessors in kicking the can down the road. Insurance industry sources recall that when capital requirements were changed again for insurance firms in 2005, OJK received instructions from the president’s office to make an exception of Bumiputera – as happened six years earlier. The International Finance Corporation (IFC), a global development institution focused on private sector development, remains deeply concerned over the current restructuring and so, for that matter, do OJK’s external advisers, who reportedly have reservations about Evergreen and would prefer to see alternative bids. Much depends on the rights issue Evergreen has planned for March to raise the 2 trillion rupiah (US$149 million) it has pledged to inject into Bumiputera. It will also have to hand over an undisclosed amount of cash, including an initial 1 trillion rupiah (US$74.5 million), and make biannual payments over a 12-year period. In addition, Bumiputera will receive an initial cash payment for its property portfolio from the real estate consortium under an arrangement in which it can claim back the property if BPI fails to make good on principal or interest payments. For now, Evergreen is seen as a domestic savior. The absence of a bancassurance partner, a mutually beneficial arrangement in which insurance companies can sell their products to a bank’s clients, made the deal unattractive to foreign investors. Foreign involvement in any deal would have anyway raised questions from the country’s strong and vocal nationalist lobby. Ironically, perhaps, Evergreen has since been talking to two state-owned institutions as potential bancassurance partners and has also been doing the rounds of other local banks seeking to recruit them as selling platforms for AJB products, according to sources familiar with those contacts. With questions about Bumiputera’s sustainability and whether the new structure will offer a fair deal to policyholders, one foreign insurance executive worries that Bumiputera still has the potential to not only destabilize the industry but also deter the recruitment of new customers. If the company implodes, he says, “the whole concept [of insurance] will go down the toilet. It is incredibly dangerous to the industry” – and to outside investors who continue to see the vast potential of a virtually untapped market.