Company Information January 29, 2012

Company Information
January 29, 2012
BUSINESS1
Overview
We are a financial services conglomerate in Indonesia, providing a broad range of life and general
insurance products, securities, banking, multifinance and other services to individual and institutional
customers through our subsidiaries and joint ventures. We believe this broad range of products and services
makes us one of the most diversified financial services groups in Indonesia. We provide products and
services in the following five principal areas of business:
1
•
Life insurance — Our life insurance business is conducted principally through our joint venture,
PT Asuransi Jiwa Sinarmas MSIG (“Sinarmas MSIG Life”), formerly known as PT Asuransi Jiwa
Sinarmas, in which we have a 50% ownership interest. Sinarmas MSIG Life is the second largest
life insurance provider in Indonesia with a 12.4% market share measured by total gross premiums
for the life insurance industry in Indonesia in 2010 as published by Bapepam-LK in its Indonesia
Insurance 2010 Report. Sinarmas MSIG Life had premium income of Rp.9,805.9 billion
(US$1,111.4 million) for the nine months ended September 30, 2011 and premium income growth
at a CAGR of 34.9% from 2008 to 2010. It has a strong multi-channel distribution network, with
one head office, 57 sales offices, approximately 12,000 agents and bancassurance relationships
with 43 banks, including Bank Sinarmas, as of September 30, 2011. As of September 30, 2011,
Sinarmas MSIG Life had a solvency ratio of 1,002.8%. We also have a joint venture with Mega
Life, in which we hold a non-controlling 50% stake. Mega Life is the third largest life insurance
provider in Indonesia with a 9.0% market share measured by total gross premiums for the life
insurance industry in Indonesia in 2010 as published by Bapepam-LK in its Indonesia Insurance
2010 Report.
•
Non-life insurance — Our general, or “non-life”, insurance business is conducted primarily
through our subsidiary, PT Asuransi Sinar Mas (“Asuransi Sinar Mas”). Asuransi Sinar Mas is
the largest non-life insurance provider in Indonesia with 11.1% market share measured by total
gross premiums for the non-life insurance industry in Indonesia in 2010 as published by
Bapepam-LK in its Indonesia Insurance 2010 Report. Asuransi Sinar Mas had premium income
of Rp.2,988.2 billion (US$338.7 million) for the nine months ended September 30, 2011 and net
premium income growth at a CAGR of 25.2% from 2008 to 2010. Its distribution channels
comprise approximately 7,000 agents, 63 brokers, 77 finance companies, one head office and 92
sales offices and bancassurance relationships with approximately 44 banks, including Bank
Sinarmas, as of September 30, 2011. As of September 30, 2011, Asuransi Sinar Mas had a
solvency ratio of 304.2%.
•
Banking — Our banking business is conducted through our subsidiary, PT Bank Sinarmas Tbk
(“Bank Sinarmas”), which shares are listed on the Indonesian Stock Exchange, with market
capitalization of Rp.2,451.3 billion (US$277.8 million) as of December 30, 2011. Bank Sinarmas
focuses on commercial and consumer finance, including lending to SMEs and micro businesses.
As of September 30, 2011, Bank Sinarmas had a total of 139 offices, consisting of 56 branches,
72 sub-branches, one Sharia branch, nine cash outlets and one Sharia cash outlet with total assets
of Rp.15,668.1 billion (US$1,775.8 million) and customer deposits of Rp.13,831.0 billion
(US$1,567.6 million) as of such date. As of September 30, 2011, Bank Sinarmas had a capital
adequacy ratio and core Tier 1 ratio of 14.2% and 13.4%, respectively.
•
Securities — Our securities business is conducted through our subsidiary, PT Sinarmas Sekuritas
(“Sinarmas Sekuritas”). Sinarmas Sekuritas is a mid-size securities firm offering a range of
Solely for the convenience of the reader, unless otherwise indicated, certain Rupiah amounts in this document have been translated to U.S.
Dollar based on the middle exchange rate announced by Bank Indonesia as of September 30, 2011, which was Rp.8,823 = US$1.00.
financial services including asset management, brokerage, investment banking and financial
advisory services. With distribution capability of approximately 500 agents, one head office, 48
branch offices, an online trading platform and touch-tone phone and mobile phone trading, it had
total assets of Rp.1,038.2 billion (US$117.7 million) as of September 30, 2011.
•
Multifinance — Our multifinance business is conducted through our subsidiaries, PT Sinar
Mas Multifinance (“Sinar Mas Multifinance”) and PT AB Sinar Mas Multifinance (“AB
Multifinance”). Predominantly active in the new and used automobiles and motorcycles
financing market and factoring, with distribution capability of one head office, 56 branches and
247 outlets as of September 30, 2011, Sinar Mas Multifinance had total assets of Rp.1,382.7
billion (US$156.7 million). AB Multifinance principally provides factoring and leasing services
to our Group and the Sinar Mas Group.
We also operate a number of other non-core businesses, including a share administration business
through Sinartama Gunita, a water treatment business through PT Wahana Tehno (“Wahana Tehno”),
automotive financing through a joint venture, PT Oto Multiartha (“Oto Multiartha”) and employment services
through a joint venture, PT Jobstreet Indonesia (“JobStreet Indonesia”). Operating income from our non-core
businesses collectively amounted to 0.0%, 0.4%, 0.2% and 0.0% of our total operating income for 2008, 2009
and 2010 and the nine months ended September 30, 2011. Total assets from our non-core businesses amounted
to less than 1% of total assets for each of 2008, 2009, 2010 and the nine months ended September 30, 2011.
In 2008, 2009 and 2010, our operating income was Rp.8,035.4 billion, Rp.11,116.5 billion and
Rp.14,049.7 billion (US$1,592.4 million), respectively, which included Rp.5,964.7 billion, Rp.8,210.7 billion
and Rp.10,648.8 billion (US$1,206.9 million) from insurance underwriting income, Rp.722.0 billion,
Rp.1,195.9 billion and Rp.1,247.1 billion (US$141.3 million) from gain on investment in units of mutual
funds and Rp.625.4 billion, Rp.864.5 billion and Rp.1,052.4 billion (US$119.3 million) from interest income,
respectively. For the nine months ended September 30, 2011, our operating income was Rp.14,584.9 billion,
which included Rp.11,118.3 billion (US$1,260.1 million) from insurance underwriting income, Rp.912.0
billion (US$103.4 million) from gain on investment in units of mutual funds and Rp.1,106.3 billion
(US$125.4 million) from interest income, respectively.
In the same periods, our net income from operations was Rp.349.2 billion, Rp.779.6 billion and
Rp.1,367.6 billion (US$155.0 million), respectively, and our net income was Rp.290.9 billion, Rp.733.7
billion and Rp.1,277.8 billion (US$144.8 million), respectively. For the nine months ended September 30,
2011, our net income from operations was Rp.1,607.0 billion (US$182.1 million) and net income was
Rp.1,517.2 billion (US$172.0 million).
As of December 31, 2010, we had total assets of Rp.27,845.0 billion (US$3,156.0 million), which
included Rp.1,980.9 billion in cash and cash equivalents, Rp.8,044.5 billion (US$911.8 million) of shortterm investments, Rp.7,032.3 billion (US$797.0 million) in funds from our unit link life insurance products
and Rp.6,934.2 billion (US$785.9 million) in loans. As of September 30, 2011, we had total assets of
Rp.42,980.2 billion, which included Rp.8,383.8 billion in cash and cash equivalents, Rp.15,091.9 billion of
short-term investments, Rp.5,270.2 billion segregated funds from our unit link life insurance products and
Rp.9,066.5 billion in loans.
We listed our shares on the Indonesian Stock Exchange on July 5, 1995. As of December 30, 2011,
our market capitalization was approximately Rp.26,644.1 billion (US$3,019.8 million) based on the closing
price of our shares.
Recent Developments
In July 2011, Mitsui Sumitomo Insurance Co., Ltd. (“MSIG”), part of the MS&AD Insurance Group, a
global leading non-life insurer and the largest non-life insurer in Japan by gross premiums, acquired a 50%
ownership interest in PT Asuransi Jiwa Sinarmas through a subscription of new shares for Rp.7.0 trillion
(US$793.4 million). Following completion of the acquisition, PT Asuransi Jiwa Sinarmas changed its name
to PT Asuransi Jiwa Sinarmas MSIG. Pursuant to the terms of a shareholders’ agreement, MSIG and the
Company each has the right to nominate an equal number of individuals as members of the board of
commissioners after completion of the acquisition and will actively participate in management and the
business operations of Sinarmas MSIG Life. See “Material Agreements” for more information.
Competitive strengths
We believe the following strengths have contributed to our success:
Integrated financial services conglomerate, offering a broad suite of products and services
We are one of the few financial conglomerates in Indonesia, providing, through our subsidiaries and
affiliates, a broad range of financial products and services, including life and non-life insurance, banking,
securities, asset management and multifinance. We believe we are uniquely positioned in the Indonesian
market in terms of the scale and scope of our operations, our strong brand and the breadth of our product
and service offerings. We also believe the diversification of our Group enables us to offer a comprehensive
financial services product suite to our customers.
Comprehensive distribution platform that includes both physical and electronic touchpoints
The success of our business is dependent on a comprehensive distribution platform that includes both
physical customer touchpoints, including branches, outlets, sales offices and agents as well as electronic and
virtual channels, including direct and telemarketing, online and mobile platforms. As of September 30, 2011,
the agency force for Sinarmas MSIG Life and Asuransi Sinar Mas consisted of approximately 19,000 agents
in the aggregate.
As of September 30, 2011 Sinarmas MSIG Life had one head office and 57 sales offices and
approximately 12,000 agents, Asuransi Sinar Mas had 92 sales offices and approximately 7,000 agents and
Bank Sinarmas had a total of 139 offices, consisting of 56 branches, 72 sub-branches, one Sharia branch,
nine cash outlets and one Sharia cash outlet. Between 2008 and September 30, 2011, the agency force for
Sinarmas MSIG Life increased from approximately 4,600 to approximately 12,000 agents and the agency
force for Asuransi Sinar Mas increased from approximately 2,300 to approximately 7,000 agents. Inclusive of
our securities and multifinance companies, the Group had a total of 641 customer touch points, including
branches or offices of different subsidiaries which are co-located, serving its total customer base of over
3,800,000. Our physical distribution network is centered around the major metropolitan areas and is
increasingly expanding into regional and rural areas. Apart from our physical presence, we also provide
other electronic and virtual channels to increase accessibility for our customers and business partners. This
includes an integrated IT platform in our non-life insurance subsidiary which automates front and back-end
processes for our customers and business partners, internet and phone banking services through Bank
Sinarmas, and also a variety of internet and mobile trading services through Sinarmas Sekuritas. A
comprehensive distribution network provides convenience for our existing customers and is a key foundation
for the continued growth of our business.
Sizeable franchise in the Indonesian life insurance market, enhanced by a strategic alliance with MSIG
to deliver global best practice in life insurance
Through our 50% ownership interests in both Sinarmas MSIG Life and Mega Life, Indonesia’s second
and third largest life insurers with market share of 12.4% and 9.0%, respectively, measured by total gross
premiums for the life insurance industry in Indonesia in 2010 as published by Bapepam-LK in its Indonesia
Insurance 2010 Report according to the Life Insurance Business Performance 2010 Report published by the
AAJI, we are well-positioned to tap the early growth story of Indonesia’s life insurance sector. With total
life insurance premiums at only 1.0% of its GDP, premium penetration in Indonesia remains substantially
lower than that of other major developing countries such as China with total life premiums at 2.5% of its
GDP and India with total life premiums at 4.4% of its GDP. See “Insurance Industry” section. According to
Business Monitor International, life insurance premiums in Indonesia are expected to experience an average
annual growth rate of 24.6% between 2011 and 2015. MSIG, part of the MS&AD Insurance Group, a global
leading non-life insurer and the largest non-life insurer in Japan by gross premiums, has significant global
reach and experience with operations in 40 countries and over 14,900 employees. In Asia, MSIG has also
made strategic investments in existing local life insurance companies in Malaysia, China and Thailand.
We believe MSIG brings numerous strengths to the alliance with us, including strengthening Sinarmas
MSIG Life’s ability to diversify its product range to focus on regular and traditional products, development of
agency scale, training and productivity, risk management and technology. Following the completion of the
strategic alliance on July 1, 2011, we believe Sinarmas MSIG Life is well capitalized and positioned to
leverage MSIG’s insurance capabilities to grow both the scale and profitability of our business in Indonesia.
Leading non-life insurer in Indonesia enjoying market share of 11.1% by gross written premiums in 2010
Asuransi Sinar Mas is the leading non-life insurer in Indonesia based on gross premiums and enjoying
market share of 11.1% measured by total gross premiums for the non-life insurance industry in Indonesia in
2010 as published by Bapepam-LK in its Indonesia Insurance 2010 Report. We expect Asuransi Sinar Mas to
benefit strongly from the potential growth of the Indonesian non-life insurance industry. When compared to
other major developing countries such as China with total non-life premiums at 1.3% of its GDP (see
“Insurance Industry” section), Indonesia remains relatively underpenetrated with total non-life insurance
premiums at approximately 0.5% of GDP. According to Business Monitor International, non-life insurance
premiums in Indonesia are expected to experience an average annual growth rate of 22.1% between 2011
and 2015. Asuransi Sinar Mas plans to maintain its leadership position and expand its market share through
a combination of its (1) information technology system, (2) efficient claims management capabilities and (3)
strong distribution network. Its information technology system has features which include a portal
connecting the central system with business partners such as leasing companies, banks and brokers, enabling
effective and efficient communication and service experience. Asuransi Sinar Mas’ growing distribution
network consists of approximately 7,000 exclusive agents, one head office, 92 sales offices across Indonesia,
63 brokers, 77 finance companies and bancassurance relationships with approximately 44 banks as of
September 30, 2011. In addition, net premium income has also achieved strong growth, with CAGR of
25.2% between 2008 and 2010.
Bank Sinarmas’ strong and profitable growth with strategically positioned network of 139 offices
Bank Sinarmas is a mid-sized bank in Indonesia with a high growth profile. The Bank leverages the
strong branding of the SMMA Group and targets growth in the SME and consumer segments. Its loan
portfolio has grown at a CAGR of 28.1% between 2008 and 2010 and deposits at a CAGR of 36.4% over
the same period.
Bank Sinarmas’ network of 139 offices is located strategically in metropolitan and regional areas of
Indonesia, providing an effective channel for the distribution of other group products through the bank
channel. While continuing to grow its business, Bank Sinarmas has maintained high credit standards
resulting in consistently low NPL ratios of 2.0%, 2.2%, 1.3% and 1.0% on the basis of gross NPLs as of
December 31, 2008, 2009 and 2010 and September 30, 2011, respectively.
Strong cooperation among subsidiaries resulting in significant cross-selling and synergies across the
Group
Our complementary insurance, banking, securities and multifinance businesses generate significant
cross-selling opportunities and synergies across our Group operations. These include:
•
One-stop location for multiple product offerings. Many of our subsidiaries’ branches and outlets
are located on a shared location. It is common to have our bank branch, insurance operations,
investment advisory services and multifinance operations in the same building. This offers
convenience for customers while allowing the various subsidiaries to cross-sell and refer
customers within a “one-stop shop”.
•
Marketing collaboration. Apart from cross-selling and customer referrals across the Group’s
employees and agents, we launched the “One Million Partners” campaign aimed to recruit
customers, entrepreneurs and business owners of retail stores and suppliers to be agents for our
life and non-life insurance and banking products. By leveraging on their local relationships, we
believe this “word-of-mouth” marketing strategy will significantly expand our customer reach.
•
Bancassurance. Bank Sinarmas is the key bancassurance partner for our insurance subsidiaries,
Sinarmas MSIG Life and Asuransi Sinar Mas. This is an effective partnership driven by a long
history of close collaboration between management and employees of the insurance and bank
subsidiaries. Bank branch officers are provided with appropriate training and licensed to offer
bancassurance products. Most of Sinarmas MSIG Life’s premiums are derived from this
bancassurance relationship.
•
Loan origination. Sinar Mas Multifinance plays a key role in originating loans for Bank
Sinarmas. Approximately 20.0% of Bank Sinarmas’ loan book is channeled by Sinar Mas
Multifinance. This channeling arrangement utilizes Bank Sinarmas’ competitive financing rate
while leveraging on Sinar Mas Multifinance’s extensive customer and distribution reach.
•
Others. Generally, members of the Group refer business to other members of the Group. For
example, Sinar Mas Multifinance’s customers are encouraged to have car or motorcycle
insurance with Asuransi Sinar Mas. Additionally, vendors of Asuransi Sinar Mas are generally
encouraged to have accounts with Bank Sinarmas to receive payment and Sinarmas MSIG Life
and Asuransi Sinar Mas execute a portion of their securities transactions through Sinarmas
Sekuritas.
Experienced management team with in-depth understanding of local markets
We have a management team of experienced individuals with in-depth industry and local knowledge,
and extensive managerial experience in life insurance, non-life insurance, securities, banking and other
financial services through the respective management teams of our life, non-life, banking, securities and
multifinance subsidiaries and joint ventures. Our President Commissioner, Indra Widjaja, has served as
commissioner of the SMMA Group since 1982, and coordinates the investment and business strategies of the
Group through weekly meetings with management of our principal subsidiaries. Our President Director,
Doddy Susanto, has served the SMMA Group in various capacities since 1986. The team is focused on
formulating innovative business initiatives and capturing business opportunities by drawing on its expertise
in diverse areas. We believe our management team can develop and execute our business strategies
effectively, while quickly responding to the rapid changes in our business environment.
Strategies
Our objectives are to achieve sustainable growth of our businesses and to create long-term shareholder
value. To achieve these objectives, we intend to pursue the following strategies.
Enhance the productivity of our core distribution channels and expand our multi-channel distribution
network
We believe there are significant opportunities to grow our business in all segments by continuing to
enhance and expand our distribution channels and multi-channel distribution network to reach a broad range
of customers. This includes increasing our presence within existing markets and expanding our geographic
coverage to new areas in Indonesia. For instance, Bank Sinarmas intends to enhance its customer reach
through an aggressive expansion of branches and other offices, growing its network from 110 as of
December 31, 2010 to approximately 220 as of December 31, 2011 and plans to further grow its network to
approximately 515 offices by year end 2012, subject to regulatory approval. Likewise, Sinarmas MSIG Life,
with the benefit of the experience of the global MS&AD Insurance Group, intends to significantly grow the
scale and productivity of its agency force, develop a corporate agency channel to target group insurance
business and further leverage its current strength in bancassurance to focus on regular and traditional
products. We also believe we can enhance the productivity of our multi-channel distribution network by
continuing to focus on cross-selling and cross-marketing of our various financial services and products
across business segments.
Implement our “One Million Partners” campaign
In early 2011, we launched a campaign entitled “One Million Partners” to recruit our customers,
entrepreneurs and business owners of retail stores and suppliers to be our agents for our life and non-life
insurance and banking products, with a view to develop relationships with them as “SMMA ambassadors”.
As of September 30, 2011, the Group had more than 50,000 registrants for the program. We believe that this
target market will provide significant opportunities to further grow our customer base across all business
segments by leveraging their existing relationships to further expand our network and reach.
Expand the range of products and services available to customers
We believe that we are well-positioned to capitalize on the continued growth in the life and non-life
insurance, securities, traditional and Islamic banking and financing, and multifinance sectors that is expected
to result from Indonesia’s expanding middle class and rising levels of household income. In each of our core
business segments, we expect to continue to build up our product and service offerings, and in particular,
increasing the diversification of our life insurance products in partnership with MSIG to focus on regular
and traditional products including premium unit link products and protection riders. The financial, insurance,
banking and non-bank products and services offered in Indonesia continue to evolve as the needs of
customers change. We intend to be at the forefront of these developments by offering innovative and
competitive products to our customers.
Increase our cross-selling and cross-marketing efforts among the various subsidiaries of the SMMA
Group
Due to our large customer base and our integrated financial services model, cross-selling represents a
significant opportunity to grow our business. We encourage consumers to take advantage of products and
other services through product bundling and cross-marketing products and services. We facilitate this
through our “one-stop shop” model, with co-location of banking, insurance and securities outlets at a single
location. We will continue to utilize our insurance business as a springboard to cross-sell an increasingly
broader suite of products and services to individual and corporate customers. We also remain focused on
developing closer synergies between our subsidiaries through staff training, knowledge sharing, bundled
product offerings and collaborative marketing.
Build on our reputation as a trusted provider of comprehensive financial services solutions
Since SMMA was established in 1982 under the name PT Internas Arta Leasing Company, SMMA, as
part of the Sinarmas brand, has since grown to become one of the most widely recognized brand names in
Indonesia. We believe our extensive nationwide distribution network reinforces this brand awareness. We will
continue to build on our reputation as a trusted provider of comprehensive and competitive financial services
solutions both through our branches and marketing campaigns. In this way we hope to attract a wider group
of customers to our existing customer base.
Increase employee and agent productivity and competitiveness
Developing a strong sales and service culture at each of our companies is key to our future success.
We seek to attract and retain the most talented individuals in the industry and improve their skills,
productivity and career development opportunities through advanced human resources management and
training. We aim to build a system in which our management and employees can grow with us and share in
our success, which we believe will result in increased employee productivity and competitiveness to meet
our strategic goals. Various members of the Group regularly hold internal and external seminars, training and
certification programs for employees and management to further their skills and knowledge, assist them in
obtaining certification in their respective areas, and enhance their sense of belonging to the Group and
promote a strong and universal work ethic. In addition, Sinarmas MSIG Life intends to leverage MSIG’s
global experience in agency training and development to enhance the productivity of the existing agency
force. To promote agency force growth and enhance employee competency, Sinarmas MSIG Life has
introduced the “Sinarmaslife Academy” to train and develop graduate professionals to become productive
insurance agents and competent employees.
Invest in information technology systems and infrastructure to prepare our Group for future growth
We will continue to invest in information technology and infrastructure to prepare ourselves for future
growth. We aim to leverage on our strong capital position to further enhance our IT system and automate
our operational processes to achieve optimal efficiencies as well as enhance our ability to identify and
manage risks.
For example, Asuransi Sinar Mas provides a “B2B” application which allows its business partners to
connect with Asuransi Sinar Mas and assist Asuransi Sinar Mas in managing the process of issuing policies.
To support Asuransi Sinar Mas’ service levels in handling a claim, it employs an “E-Claim” application
which integrates Asuransi Sinar Mas with its customers, workshops and suppliers and an “E-Supplier”
network solution which allows suppliers to join online tenders to procure and deliver spare parts for motor
vehicles needed for a claim and deliver the spare part to the respective automobile repair workshop. Asuransi
Sinar Mas also employs “E-Partner”, a web-based portal application which enables its agents to manage their
portfolio, issue insurance policies, provide quotes and process the commission payments from
any location and at any time, and provides an “E-Marketing” application to its marketing staff which enables
them to upload insurance proposals and provide quotes which are tracked through Asuransi Sinar Mas’
central system and back-end process to the time policies are issued. For Bank Sinarmas, we plan to build on
delivering our banking products to customers via Bank Sinarmas’ internet banking channel.
We will continue to develop and adopt advanced technological systems to achieve maximum
operational efficiency in each of our areas of business, to improve our ability to identify and manage risks
within our business, to improve profitability and maintain our reputation as a leading Indonesian provider of
insurance and financial services in Indonesia.
Our Group Structure
The following diagram below shows our group structure as of December 31, 2011.(1)
PT Sinar Mas Multiartha Tbk
Insurance
Bank
Multifinance
Securities
Information
Technology
PT Asuransi
Sinar Mas
(100.00%)
PT Bank Sinarmas
Tbk
(2)
(60.00%)
PT Sinar Mas
Multifinance
(100.00%)
PT Sinarmas
Sekuritas
(100.00%)
PT Arthamas
Informatika
(100.00%)
PT Shinta Utama
(100.00%)
PT Balai Lelang
Sinarmas
(100.00%)
PT Asuransi J i wa
Sinarmas MSIG
(50.00%)
PT AB Sinar Mas
Multifinance
(100.00%)
PT Sinartama Gunita
(100.00%)
PT Arthamas
Solusindo
(100.00%)
PT Simas Money
Changer
(100.00%)
PT Jakarta Teknologi
Utama Motor
(99.93%)
PT Asuransi Jiwa
Mega Life
(50.00%)
PT Oto Multiartha
(16.14%)
PT Sinar Artha
Inforindo
(100.00%)
PT Wapindo
Jasaartha
(100.00%)
PT Artha Bina
Usaha
(100.00%)
PT Arthamas
Konsulindo
(100.00%)
PT Summit Oto
Finance
(0.16%)
PT Sinar Artha
Solusindo
(100.00%)
PT Super Wahana
Tehno (35.19%)
PT Sinar Artha
Trading
(100.00%)
PT Sinar Artha
Konsulindo
(100.00%)
PT Komunindo Arga
Digital (100.00%)
Others
PT Panji Ratu
Jakarta
(21.02%)
PT JobStreet
Indonesia
(40.00%)
(1)
(2)
Percentages shown are based on effective control.
As of December 31, 2011, we owned 56.48% of Bank Sinarmas directly and 3.52% indirectly through our 100.0% owned
subsidiary, Shinta Utama.
The following table shows a breakdown of the total income attributable to equity holders of SMMA
and total assets after elimination of SMMA and our principal subsidiaries and joint venture, including as a
percentage of our total income attributable to equity holders of SMMA and total assets after elimination,
respectively, as of September 30, 2011:
As of September 30, 2011
As a % of
Total
Income
Attributable
to Equity
Holders of
SMMA
Total Income Attributable
to Equity Holders of
After
SMMA After Elimination Elimination
Rp.
SMMA . . . . . . . . . .
Sinarmas MSIG Life . .
Asuransi Sinar Mas . . .
Bank Sinarmas. . . . . .
Sinarmas Sekuritas . . .
Sinar Mas Multifinance
Others . . . . . . . . . . .
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
Total Assets After
Elimination
US$
%
Rp.
US$
(Rp. in billions, US$ in millions, except percentages)
As a % of
Total Assets
After
Elimination
%
.
.
.
.
.
.
.
6.2
882.0
367.5
50.0
39.8
30.5
6.5
0.7
100.0
41.6
5.7
4.5
3.5
0.7
0.5
63.8
26.5
3.6
2.9
2.2
0.5
1,076.7
20,425.9
3,022.0
15,664.1
972.7
1,356.9
461.9
122.0
2,315.1
342.5
1,775.4
110.2
153.8
52.4
2.5
47.5
7.0
36.4
2.3
3.2
1.1
Total. . . . . . . . . . . . . . . . .
1,382.5
156.7
100.0
42,980.2
4,871.4
100.0
Our History
We began commercial operations in Indonesia in 1983 under the name PT Internas Artha Leasing
Company, engaging in finance leasing and obtained approval from the Ministry of Finance to operate a
multifinance company in 1990. Our insurance companies, Sinarmas MSIG Life (initially founded as PT
Asuransi Jiwa Purnamala Internasional Indonesia) and Asuransi Sinar Mas were founded in 1984 and 1985.
In 1988, our securities and asset management subsidiary, Sinarmas Sekuritas was established. In 1995 we
listed our shares on the IDX and changed our name to PT Sinar Mas Multiartha Tbk. In 1996, the
shareholders of the Company changed the Company’s main business activities to become a financial holding
company for the Sinar Mas Group.
In 1996, we issued 663 million shares at an offer price of Rp.750 per Share, and in the same year we
established our consumer finance and leasing business, Sinar Mas Multifinance by acquiring 5,000 Shares of
PT Sinar Supra Finance, which was subsequently renamed Sinar Mas Multifinance. In 2003, we issued a
further 2.1 billion shares at an offer price of Rp.100 per Share. In the same year, we effected a reverse stock
split, and added a second series of shares.
In 2005, we issued 991.3 million shares at an offer price of Rp.125 per Share. In 2005, we also
acquired the entire shareholding of Sinarmas MSIG Life. We also acquired the majority stake in our banking
subsidiary, Bank Sinarmas, from PT Shinta Indonesia. In 2008, we completed a fourth rights issue of 964.5
million shares at an offer price of Rp.100 per Share. We also injected capital into some of our subsidiaries,
including Rp.120.0 billion into Sinar Mas Multifinance and Rp.25.0 billion into certain other subsidiaries
during the nine months ended September 30, 2011. On December 7, 2011, SMMA injected capital of
Rp.100.0 billion into Sinar Mas Multifinance for Sinar Mas Multifinance to expand its branches and outlets.
Bank Sinarmas’ initial public offering in 2010 at Rp.150 per Share raised Rp.240.0 billion (US$27.2
million).
SMMA
SMMA is principally the holding company of our subsidiaries and joint ventures. In addition, it also
engages in limited investments in mutual funds and sales. As of September 30, 2011, SMMA had
investments in mutual funds of Rp.612.1 billion (US$69.4 million).
Life Insurance − Sinarmas MSIG Life
Overview
We conduct our life insurance business primarily through our 50% stake in Sinarmas MSIG Life. MSIG
also owns a 50% interest in Sinarmas MSIG Life through its share subscription in July 2011 for Rp.7.0
trillion (US$793.4 million). See “—Recent Developments”. Established in 1984, Sinarmas MSIG Life is the
second largest life insurance provider in Indonesia with 12.4% market share measured by total gross
premiums for the life insurance industry in Indonesia in 2010 as published by Bapepam-LK in its Indonesia
Insurance 2010 Report. Net premium income grew at a CAGR of 34.9% from 2008 to 2010. Gross
premiums for the nine months ended September 30, 2011 amounted to Rp.9,805.9 billion (US$1.1 billion).
In addition, we also have a 50% ownership interest in Mega Life, a joint venture with the Para group (the
“Para Group”). See “—Joint Venture − Mega Life” below for more information.
Sinarmas MSIG Life offers individual and group life insurance products and Sharia products. It
distributes its products principally through bancassurance. Its main bancassurance business is principally
conducted with Bank Sinarmas, which accounted for 84.5% of gross premiums for the nine months ended
September 30, 2011. Sinarmas MSIG Life also has relationships with a total of 43 banks, six of which are
commercial banks and 37 of which are rural banks (Bank Perkreditan Rakyat), which are more limited in the
amounts of lending and deposit taking, and whose relationship with Sinarmas MSIG Life mainly comprises
the purchase of mortgage redemption and other credit protection insurance. Complimentary to its
bancassurance distribution channel, Sinarmas MSIG Life also has an agency force of approximately 12,000
agents as of September 30, 2011. As of September 30, 2011, Sinarmas MSIG Life had 57 sales offices
which provide direct marketing to corporates as well as administrative and sales support to agents. In
addition, Sinarmas MSIG utilizes alternative distribution channels such as the internet. As of December 31,
2010 and September 30, 2011, Sinarmas MSIG Life’s solvency ratio was 469.0% and 1,002.8%,
respectively. See “Management’s Discussion and Analysis of Financial Condition and Results of
Operations—Capital Management—Capital Adequacy”. In July 2011, Sinarmas MSIG Life was assigned a
financial strength rating of “AA+” (idn) by Fitch Ratings.
Business Initiatives
We intend to further develop our life insurance business and implement our overall strategy with
respect to our life insurance operations by adopting the following business initiatives:
•
Leverage on the expertise, successful business model and global reputation of MSIG, with a focus
on enhancing product development, diversifying product mix and growing higher margin regular
premium and protection products across our key distribution channels. Moreover, various takaful,
pension fund and family policies are also in our pipeline.
•
Continue to develop and expand our distribution channels:
•
Together with MSIG, we will be focusing on developing our agency channel through
growing agent numbers and improving organizational structures. This is particularly
important as a motivated and sophisticated sales force is the key to successful execution of
our overall growth strategy.
•
Growing our bancassurance channel, leveraging on Bank Sinarmas’ branch expansion plans
as well as increasing our number of bank and non-bank distribution partners. Promote the
sale of regular premium products and riders to our extensive bancassurance customer base.
•
Developing additional channels, such as corporates, direct marketing and multinational
corporation channels, for the longer term future to diversify our marketing efforts and
extend our corporate customer base. Similar to the development of the agency channel,
MSIG will provide the technical assistance and expertise on this front.
•
Improve and enhance use of technology to achieve greater cost efficiencies while enhancing
customer experience. We aim to implement customer relationship management systems and
develop data mining processes, implement virtual offices in stages and have a paperless office by
2015.
•
Continue to invest in training to improve the quality of our agents, marketing personnel and back
office employees as we believe that there is significant untapped potential among our agents and
employees. A secondee from MSIG will be lending his expertise to plan such training programs
with four training centers being set up to support this initiative.
•
Together with MSIG, to strengthen Sinarmas MSIG Life’s risk management and internal audit
structures to ensure the sustainable growth of the business.
Our long-term goal is to maintain and enhance Sinarmas MSIG Life’s position as a premier life
insurance company in Indonesia and, in line with this, we aim to be the largest life insurance company in
Indonesia by gross premium, annualized premium equivalent and return on equity by 2015, maximize the
returns from funds available for investments and increase shareholders’ value with the aim of sustaining
long-term profitability and strengthening policyholder trust. Sinarmas MSIG Life intends to grow its market
share by continuing to focus on product lines with higher growth potential such as micro-insurance, which,
despite lower profit margins, appeal to and serve as points of entry into lower and middle class market
segments, particularly in east Indonesia, thereby diversifying and broadening our customer base. We plan to
ensure that its increasing market share translates into underwriting profits by continuing to maintain and
improve its claims and expenses ratios.
Products
Sinarmas MSIG Life offers individual and group insurance products. Its individual life insurance
products generally fall into the following principal categories: unit link insurance, endowment insurance,
traditional term insurance, whole life insurance and accident and health insurance. There are no participating
products or annuities. Currently, Sinarmas MSIG Life’s only investment products are unit link and
endowment products. Sinarmas MSIG Life’s whole life insurance products also offer certain investment
components. Sinarmas MSIG Life’s unit link products are generally term insurance products. The insured
pays the premium and receives the net asset value of the units, less fees such as commissions and
administration fees. Sinarmas MSIG Life’s group insurance products generally fall into two categories: life,
accident and health insurance and mortgage redemption insurance.
Gross premium income represent premiums received from policyholders based on short-term and longterm contracts and includes the full amount received under unit link and endowment policies whether or not
later returned to policyholders upon surrender, redemption or maturity, as applicable.
The following table below sets out gross premium income for Sinarmas MSIG Life’s principal life
insurance product categories for the periods indicated.
For the Year Ended December 31,
2008
2009
2010
For the Nine Months
Ended September 30,
2010
2011
(Rp. in billions)
Individual:
Combined endowment(1) . . . . . . . . . . . .
Death term life . . . . . . . . . . . . . . . . . .
Whole life . . . . . . . . . . . . . . . . . . . . .
Personal accident . . . . . . . . . . . . . . . . .
Health . . . . . . . . . . . . . . . . . . . . . . . .
Unit link(2) . . . . . . . . . . . . . . . . . . . . .
4,298.1
3.6
16.7
0.8
1.1
593.1
3,401.6
4.6
15.9
0.7
1.6
3,562.2
573.0
6.7
14.6
1.2
2.2
8,565.8
480.1
4.0
11.1
0.6
1.6
5,796.2
4,619.5
3.1
10.3
1.8
2.2
5,037.5
Sub total . . . . . . . . . . . . . . . . . . . .
4,913.3
6,986.6
9,163.6
6,293.6
9,674.4
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.
—
57.6
127.9
1.5
7.0
0.0
51.3
70.2
1.3
0.1
0.0
63.2
60.9
1.9
—
—
45.0
52.0
1.5
—
—
71.2
50.7
1.2
8.4
Sub total . . . . . . . . . . . . . . . . . . . .
194.1
123.0
126.0
98.5
131.5
Total . . . . . . . . . . . . . . . . . . . . . . . . . .
5,107.4
7,109.6
9,289.6
6,392.1
9,805.9
Group:
Endowment . . . .
Death term life . .
Health . . . . . . . .
Personal accident .
Unit link . . . . . .
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(1)
Combined endowment is an insurance providing life protection, as well as savings.
(2)
Unit link includes investment-linked products.
For 2008, 2009 and 2010 and the nine months ended September 30, 2011, Sinarmas MSIG Life’s
highest revenue generating products in terms of premium income were unit link products, which contributed
approximately 11.8%, 50.1%, 92.2% and 51.4%, of gross premium income, and endowment products, which
comprised 84.2%, 47.8%, 6.2% and 47.1%, respectively, of gross premium income, respectively, followed by
other products categories, which in the aggregate comprised approximately 4.0%, 2.1%, 1.6% and 1.5%, of
gross premium income, respectively.
From 2008 through early 2011, Sinarmas MSIG Life encouraged existing policyholders in endowment
products, such as its Power Save products, to reinvest into unit link policies, such as its Stable Link
products, by offering more attractive potential investment returns on these products. This has been the driver
of the decline in endowment and increase in unit link policies in the same periods. This strategy was
adopted by the company to enhance capital efficiency of the business, given the lower capital requirement
associated with unit link policies. Due to the higher solvency ratios following completion of the MSIG share
subscription in Sinarmas MSIG Life, Sinarmas MSIG Life has been increasing its sales of its endowment
products during the second half of 2011. Sales of endowment products have continued to increase, following
a decision in November 2011 to focus sales of endowment products through bancassurance and sales of unit
link products through its agency force.
Unit Link Products
Sinarmas MSIG Life offers a range of unit link investment products where the benefits value of the
policy is linked to the value of underlying investments or fluctuations in the value of underlying
investments. The investment risk associated with such products is borne by the policyholder. The policy
terms offered vary, and can range in length of term or can be whole life, can be denominated in Rupiah or
U.S. dollars and can be a single premium policy, for which the customer pays a single, substantial, initial
payment, or regular premium policy, for which the customer makes periodic premium payments over the
term of the policy. Insurance coverage, investment and administration services are provided for which the
charges are deducted from the investment fund assets. Benefits payable will depend on the price of the units
prevailing at the time of surrender, death or the maturity of the policy, subject to surrender charges for
surrenders prior to maturity. Sinarmas MSIG Life’s unit link products are typically designed such that
accident and health and other protection riders may be attached to the basic policy. Its unit link investments
are predominantly single-premium products. Premiums are reflected in total investments and are paid as
surrender benefits, subject to applicable surrender charges before maturity. Investments of fund assets are
managed by Sinarmas MSIG Life and policyholders of its unit link products do not choose the specific
investments funds in which their funds are invested.
Sinarmas MSIG Life’s best selling unit link product is its Stable Link insurance product. For the years
ended December 31, 2008, 2009, and 2010 and for the nine months ended September 30, 2011, Sinarmas
MSIG Life’s Stable Link products accounted for 7.0%, 47.4%, 89.8% and 49.7% of gross premiums,
respectively. The Stable Link insurance product is a single premium investment-linked whole life product.
The product is designed to offer a savings opportunity in a similar way to fixed deposit products normally
offered by a bank, and can be denominated in Rupiah or U.S. dollars. It contains a death protection benefit
of 125% of premiums paid and capped at Rp.25.0 million for Rupiah policies or US$2,500.0 for U.S. dollar
policies. The policyholder selects an investment term of three, six, 12, 24 or 36 months, and a target
investment return is set for each selected investment term, although the return is not guaranteed. The Stable
Link assets and other unit link assets are invested and managed by Sinarmas MSIG Life in accordance with
its investment policy and strategies. See “—Investments”. Under the Stable Link products, the policy will be
credited with the actual investment return subject to a cap equal to the target investment return. If actual
investment return exceeds target investment return, then for policies with investment terms greater than 12
months, 10% of the excess return over the target investment return will also be credited to the policyholder
as a bonus. Target investment returns are adjusted by Sinarmas MSIG Life periodically in response to
movements in market interest rates and returns on investments. At the end of the investment term or roll
over date, the policyholder selects the next investment term, surrenders the policy or can choose to treat
return of the remaining account value as a policy loan from MSIG Life for the remainder of the policy term
to minimize the application of withholding tax and surrender charges which may apply. Under Indonesian
regulations, policyholders are subject to 20% withholding income tax on aggregate benefits on policies net
of premiums paid that are surrendered within three years.
A surrender benefit equal to the “rolled over” amount is payable in the event of a policy being
surrendered and a surrender benefit equal to the “rolled over” amount without interest is payable if the
surrender occurs during the investment term. An additional surrender charge, subject to a cap of 20%, may
be applied upon surrenders prior to maturity at the discretion of Sinarmas MSIG Life, which is designed to
deter large-scale withdrawals in the event of market instability. Commission to distribution channels is
payable at each roll over date.
Sinarmas MSIG Life also sells whole life unit link products, such as its Excel Link 80 Plus product
and Cerdas/Excellent Link product. Excel Link 80 Plus is an investment-linked whole life product, which
accepts both single premium and regular premiums and may be denominated in Rupiah or U.S. dollars, and
allows the policyholder to select investments and provides life coverage equal to the sum insured plus
account value in the event of death. Cerdas/Excellent Link is a regular premium investment-linked whole
life product, which may be denominated in Rupiah or U.S. dollars, and allows the policyholder to select
investments and provides life coverage equal to the sum insured plus account value in the event of death.
These products continue to be the major contributor to Sinarmas MSIG Life’s gross premium income.
In 2008, 2009, 2010 and the nine months ended September 30, 2011, gross premiums from its unit link
investment products accounted for 11.8%, 50.1%, 92.2% and 51.5% of its gross premiums and 10.3%,
48.7%, 90.8% and 50.3% of its new business premiums, respectively.
Endowment Products
Sinarmas MSIG Life offers a range of non-participating endowment products, where the insured is
provided various guaranteed benefits if the insured survives specified maturity dates or periods stated in the
policy, and which, upon the death of the insured within the coverage period, provide to the beneficiary
designated by the insured guaranteed benefits in return for the periodic payment of premiums. If no death
occurs during the insurance period, the insured receives the insurance payout. Sinarmas MSIG Life’s
endowment products generally provide a policy term of four years, but may also be for three, five, eight or
10 years in duration, which can be renewed. Sinarmas MSIG Life offers over 100 endowment products, and
payment by the insured can be in a single premium, or regular premiums in amounts linked to other
insurance products. Specified coverage periods range from five to 10 years or end at specified ages. For
regular premium products, premiums are typically at a level amount for the coverage period. Sinarmas
MSIG Life’s endowment products are typically designed such that accident and health and other protection
riders may be attached to the basic policy.
Sinarmas MSIG Life’s best selling endowment product is its Power Save insurance product. For the
years ended December 31, 2008, 2009, and 2010 and for the nine months ended September 30, 2011,
Sinarmas MSIG Life’s Power Save products accounted for 77.3%, 43.5%, 5.7% and 46.5% of gross
premiums, respectively. The Power Save product is a four-year renewable single premium non-participating
endowment product. As with its Stable Link product, the Power Save is designed to offer a savings
opportunity in a similar way to fixed deposit products normally offered by a bank, with a guaranteed return
in addition to an accidental death benefit equal to 100% of premiums, and can be denominated in Rupiah or
U.S. dollars. At the inception of the policy, a policyholder can select the fixed rate period of three, six, 12 or
36 months, and a guaranteed return is set for each selected period. Sinarmas MSIG Life evaluates and
declares guaranteed return rates applicable to new policies periodically in response to movements in market
interest rates and returns on investments. The investment allocation for the policy is determined by Sinarmas
MSIG Life and primarily consists of units in equity, fixed income and mixed mutual funds, corporate fixed
income securities and equities, and are managed by Sinarmas MSIG Life in accordance with its investment
policy and strategies. See “—Investments”. At the end of the roll over date, the policyholder can reselect the
next fixed rate period, surrender the policy or choose to treat return of the remaining account value as a
policy loan from MSIG Life for the remainder of the policy term to minimize the application of withholding
tax and surrender charges which may apply. In the case of surrender, a surrender benefit equal to the “rolled
over” amount plus interest is payable in the event a policy is surrendered at the end of the investment term
and a surrender benefit equal to the “rolled over” amount without interest is payable if the surrender occurs
during the investment term. Commission to distribution channels is payable at each roll over date and no
charge is taken from the policy. Under Indonesian regulations, policyholders are subject to 20% withholding
income tax on aggregate benefits on policies net of premiums paid that are surrendered within three years.
In 2008, 2009, 2010 and the nine months ended September 30, 2011, gross premiums from Sinarmas
MSIG Life’s endowment insurance products accounted for 84.2%, 47.9%, 6.2% and 47.1% of its gross
premiums, respectively. The decline in gross premium income from endowment products in 2009 and 2010
was primarily due to surrenders of Sinarmas MSIG Life’s Power Save products in favor of its Stable Link
products as policyholders migrated to Stable Link products.
Traditional Term Life and Whole Life Insurance
Sinarmas MSIG Life offers traditional non-participating term and whole life insurance products.
Non-participating term life insurance products provide a guaranteed benefit upon the death of the
insured within a specified time period in return for periodic payment of fixed premiums. Specified coverage
periods can be any length of term, depending on the product. Death benefits may be level or increase over
the period. Premiums are typically at a level amount for the coverage period. Term life insurance products
are sometimes referred to as pure protection products, in that there are normally little or no savings or
investment elements. Unlike endowment products, term life insurance products expire without value at the
end of the coverage period if the insured person is still alive.
Non-participating whole life insurance products provide a guaranteed benefit, pre-determined by the
contract, upon the death of the insured, in return for period payment of fixed premiums over a
predetermined period. Premium payments may be required for the length of the contract period, to a
specified age or for a specified period, and are typically level throughout the period.
Sinarmas MSIG Life does not currently offer participating term life or participating whole life
insurance products.
In 2008, 2009, 2010 and the nine months ended September 30, 2011, gross premiums from its nonparticipating term life and whole life insurance products accounted for 1.5%, 1.0%, 0.9% and 0.9% of its
gross premiums, respectively.
Accident and Health Insurance
Sinarmas MSIG Life offers accident and health insurance products, which provide morbidity or
sickness benefits and include health, disability, critical illness and accident cover. Accident and health
insurance products are sold both as standalone policies and as riders that can be attached to its individual
life insurance products, with most coverage sold as riders to its other insurance products. Health insurance is
principally sold as group insurance but is also sold to individuals.
Its personal accident insurance products generally provide a guaranteed benefit in the event of death or
disability of the insured party as a result of an accident during the policy period. The disability benefit
Sinarmas MSIG Life pays to the insured party will vary according to the type of disability afflicted upon
such insured party. Its health insurance products generally provide for a daily hospital allowance or
reimbursement of actual hospital expenses incurred by the insured party.
In 2008, 2009, 2010 and the nine months ended September 30, 2011, gross premiums from its health
and personal accident insurance products accounted for 2.6%, 1.0%, 0.7% and 0.6% of its gross premiums,
respectively.
Group Health Insurance
Sinarmas MSIG Life’s group insurance products consist principally of its group health insurance
products, which can sometimes include personal accident or critical illness as part of the package. Group
insurance coverage is typically arranged by employers for employees of corporate entities. Customers are
usually privately-owned companies, with a large number of employees. Sinarmas MSIG Life markets these
products through its corporate channel operating in its offices as well as its agents. As of September 30,
2011, Sinarmas MSIG Life had approximately 197,539 policyholders and approximately 320,608 insured
employees/members for its group insurance products.
In 2008, 2009, 2010 and the nine months ended September 30, 2011, gross premiums from its group
insurance products accounted for 2.5%, 1.0%, 0.7% and 0.5% of its gross premiums, respectively and 0.9%,
0.1%, 0.1% and 0.1% of its new business premiums, respectively.
Mortgage Redemption Insurance (“MRI”) and Other Credit Protection Products
Sinarmas MSIG Life also offers mortgage redemption insurance and other credit protection products,
which are single premium group products and are principally sold to banks and rural banks. MRI products
are sold and written to commercial banks and rural banks, with mortgagees of the respective bank as the
insured, and which provide credit protection in the event of an insured’s death. Sinarmas MSIG Life offers
MRI and other credit protection products in Rupiah, U.S. dollar or Singapore dollars. The sum assured
reduces every month according to a schedule assuming the financing installments are always paid. In 2008,
2009 and 2010 and the nine months ended September 30, 2011, MRI and other credit protection products
accounted for 1.0%, 0.7%, 0.6% and 0.7% of its gross premiums, respectively.
Sharia Products
Sinarmas MSIG Life is also licensed for and offers Sharia insurance products consisting of unit link
products where the underlying investments are in Sharia compliant investments. Sinarmas MSIG Life plans
to transfer its Sharia division into a wholly-owned subsidiary in 2013 as encouraged by the Ministry of
Finance.
Distribution Channels
For the year ended December 31, 2010, bancassurance, agency, corporate sales through direct
representatives and others accounted for 85.0%, 12.0%, 2.9% and 0.1% of gross premiums, respectively. For
the nine months ended September 30, 2011, bancassurance, agency, corporate sales through direct
representatives, and others accounted for 84.5%, 11.5%, 3.9% and 0.1% of total sales, respectively. The
distribution network for its individual life insurance business primarily consists of, bancassurance through
Bank Sinarmas and other domestic commercial banks, its agency network and alternative channels such as
direct marketing, telemarketing and through the internet. Sinarmas MSIG Life distributes its group insurance
products primarily through its corporate channel whose sales representatives are responsible for the
particular corporate customers and through its agency network.
The following table sets forth gross premiums by type of distribution channel for the periods indicated.
For the Nine Months
Ended September 30,
For the Year Ended December 31,
2008
2009
2010
2010
2011
(Rp. in billions)
Agency:
Gross premium . . . . . . . . . . .
Bancassurance:
Gross premium . . . . . . . . . . .
Corporate channel:
Gross premium . . . . . . . . . . .
Alternative distribution channels:
Gross premium . . . . . . . . . . .
. . . . . . .
938.7
1,101.7
1,110.9
828.2
1,126.3
. . . . . . .
3,885.0
5,776.7
7,899.6
5,343.8
8,290.6
. . . . . . .
274.9
221.3
267.4
211.8
381.2
. . . . . . .
8.9
9.9
11.8
8.3
7.8
Total of gross premiums . . . . . . . . . . . . .
5,107.4
7,109.6
9,289.6
6,392.1
9,805.9
The following table sets forth gross premiums by geography for the periods indicated.
For the Nine
Months Ended
September 30,
For the Year Ended December 31,
2008
2009
2010
2011
(Rp. in
billions)
% of
Total
(Rp. in
billions)
% of
Total
(Rp. in
billions)
% of
Total
(Rp. in
billions)
% of
Total
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4,801.7
71.4
70.6
163.6
0.0
94.0
1.4
1.4
3.2
0.0
6,968.5
36.4
55.7
49.1
0.0
98.0
0.5
0.8
0.7
0.0
9,192.3
8.9
48.7
39.7
0.0
99.0
0.1
0.5
0.4
0.0
9,613.4
37.0
100.3
55.2
0.0
98.0
0.4
1.0
0.6
0.0
Total . . . . . . . . . . . . . .
5,107.4
100.0
7,109.6
100.0
9,289.6
100.0
9,805.9
100.0
Java and Bali .
Sumatera . . .
Kalimantan . .
Sulawesi . . . .
Irian . . . . . .
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Sales Offices
As of September 30, 2011, in addition to its headquarters in Jakarta, Sinarmas MSIG Life had 57 sales
offices throughout Indonesia. Sinarmas MSIG Life’s sales offices mainly provide administrative and
marketing support for its agents and business. Sales offices do not generate significant premium income
from sales. Sinarmas MSIG Life sales office managers, who typically serve as agent team leaders, also
provide supervision over the agency force. The number of agents a sales office manager oversees varies
depending on the location of the sales office.
Sinarmas MSIG Life plans to align its sales office network with Bank Sinarmas and intends to open an
additional 23 sales offices in 2012, which sales offices will be co-located with new Bank Sinarmas branches.
Bancassurance
Sinarmas MSIG Life’s bancassurance arrangements constitute the core distribution channel for its life
insurance products, including its Power Save, Simas Prima, Simas Power Link, Cerdas, Priority Link and
Platimum Link insurance products. Sinarmas MSIG Life’s principal partner is Bank Sinarmas, with which it
has a preferred bancassurance arrangement. As of September 30, 2011, Sinarmas MSIG Life also had
bancassurance relationships with a total of 43 banks, six of which are commercial banks and 37 of which are
rural banks (Bank Perkreditan Rakyat), whose relationships with Sinarmas MSIG Life mainly comprise the
purchase of mortgage redemption and other credit protection insurance but who also can distribute Sinarmas
MSIG Life’s bancassurance products. Pursuant to its bancassurance arrangements with Bank Sinarmas,
Sinarmas MSIG Life’s customers can generally access bancassurance products through the bank
representative offices. Sinarmas MSIG Life’s products are also marketed to Bank Sinarmas’ customers by
Sinarmas MSIG Life employees who are recruited by, stationed at and under the supervision of, the Bank.
As a result of recent changes to regulation which limit commissions paid by banks, these employees remain
on Sinarmas MSIG Life’s payroll. Sinarmas MSIG Life’s products are also marketed by the Bank through
direct mail and telemarketing in exchange for sales commissions that Sinarmas MSIG Life pays to the Bank.
For the year ended December 31, 2008, 2009 and 2010 and the nine months ended September 30, 2011,
sales of its bancassurance products through the branches of Bank Sinarmas accounted
for approximately 19.7%, 61.3%, 80.9% and 75.6% of the gross premiums generated through bancassurance
arrangements. Sinarmas MSIG Life’s bancassurance products are generally single premium insurance
products and primarily consist of unit link insurance products and short-term accident and health insurance.
As of September 30, 2011, Sinarmas MSIG Life had over 45,000 customers through its bancassurance
channel. For the years ended December 31, 2008, 2009 and 2010 and the nine months ended September 30,
2011, gross premiums from its bancassurance arrangements accounted for approximately 76.0%, 81.3%,
85.0% and 84.5% of the gross premiums, respectively and 79.4%, 83.0%, 86.0% and 85.2% of its new
business premiums, respectively.
Bank Sinarmas’ bancassurance arrangements do not prohibit participating bank branches from selling
the products of other insurance companies and, due to recent regulations regarding bancassurance, Bank
Sinarmas is required to offer customers a choice of protection-based insurance products from at least three
insurance companies. Sinarmas MSIG Life builds its bancassurance relationship with other commercial
banks by cooperating to design or bundle bancassurance products.
Employees selling bancassurance at Bank Sinarmas and at the other banks with whom Sinarmas MSIG
Life has bancassurance relationships, are encouraged to attend training sessions. Sinarmas MSIG Life
conducts sessions through which these employees trained on product features and sales techniques. Sinarmas
MSIG Life also encourages bank staff to apply for insurance licenses. Bank Sinarmas staff can also access
Sinarmas MSIG Life’s centralized underwriting information technology system through a web-based portal,
which facilitates the electronic submission of policy applications and the issuance of insurance policies at
Bank Sinarmas and its branches.
Sinarmas MSIG Life plans to underpin the growth of its bancassurance with Bank Sinarmas’ branch
expansion plan as well as broadening the number of bank and non-bank distribution partners. Sinarmas
MSIG Life expects to focus on increasing the sales of regular premium products to its large base of single
premium bank customers and to expand the range of products sold by each bancassurance partner. Planned
initiatives to promote increased regular premium sales include the recruitment and training of bancassurance
coordinators in at least 50 Bank Sinarmas locations as well as the development of a new sales team.
Agents
Sinarmas MSIG Life’s agency force is an important distribution channel for its insurance products,
including its Stable Link, Excel Link 80 Plus and Excel Link family insurance products. It consists of both
individual insurance agents and agent teams. The individual insurance agents are not employees but instead
enter into exclusive agency agreements with Sinarmas MSIG Life on an annual basis. As of September 30,
2011, Sinarmas MSIG Life had an agency force of approximately 12,000 agents who exclusively sell its life
insurance products on a commission basis, most of whom are part-time.
As a result of an internal policy instituted beginning 2010 to retain all agents it hires, Sinarmas MSIG
Life has not experienced any significant turnover in its agency force since 2010. For agent teams, Sinarmas
MSIG Life typically subsidizes the teams’ administrative costs such as printing costs. Commissions to agents
are generally paid at the beginning of an insurance policy but are earned on a pro rata basis to the term of the
insurance policies written. If a policy is surrendered prior to the end of the term, agents are required to pay
back commission for any remaining time on the policy.
For the years ended December 31, 2008, 2009 and 2010 and the nine months ended September 30,
2011, gross premiums from its agency force accounted for approximately 18.4%, 15.5%, 12.0% and 11.5%
of the gross premiums, respectively and 15.8%, 14.1%, 11.2% and 11.3% of its new business premiums,
respectively.
Prior to officially becoming one of Sinarmas MSIG Life’s individual insurance agents, each intern
agent must complete a three-day basic training consisting of courses in insurance business theories, consumer
development and product distribution, among others. The individual insurance agents are also required to
attend periodic training. Pursuant to new recent regulations, all life insurance agents must obtain a license
from the Ministry of Finance. Sinarmas MSIG Life also provides training to agents who achieve their target
to become certified financial planners.
Sinarmas MSIG Life’s agents are required to follow standard operating procedures and are monitored
by sales office managers. Sinarmas MSIG Life also provides support to its individual insurance agents to
increase their productivity through its operations centers, call center and internal information technology
system.
Its sales agents prepare insurance proposals, manage the sales activities and synchronize with Sinarmas
MSIG Life’s centralized database the latest information of its customers through a purpose-built sales
support application running on handheld devices or laptops. Sinarmas MSIG Life also utilizes short
messaging services to assist its sales agents in their marketing efforts.
Sinarmas MSIG Life plans to grow its agency force in a number of ways. For example, it plans to
recruit agents by targeting community groups such as churches, mosques, Buddhist temples and partnering
with them to help recruit their members to serve as agents in return for target incentives and commissions.
Sinarmas MSIG Life’s Student University program aims to recruit prospective agents directly from leading
universities across Indonesia and to provide them with relevant work experience and agency training.
Sinarmas MSIG Life also plans to expand its agency network by partnering with existing multi-level
marketing companies to recruit their salespeople to work also as agents for Sinarmas MSIG Life. As part of
our “One Million Partners” campaign, Sinarmas MSIG Life has recruited over 4,900 agents from the
program since the launch of the campaign in early 2011.
In partnership with MSIG, Sinarmas MSIG Life will implement a number of initiatives designed to
promote agency training, productivity and retention. This includes building training centers in Surabaya,
Jakarta and Makassar, recruitment of new trainers and development of continuous development programs.
Formalized processes will be established within the agency force to promote retention and productivity,
including a ‘Prestige Club’ for high performing agents and rewards for agents that meet designated sales
targets.
Corporate Channel
Sinarmas MSIG Life uses its direct sales representatives primarily for corporate sales of its group
insurance products, including its Ekamedicare, Personal Accident and Ekawarsa products. The sales
representatives are assigned to particular client worksites. For the years ended December 31, 2008, 2009 and
2010 and the nine months ended September 30, 2011, gross premiums from direct sales representations
accounted for approximately 5.4%, 3.1%, 2.9% and 3.9% of its total gross premiums, respectively, and
3.7%, 2.3%, 2.4% and 3.5% of its new business premiums, respectively.
Sinarmas MSIG Life intends to grow its corporate channel business by focusing on a select group of
health and savings products targeted towards employees. Sinarmas MSIG Life has identified target industries
for the corporate channel and plans to also leverage its relationship with other companies in the broader
Sinar Mas Group to offer corporate solutions. Sinarmas MSIG Life’s plans include setting up booths at PT
Duta Pertiwi, Tbk., a real estate company and member of the Sinar Mas Group, and Eka Hospital to utilize
their sales personnel to refer Sinarmas MSIG’s Life’s products.
Alternative Distribution Channels
Sinarmas MSIG Life also sells its insurance products through direct mailing, telemarketing, inquiries
generated from advertisements handled by its call center, internet marketing and partnerships with retail
stores, including its Smart Medicare, Personal Accident Sinarmaslife and Smart Kid insurance products. In
2010, Sinarmas MSIG Life launched its “Click for Life” website, through which it markets its products on
the internet. An additional distribution channel for its life insurance products is through the cross-selling of
its products through referrals from the in-house sales representatives and agents of other subsidiaries of the
Group, including Asuransi Sinar Mas.
In 2011, Sinarmas MSIG Life launched its mall assurance program, through which Sinarmas MSIG
Life partners with malls to place its sales representatives at malls to market its life, accident and health
insurance products. Sinarmas MSIG Life also intends to distribute its products to multinational corporations
through its strategic alliance with MSIG. This multinational channel will focus on group health insurance
and pension funds specifically targeted at Japanese and Korean multinationals operating in Indonesia.
For the years ended December 31, 2008, 2009 and 2010 and the nine months ended September 30,
2011, gross premiums from its alternative distributions channels accounted for approximately 0.2%, 0.1%,
0.1% and 0.1% of its gross premiums, respectively, and 0.2%, 0.1%, 0.1% and 0.1% of its new business
premiums, respectively.
Sinarmas MSIG Life will develop new channels in cooperation with MSIG. Sinarmas MSIG Life
recently established the Multinational Corporate Division, which head is a representative from MSIG. It also
created the channel development committee to set up new channel development initiatives. A director
nominated by MSIG chairs the channel development committee.
Sharia branch
Sinarmas MSIG Life, through its licensed Sharia division, also offers Sharia products throughout
Indonesia.
Customers and Customer Service
As of December 31, 2010, Sinarmas MSIG Life’s life insurance customer base, one of the largest in
Indonesia, consisted of over 204,400 individual life insurance consumers and approximately 278,621
corporate customers.
A majority of the gross premiums, policy fees and deposits recorded by Sinarmas MSIG Life’s
insurance operations in 2010 from direct sale representatives and the nine months ended September 30,
2011, respectively, were attributable to its sales offices and sub-offices located in Java and Bali, and to a
lesser extent, Sumatera and Kalimantan. As the Indonesian economy continues to grow, Sinarmas MSIG Life
plans to focus on business development in these economically developed areas and devote more resources to
monitor and expand into other markets with growth potential.
In addition, since 1997, Sinarmas MSIG Life has a customer service hotline accessible throughout
Indonesia, the operation of which is currently centralized in its operations centers. Its customer service
hotline handles customer inquiries, complaints and claims settlement.
Sinarmas MSIG Life’s internet website is also an important part of its customer service system.
Through the website, its customers are able to learn about the various insurance products and services that
Sinarmas MSIG Life offers. In addition, its customers are able to purchase some insurance policies online
and handle various matters relating to their policies, such as inquiries, maintenance and claims settlement,
on its website.
Sinarmas MSIG Life has a life benefits department, which is responsible for paying benefits and
handling claims for survivor benefits.
Product Development
Sinarmas MSIG Life has a product development committee, comprising members from marketing,
underwriting, actuary and legal and compliance, which is responsible for designing and pricing newly
developed products. New products are typically initiated by the marketing professionals who share this
information with the rest of the committee, and the products are consequently designed and priced under the
guidance of the chief actuary and legal counsel. The product is then presented for review and approval to its
board of directors and board of commissioners at the weekly meeting between Sinarmas MSIG Life and
management. The board of directors and board of commissioners review the feasibility of each product and
after they have signed off on the product, the newly developed product is then submitted to the Ministry of
Finance, as the regulator for insurance products for reporting in accordance with Indonesian regulations, and
also to Bank Indonesia in the case of products to be distributed through its bancassurance channel.
In order to ensure that Sinarmas MSIG Life’s new products are feasible and meet market demand, the
product development committee surveys the relevant business departments, sales teams at its sales offices
and its customers, and aims to design a product that meets the needs of the customer. Sinarmas MSIG Life
also conducts profitability testing and risk assessment, and formulates corresponding risk management plans.
Sinarmas MSIG Life expects to work closely with MSIG for future product development, including the
development of group health insurance and whole and term life products tailored to the needs of
multinational corporations. A director nominated by MSIG chairs the product strategy committee.
As a result of the partnership with MSIG, Sinarmas MSIG Life recently set up eight Board
committees, with four committees chaired by a director nominated by MSIG and four committees chaired by
a director nominated by the Company. For more information, see “Material Agreements—Sinarmas MSIG
Life Joint Venture—Board Committees”.
Pricing
Sinarmas MSIG Life has a pricing committee, which includes the head actuary. The pricing committee
reports to the board of directors as well as to the Ministry of Finance as required by regulations. Sinarmas
MSIG Life prices its life insurance products primarily on the basis of assumptions with respect to mortality
rates and also reinsurance tables. Furthermore, it also takes into account cost of insurance risk, the interest
rate projected for the invested fund, the mortality for the term product, morbidity of health of the insured,
the expense load, namely the expected administrative expenses, commission fees and other related costs such
as promotions, incentives and discounts in economically difficult years, and the profit margins for a
particular product.
Underwriting
Sinarmas MSIG Life has an underwriting department at its head office, which makes all underwriting
decisions. No sales offices, sub-offices or sales outlets have the authority to underwrite any life insurance
policies without the prior approval from the underwriting department.
Sinarmas MSIG Life’s insurance underwriting process involves an application and risk evaluation
process that seeks to determine whether the risk related to a particular applicant, including both mortality
risk and insurance fraud risk, is consistent with the amount of risk that it is willing and able to accept.
During this process, Sinarmas MSIG Life considers the risk characteristics of the individual or individuals to
be insured, including health condition, occupation and financial profile. In addition, Sinarmas MSIG Life
may consult with its reinsurance personnel for the underwriting of major accident, life and health insurance
policies.
Sinarmas MSIG Life establishes per policy underwriting limits for its underwriting department which
specify the sum insured for each product. To ensure that policy limits are not exceeded, it has implemented
a centralized underwriting information technology system that will not accept a policy for underwriting if
the amount of the policy exceeds established underwriting limits. This system forwards such policies to the
technical director of its underwriting department.
In order to be able to underwrite insurance policies, each member of its underwriting department has
to attend periodic trainings and is encouraged to obtain LOMA, (Life Office Management Association)
accreditation. In addition, its information technology platform provides support to its underwriting
department to enhance the quality of its work. In particular, Sinarmas MSIG Life’s centralized database
allows it to check the risk exposure of a life insurance customer in all of its sales offices. Moreover, its
information technology platform allows Sinarmas MSIG Life to set limits for maximum underwriting and
claims processing for its underwriting department.
Claims Settlement
Sinarmas MSIG Life’s insurance claims settlement is centrally handled by Sinarmas MSIG Life’s
claims department in its head office. The claims department is divided between individual claims, group
health products and all other insurance products. For individual life insurance, the claims department will
verify death certificates. For individual health and accident insurance, its claims examiners investigate and
verify the accuracy of claims reported and records the investigative process in its uniform investigation
management system and then determines the claims payment based on the outcome of the investigation. For
group health insurance, MSIG outsources the claim settlement process. As of September 30, 2011, Sinarmas
MSIG Life had five claim examiners. In order to ensure more effective control over its risk exposures,
Sinarmas MSIG Life’s information technology system for claims settlement operations automatically
forwards any claim that exceeds the authorization level of the handling staff to its claims department head,
division head or authorized director.
Sinarmas MSIG Life has a claims committee which includes medical, actuary and legal professionals
to review unusual cases. Sinarmas MSIG Life’s internal audit department will also be involved in any
suspicious claims and will audit the claims department twice a year.
Sinarmas MSIG Life has obtained ISO 9001:2008 on claims management.
Sinarmas MSIG Life has agreements with certain hospitals that allow insured customers to seek
medical treatment on a cashless basis up to a certain claims limit.
Actuarial Practices
Sinarmas MSIG Life’s actuarial team is primarily responsible for its calculation of reserves, as well as
experience analysis. The actuarial department periodically evaluates the various reserves Sinarmas MSIG
Life holds, in accordance with the relevant accounting principles and regulations, to help ensure its reserves,
including policyholders’ reserves, claim reserves and unearned premium reserves, will meet future
obligations. In respect of experience analysis, the actuarial department regularly conducts company
experience studies in mortality, morbidity, surrender and expense, which serve as the basis for its assumption
in setting prices, reserving and projection.
Its actuarial team makes its actuarial calculations based on the applicable method prescribed by
Ministry of Finance regulations. Sinarmas MSIG Life also takes into account data provided by its reinsurers.
There are two levels of actuaries in Indonesia: fellow and associate. As of September 30, 2011, Sinarmas
MSIG Life’s actuarial team consisted of 21 members, comprising three actuarial fellows, three actuarial
associates with domestic actuarial qualification and 16 additional actuarial staff.
Sinarmas MSIG Life’s actuarial team conducts periodic reviews of its reserves in accordance with
Ministry of Finance regulations to ensure that its reserves, including policyholders’ reserves, claim reserves
and unearned premium reserves will meet its future obligations. Ministry of Finance regulations also require
that every three years an external actuary reviews the year end result of Sinarmas MSIG Life.
Reserves
Sinarmas MSIG Life maintains reserves to provide for its future benefit obligations under its insurance
policies, and maintains its reserves in accordance with reserve requirements set forth by the Ministry of
Finance. The principal types of reserves its maintains are reserves for liability for future policy benefits,
estimated claims liability and unearned premiums.
For more information on Sinarmas MSIG Life’s reserves, see “Management’s Discussion and Analysis
of Financial Condition and Results of Operations—Critical Accounting Policies—Sinarmas MSIG Life
—Reserves” and Note 28 and Note 29 to our September 30, 2011 consolidated financial statements.
Solvency
Solvency risk is a measure of the risk that a company is unable to meet its risk based capital (“RBC”).
In managing these risks, a company maintains its assets quality such that such assets can be categorized as
admitted assets. A risk-based capital system is implemented as an important financial regulatory
measurement for the domestic insurance industry. Sinarmas MSIG Life is required by the Ministry of
Finance to maintain a minimum solvency ratio of 120% of the required RBC and is affected primarily by
the solvency margins it is required to maintain, which is in turn affected by the volume and type of new
insurance policies it sells, the composition of its in-force insurance policies and by regulations on the
determination of statutory reserves.
The below table sets forth the solvency position of Sinarmas MSIG Life as of the dates indicated:
For the Year Ended December 31,
2008
2009
For the Nine Months
Ended September 30,
2010
2011
(Rp. in billions, except percentages)
Admitted Assets . . . . . . . . . . . . . . . . . . . . .
Liabilities (excluding subordinated loans) . . . . . .
6,085.6
(5,453.3)
4,330.1
(3,496.5)
3,960.9
(2,669.3)
15,410.1
(7,282.3)
Total Solvency Margin . . . . . . . . . . . . . . . . .
Total Minimum Solvency Margin . . . . . . . . . . .
632.3
326.0
833.6
275.7
1,291.6
275.4
8,127.8
810.5
Excess of Solvency Margin . . . . . . . . . . . . . .
Solvency Ratio (%) . . . . . . . . . . . . . . . . . . .
306.3
193.6%
557.9
302.3%
1,016.2
469.0%
7,317.3
1,002.8%
The improvement in Sinarmas MSIG Life’s solvency ratio in 2009 and 2010 was primarily a result of
the shift in the number of endowment products to unit link products. The increase in Sinarmas MSIG Life’s
solvency ratio in the nine months ended September 30, 2011 was primarily due to the share subscription of
MSIG. See “—Products”.
Reinsurance
In order to control and diversify its overall exposure to potential future claims loss and expand its
underwriting capacity, Sinarmas MSIG Life reinsures a portion of the risk that it assumes under its insurance
policies in exchange for a portion of the premiums Sinarmas MSIG Life receives with respect to these
policies. Sinarmas MSIG Life generally reinsures its risk exposures proportionally. Some of its reinsurance
agreements are on an excess-of-loss basis, under which a reinsurer is responsible for the claimed loss in
excess of a deductible amount, subject to an agreed-upon ceiling and others are on a shared loss basis.
These reinsurance arrangements generally have maturities that match those of the underlying policies.
Sinarmas MSIG Life determines its risk retention amount and the portion of risk it reinsures based on
its business development needs and the statutory risk retention requirements under Ministry of Finance
regulations, which require insurance companies to reinsure high risk policies of up to a maximum of
US$300,000.0 per location.
To reduce its reinsurance concentration risk, Sinarmas MSIG Life has established reinsurance programs
with several domestic reinsurance companies, including PT Reasuransi Internasional Indonesia, and PT
Maskapai Reasuransi Indonesia, PT Tugu Reasuransi Indonesia, PT Reasuransi Nasional Indonesia and PT
Reasuransi International Indonesia divisi Sharia, which in turn have relationships with international
reinsurers. We also have relationship with international reinsurers including SCOR Global Life, Singapore
and TOA Re, Japan. Sinarmas MSIG Life generally reinsures directly with international reinsurance only if
its domestic reinsurance partners cannot provide required coverage. Its criteria for selecting reinsurers
include financial strength, service, terms of coverage, claims settlement efficiency and price, among others.
Its top life reinsurers in 2010 and the nine months ended September 30, 2011 were PT Reasuransi
Internasional Indonesia, PT Maskapai Reasuransi Indonesia, SCOR Global Life and PT Tugu Reasuransi
Indonesia in terms of ceded gross premiums. Sinarmas MSIG Life monitors the financial condition of its
reinsurers on an ongoing basis and reviews its reinsurance arrangements periodically.
In 2010 and the nine months ended September 30, 2011, Sinarmas MSIG Life ceded Rp.6.2 billion and
Rp.5.8 billion of the gross premiums to reinsurers, accounting for approximately 0.1% and 0.1%,
respectively, of the total gross premiums. In 2010 and the nine months ended September 30, 2011, none of
these reinsurers defaulted on, or was delinquent in, the payment of any life insurance-related reinsurance
obligation to Sinarmas MSIG Life.
We do not expect any immediate changes to our reinsurance policy as a result of MSIG’s investment
but this may change as Sinarmas MSIG Life seeks to write more regular premium policies.
Investments
The carrying value of Sinarmas MSIG Life’s total investment portfolio was Rp.15,059 billion
(US$1,706.8 million) as of September 30, 2011, of which policyholder investments (excluding investments
of its unit link assets (“Unit Link Investments”)) (“Policyholder Investments”), shareholder investments
funded by paid-up capital (“Shareholder Investments” and together with Policyholder Investments,
“Investments”) and Unit Link Investments represented 32.9%, 41.5% and 25.6% of its total investment
portfolio, respectively.
Investment Framework and Management
Sinarmas MSIG Life has an investment management committee which has responsibility for setting and
supervising the execution of its investment policy. It sets the overall asset allocation strategy, mid-to- longterm investment strategy and risk limits. As of November 2011, the committee includes the President
Director, CFO, technical director in charge of product development, underwriting and claims, its chief
actuary, investment manager, the President Commissioner of SMMA and three representatives from MSIG.
The committee meets weekly and conducts reviews of investment-related operations and monitors the
regulatory restrictions, market opportunities for and returns on various types of investments. In addition, the
committee is responsible for reviewing and approving projects that involve equity investments over Rp.200.0
billion and all other investments, including fixed income investments, regardless of amount.
Sinarmas MSIG Life has a four-person investment team which is responsible for the day-to-day
implementation of its asset allocation and investment strategies and daily monitoring of investments. The
activities of the investment team are led and supervised by its investment management officer who is
responsible for and supervises the day-to-day operations and transactions entered into by the investment
team.
Investment Policy and Internal Controls
Sinarmas MSIG Life invests the gross premiums received from its life insurance businesses, and
manages these investments with the objective of meeting the liabilities associated with the insurance policies
that it underwrites, as well as to generate a return for its business. Sinarmas MSIG Life also seeks to
optimize the returns of its investment portfolio and at the same time limit its overall risk exposure to an
acceptable level. It has adopted a specific investment policy which complies with applicable insurance
regulations and implemented internal controls to help it achieve this objective. Its investment policy and
internal controls, as well as the performance of its investment portfolio, are reviewed and amended to the
extent appropriate on an ongoing basis. See also “—Risk Management”.
The principal objectives of its investment policy and internal controls include the following:
•
matching investment assets against the liability characteristics of its insurance products, such as
interest rate, duration and cash flow;
•
limiting its investment portfolio’s exposure to interest rate, credit, liquidity and other risks to
within specified aggregate limits;
•
diversifying its investment portfolio to the extent permissible under the applicable Indonesian
regulations; and
•
maintaining strict limits on its investment exposure to any single company or a group of related
companies.
Sinarmas MSIG Life strives to adhere to prudent and rigorous risk control in its investment
management. Sinarmas MSIG Life has established investment management procedures, stipulating that
investments above specified thresholds or specified investments must be approved by specifically authorized
personnel or entities. In certain cases involving time sensitive opportunistic equity investments, the
investment manager may seek approval for the investment with the President Director and another director.
Sinarmas MSIG Life has also established a series of policies and procedures relating to its investment risk
management and internal control, as well as compliance review in connection with investment decisions.
Sinarmas MSIG Life’s investment committee is responsible for risk identification, assessment, management
and control, using both quantitative and qualitative measures, relating to risks such as market risk, credit
risk, interest rate risk, foreign exchange risk, liquidity risk, operational risk and compliance risk within its
asset management operations. Most of its investment-related controls, including maximum investment amount
in a single equity security, investment category restrictions and delegation of authorities, are configured and
embedded in its information technology systems. For additional information on its risk management, see “—
Risk Management”.
Sinarmas MSIG Life’s investments are managed with the objective of ensuring compliance with
Ministry of Finance regulations and to achieve its investment targets. Sinarmas MSIG Life’s investments
consist of time deposits, mutual funds, stocks bonds, direct equity, properties, mortgages, and policy loans.
Its fund allocation limits are set according to risk and return balance, operations of the business and market
conditions, and provide, in accordance with Ministry of Finance regulations. Sinarmas MSIG Life’s
investment policy limits its investments in any one investment as follows:
•
time deposits in each bank can comprise no more than 20% of total investments and 2% of the
net worth of the bank with which the time deposits are placed;
•
mutual funds can comprise no more than 20% of total investments and 5% of each fund’s total
investment assets;
•
bonds in each issuer can comprise no more than 20% of total investments and 5% of each
issuer’s investment assets;
•
stocks which are issued by Indonesian legal entities can comprise no more than 20% of total
investments in each issuer, and 5% of each issuer’s investment assets;
•
direct placements of unlisted stocks can comprise no more than 10% of the total direct placement
of investments;
•
a mortgage can comprise no more than 20% of the total mortgage investments;
•
a property with strata title can comprise no more than 20% of total property investments; and
•
policy loans can comprise no more than 80% of the policy’s cash value.
In addition, Ministry of Finance regulations require that investments in any one corporate group can
comprise no more than 25% of total investments of the insurance company, except in the case of securities
issued and guaranteed by the Government or Bank Indonesia. As of December 31, 2008, 2009, 2010 and
September 30, 2011, Sinarmas MSIG Life’s largest investment in a corporate group comprised 19.4%, 0.2%,
0.3% and 1.4%, respectively, of total investments.
Sinarmas MSIG Life’s investment policy also prescribes limitations on investments in terms of asset
class. Its investment policy prescribes minimum and maximum allocations, as well as benchmark allocations
for each asset class.
In addition, Sinarmas MSIG Life’s investment policy also prescribes minimum and maximum
allocations of investments and benchmark allocations for each asset class as follows:
•
investment in fixed income securities is limited to a benchmark allocation of 20% in the
aggregate, and may comprise (i) time deposits with a maximum allocation of 20% and
benchmark allocation of 5% of invested assets; and (ii) corporate bonds with a maximum
allocation of 50%, minimum allocation of 5%, and benchmark allocation of 10% of invested
assets;
•
investment in equities is limited to a maximum allocation of 50% and benchmark allocation of
20% of invested assets;
•
investment in mutual funds is benchmarked at 50% of invested assets and may comprise (i) fixed
income mutual funds with a maximum allocation of 80% and a benchmark allocation of 20% of
invested assets; (ii) equity mutual funds, with a maximum allocation of 35% and a benchmark
allocation of 10% of invested assets; and (iii) mixed mutual funds with a maximum allocation of
65% and a benchmark allocation of 10% of invested assets;
•
investment in policy loans is limited to a maximum allocation of 20%, a minimum allocation of
1% and a benchmark allocation of 1% of invested assets;
•
investment in mortgages is limited to a maximum allocation of 10% and a benchmark allocation
of 4% invested assets; and
•
investment in properties is limited to a maximum allocation of 10%, a minimum allocation of
1% and a benchmark allocation of 5% of invested assets.
As part of its portfolio management, Sinarmas MSIG Life’s investment team also observes certain
criteria when analyzing and selecting equity securities for its investments, which include the following:
•
Return on equity: the company should have a return on equity higher than its peers over the last
four to five years;
•
Market capitalization: the company should have a market capitalization of over Rp.10 trillion;
•
Volume: the company should have a relatively stable trading volume for at least one year or
more; and
•
Liquidity: the company should have a daily trading average of Rp.10 billion or more.
In connection with the selection process, Sinarmas MSIG Life’s investment team performs technical
and statistical analyses on the economy, sector, market indices and trends.
Investment Portfolio
Sinarmas MSIG Life manages its financial investments in three distinct categories: Unit Link
Investments, Policyholder Investments and Shareholder Investments. Sinarmas MSIG Life also segregates
funds from its Sharia products, which are managed and invested in accordance with Sharia principles and for
which the investment scope is limited under such principles. With respect to its Unit Link Investments, the
investment risk is borne by holders of Sinarmas MSIG Life’s unit link insurance products, although
allocation of their policy values among investment options are managed by Sinarmas MSIG Life or external
managers instructed by Sinarmas MSIG Life in accordance with parameters set for the product, such as the
designation of 80% in fixed income and 20% in equities for our Stable Link products. Policyholder
Investments and Shareholder Investments include financial investments other than Unit Link Investments.
The investment risk in respect of Policyholder and Shareholder Investments is wholly borne by Sinarmas
MSIG Life.
Policyholder and Shareholder Investments are generally segregated from one another. The management
of the Policyholder and Shareholder Investments generally follow the same investment governance and
process but not necessarily the same asset allocation.
Sinarmas MSIG Life had total assets of Rp.20,766.1 billion as of September 30, 2011 of which time
deposits, mutual funds, equity securities and debt securities accounted for approximately 30.0%, 56.7%,
5.6% and 2.6%, respectively.
Sinarmas MSIG Life’s investment portfolios consist of three principal asset classes: (i) mutual funds,
(ii) equity securities and (iii) fixed income securities. The following table sets forth the carrying value of
each principal asset class in its investment portfolio as of the dates indicated. For financial reporting
purposes, Sinarmas MSIG Life reports Policyholder Investments and Shareholder Investments as
“Investments”.
As of September 30, 2011(1)
Investments
%
Segregated
Funds of
Unit Link
%
Segregated
Funds of
Sharia
%
Total
(Rp. in billions, except percentages)
Time Deposits . . . . . . . . . .
Mutual Funds . . . . . . . . . .
Equity Securities . . . . . . . .
Debt Securities . . . . . . . . .
Mortgage Loans . . . . . . . .
Policy Loans . . . . . . . . . .
Investment in Shares of
Stock . . . . . . . . . . . . . .
Investment Properties . . . . .
6,123.7
6,579.9
1,131.7
470.4
13.4
694.4
40.7
43.7
7.5
3.1
0.1
4.6
105.6
5,150.5
33.6
47.2
—
—
2.0
96.5
0.6
0.9
—
—
8.6
41.7
7.8
21.6
—
—
10.8
52.3
9.8
27.1
—
—
6,237.9
11,772.1
1,173.1
539.2
13.4
694.4
46.3
0.1
0.3
—
—
—
—
—
—
—
—
—
46.3
0.1
Total . . . . . . . . . . . . . .
15,059.9
100.0
5,336.9
100.0
79.7
100.0
20,476.5
(1)
Figures are provided from the financial statements of Sinarmas MSIG Life as of and for the years ended December 31, 2008,
2009 and 2010 and September 30, 2011, respectively.
As of December 31, 2010(1)
Investments
%
Segregated
Funds of
Unit Link
%
Segregated
Funds of
Sharia
%
Total
(Rp. in billions, except percentages)
Time Deposits . . . . . . . . . .
Mutual Funds . . . . . . . . . .
Equity Securities . . . . . . . .
Debt Securities . . . . . . . . .
Mortgage Loans . . . . . . . .
Policy Loans . . . . . . . . . .
Investment in Shares of
Stock . . . . . . . . . . . . . .
60.9
1,683.0
1,097.8
485.9
15.0
415.3
1.6
44.8
29.2
12.9
0.4
11.1
1,282.9
5,929.4
36.1
44.5
—
—
17.6
81.3
0.5
0.6
—
—
10.0
40.4
—
21.6
—
—
13.9
40.4
—
21.6
—
—
1,353.7
7,652.9
1,133.8
551.9
15.0
415.3
0.3
0.0
—
—
—
—
0.3
Total . . . . . . . . . . . . . .
3,758.1
100.0
7,292.9
100.0
72.0
100.0
11,122.9
As of December 31, 2009(1)
Investments
%
Segregated
Funds of
Unit Link
%
Segregated
Funds of
Sharia
%
Total
(Rp. in billions, except percentages)
Time Deposits . . . . . . . . . .
Mutual Funds . . . . . . . . . .
Equity Securities . . . . . . . .
Debt Securities . . . . . . . . .
Mortgage Loans . . . . . . . .
Policy Loans . . . . . . . . . .
Investment in Shares of
Stock . . . . . . . . . . . . . .
224.8
2,216.8
721.9
583.8
18.3
424.7
5.4
52.9
17.2
13.9
0.4
10.1
309.3
3,078.5
26.5
37.0
—
—
9.0
89.2
0.8
1.1
—
—
7.0
13.4
—
13.0
—
—
21.0
40.1
—
38.9
—
—
541.0
5,308.7
748.4
633.8
18.3
424.7
0.3
0.0
—
—
—
—
0.3
Total . . . . . . . . . . . . . .
4,190.5
100.0
3,451.3
100.0
33.3
100.0
7,675.1
%
Total
As of December 31, 2008(1)
Investments
%
Segregated
Funds of
Unit Link
%
Segregated
Funds of
Sharia
(Rp. in billions, except percentages)
Time Deposits . . . . . . . . . .
Mutual Funds . . . . . . . . . .
Equity Securities . . . . . . . .
Debt Securities . . . . . . . . .
Mortgage Loans . . . . . . . .
Policy Loans . . . . . . . . . .
Investment in Shares of
Stock . . . . . . . . . . . . . .
Investment Properties . . . . .
400.5
4,573.3
44.1
260.5
21.5
534.9
6.9
78.4
0.8
4.5
0.4
9.2
—
446.0
12.7
32.0
—
—
—
90.9
2.6
6.5
—
—
0.5
8.3
—
9.6
—
—
2.7
45.1
—
52.2
—
—
401.0
5,027.5
56.7
302.1
21.5
534.9
0.3
0.5
0.0
0.0
—
—
—
—
—
—
—
—
0.3
0.5
Total . . . . . . . . . . . . . .
5,835.6
100.0
490.7
100.0
18.3
100.0
6,344.5
Mutual Funds
Sinarmas MSIG Life’s mutual funds portfolio principally consists of equity, fixed income ad mixed
investment mutual funds managed by other fund managers and RDPT funds through which Sinarmas MSIG
Life directs investments. Securities invested by the RDPT funds are all held in custody with Bank Mega
pursuant to custody agreements with each investment manager, which provide Sinarmas MSIG Life with the
right to take back the securities in the event of any disagreement with the investment manager. Mutual funds
constitute the largest asset class in its Unit Link Investments, representing 90.9%, 89.2%, 81.3% and 96.5%
of the carrying value of total Unit Link Investments as of December 2008, 2009, 2010 and September 30,
2011, respectively. Mutual funds also constitute the largest asset class in its Investments, representing 78.4%,
52.9%, 44.8% and 43.7% of the carrying value of total investments as of December 2008, 2009, 2010 and
September 30, 2011, respectively. As of December 31, 2008, 2009 and 2010 and September 30, 2011,
approximately 0.0%, 35.9%, 9.0% and 94.0% of mutual fund investments were with RDPT funds. Although
in 2008 there was a shift from internal managers to external managers, most of these external managers are
managers of RDPT funds to which we continue to provide direction as to investments.
RDPT funds are limited participation mutual funds which can have one to 49 investors. The RDPT
fund is managed by an investment manager pursuant to the terms of a collective investment agreement
between the investment manager and custodian bank. RDPT are not required to mark-to-market their
investments. Under Bapepam-LK regulations, RDPT funds are permitted to determine the fair value of their
fixed income investments using an amortized acquisition price method so long as the debt securities are held
until maturity. For equity investments, they are permitted to use any valuation method so long as such method
is agreed with the investors in advance in the governing collective investment contract and such method is
approved by the Ministry of Finance.
The table below shows a breakdown of Sinarmas MSIG Life’s mutual funds portfolio for its
Investments for the periods indicated.
As of December 31,
Mutual funds managed by third
parties(1) . . . . . . . . . . . . . . . . . .
Mutual funds managed by related
parties . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . .
(1)
2010
As of September 30,
2008
2009
2010
Rp.
Rp.
3,616.1
2,206.7
1,672.9
189.6
957.2
10.0
10.1
4,573.3
2,216.7
1,683.0
2010
2011
2011
Rp.
US$
1,973.9
6,569.4
744.6
1.1
10.4
10.4
1.2
190.8
1,984.3
6,579.8
745.8
Rp.
US$
Rp.
(Rp. in billions, US$ in millions)
Includes RDPT funds.
The table below shows a breakdown of Sinarmas MSIG Life’s mutual funds portfolio for its
Segregated Funds of Unit link for the periods indicated.
As of December 31,
Mutual funds managed by third
parties(1) . . . . . . . . . . . . . . . . . .
Mutual funds managed by related
parties . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . .
(1)
2010
As of September 30,
2008
2009
2010
Rp.
Rp.
142.9
2,231.1
5,876.1
666.0
303.1
847.4
53.3
446.0
3,078.5
5,929.4
2010
2011
2011
Rp.
US$
5,204.4
5,118.0
580.1
6.0
53.7
32.5
3.7
672.0
5,258.1
5,150.5
583.8
Rp.
US$
Rp.
(Rp. in billions, US$ in millions)
Includes RDPT funds.
The table below shows a breakdown of Sinarmas MSIG Life’s mutual funds portfolio for its
Segregated Funds of Sharia for the periods indicated.
As of December 31,
Mutual funds managed by third
parties(1) . . . . . . . . . . . . . . . . . .
Mutual funds managed by related
parties . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . .
2010
As of September 30,
2008
2009
2010
Rp.
Rp.
8.3
13.4
40.4
4.6
—
—
—
8.3
13.4
40.4
2010
2011
2011
Rp.
US$
28.2
41.7
4.7
—
—
—
—
4.6
28.2
41.7
4.7
Rp.
US$
Rp.
(Rp. in billions, US$ in millions)
(1)
Includes RDPT funds.
Mutual funds managed by related parties are principally funds managed by Sinarmas Sekuritas. See
“Related Party Transactions—Present and Ongoing Related Party Transactions—Investments in Mutual
Funds Managed by Sinarmas Sekuritas”.
The underlying investments of Sinarmas MSIG Life’s mutual funds portfolio consist of fixed income
investments, both corporate and Government bonds comprising both investment grade and non-investment
grade securities and equity securities of both domestic and foreign issuers. The table below shows a
breakdown of the underlying investments in mutual funds in which Sinarmas MSIG Life invested on an
aggregate basis for the periods indicated.
As of September 30, 2011
Investments
Fixed income(1):
Government bonds . . . . .
Corporate bonds . . . . . . .
%
Segregated
Funds of
Unit Link
%
Segregated
Funds of
Sharia
%
Total
(Rp. in billions, except percentages)
29.5
3,096.2
0.4
47.1
153.4
2,660.1
3.0
51.6
0.0
7.2
0.0
17.2
182.9
5,763.5
Total . . . . . . . . . . . . . .
Equity(2):
Domestic . . . . . . . . . . .
Foreign . . . . . . . . . . . .
3,125.7
47.5
2,813.5
54.6
7.2
17.2
5,946.4
3,077.4
47.9
46.8
0.7
1,974.9
0.0
38.3
0.0
29.8
0.0
71.5
0.0
5,082.1
47.9
Total . . . . . . . . . . . . . .
Cash and cash equivalents .
3,125.3
328.8
47.5
5.0
1,974.9
362.1
38.3
7.1
29.8
4.7
71.5
11.3
5,130.0
695.6
Total . . . . . . . . . . . . . . .
6,579.8
100.0
5,150.5
100.0
41.7
100.0
11,772.0
%
Total
As of December 31, 2010
Investments
Fixed income(1):
Government bonds . . . . .
Corporate bonds . . . . . . .
%
Segregated
Funds of
Unit Link
%
Segregated
Funds of
Sharia
(Rp. in billions, except percentages)
18.8
1,237.9
1.1
73.6
173.8
3,360.8
2.9
56.7
0.0
16.1
0.0
39.8
192.6
4,614.8
Total . . . . . . . . . . . . . .
Equity(2):
Domestic . . . . . . . . . . .
Foreign . . . . . . . . . . . .
1,256.7
74.7
3,534.6
59.6
16.1
39.9
4,807.4
330.5
—
19.6
—
1,937.7
—
32.7
—
17.7
—
43.9
—
2,286.0
—
Total . . . . . . . . . . . . . .
Cash and cash equivalents .
192.6
95.8
19.6
5.7
1,937.7
457.1
32.7
7.7
17.7
6.6
43.9
16.3
2,286.0
559.5
Total . . . . . . . . . . . . . . .
1,683.0
100.0
5,929.4
100.0
40.4
100.0
7,152.9
%
Total
As of December 31, 2009
Investments
Fixed income(1):
Government bonds . . . . .
Corporate bonds . . . . . . .
%
Segregated
Funds of
Unit Link
%
Segregated
Funds of
Sharia
(Rp. in billions, except percentages)
151.8
2,010.5
6.8
90.7
24.7
2,724.1
0.8
88.5
0.0
5.9
0.0
43.8
176.5
4,740.4
Total . . . . . . . . . . . . . .
Equity(2):
Domestic . . . . . . . . . . .
Foreign . . . . . . . . . . . .
2,161.3
97.5
2,748.8
89.3
5.9
43.8
4,916.9
8.2
—
0.4
—
267.1
—
8.7
—
6.6
—
49.7
—
281.9
—
Total . . . . . . . . . . . . . .
Cash and cash equivalents .
8.2
46.3
0.4
2.1
267.1
62.7
8.7
2.0
6.6
0.9
49.7
6.6
281.9
109.9
Total . . . . . . . . . . . . . . .
2,216.7
100.0
3,078.5
100.0
13.4
100.0
5,308.7
As of December 31, 2008
Investments
%
Segregated
Funds of
Unit Link
%
Segregated
Funds of
Sharia
%
Total
(Rp. in billions, except percentages)
Fixed income(1):
Government bonds . . . . .
Corporate bonds . . . . . . .
1.4
4,540.7
0.0
99.3
7.1
268.5
1.6
60.2
0.0
6.0
0.0
72.6
8.5
4,815.2
Total . . . . . . . . . . . . . .
Equity(2):
Domestic . . . . . . . . . . .
Foreign . . . . . . . . . . . .
4,542.1
99.3
275.6
61.8
6.0
72.6
4,823.7
6.2
—
0.1
—
98.3
—
22.0
—
1.9
—
23.3
—
106.4
—
Total . . . . . . . . . . . . . .
Cash and cash equivalents .
6.2
25.0
0.1
0.5
98.3
72.1
22.0
16.2
1.9
0.3
23.3
4.1
106.4
97.4
Total . . . . . . . . . . . . . . .
4,573.3
100.0
446.0
100.0
8.2
100.0
5,027.5
(1)
Amounts are calculated based on KSEI bond reference price as of the dates indicated.
(2)
Amounts are calculated based on the share closing price as of the dates indicated.
As of December 31, 2008, 2009 and 2010 and September 30, 2011, 0.0%, 0.0%, 13.3% and 31.2%,
respectively, of Sinarmas MSIG Life’s investments in the RDPT funds on an aggregate basis were in equity
securities, all of which were in equities of companies in LQ-45, a capitalization-weighted stock market index
of the 45 most heavily traded stocks on IDX.
As of September 30, 2011, the five largest equity holdings of the RDPT funds in which Sinarmas
MSIG Life invested on an aggregate basis were PT Bumi Resources Tbk, PT Perusahaan Gas Negara Tbk,
PT Bank Mandiri (Persero) Tbk, PT Bank Rakyat Indonesia (Persero) Tbk, and PT Bank Danamon
Indonesia Tbk, which accounted for 8.0%, 3.9%, 3.9%, 1.4% and 1.3%, respectively, of total investments in
RPDT funds and 5.9%, 2.9%, 2.9%, 1.0% and 1.0%, respectively, of total investments as of such date. As of
September 30, 2011, Rp.1,173.3 billion (US$133.0 million) or 19.9% of total investments in the RDPT funds
on an aggregate basis comprised SMMA shares. The SMMA shares were held by two RDPT funds pursuant
to securities repurchase agreements between the investment manager and other limited partner of the
respective funds, who are entities directly or indirectly controlled by other members of the Widjaja family.
On November 23, 2011, all such SMMA shares were repurchased by the limited partners at a predetermined
price in accordance with the terms of the securities repurchase agreements.
As of September 30, 2011, the five largest fixed income holdings of the RDPT funds in which
Sinarmas MSIG Life invested on an aggregate basis and their respective credit ratings by PT Pefindo Credit
Rating Indonesia (“Pefindo”) were Sub Bank Permata II 2011 (“AA–”), Agung Podomoro Land IB 2011
(“A”), Apexindo Pratama Duta IIB 2009 (“A+”), Intraco Penta 2011 (“A”) and Sub Bank OCBC NISP III
2010 (“AA–”), which accounted for 4.2%, 2.0%, 1.8%, 1.8% and 1.8%, respectively, of total investments in
RPDT funds and 3.3%, 1.5%, 1.4%, 1.3% and 1.3%, respectively, of total investments as of such date. As of
September 30, 2011, Rp.337.8 billion (US$38.3 million) or 3.1% of total investments in RDPT funds
comprised debt securities of related parties. Debt securities of related parties as a percentage of Sinarmas
MSIG Life’s total investments in RDPT funds have historically fluctuated from period to period.
It is expected that RDPT funds will no longer be available as an investment vehicle after 2014
pursuant to changes to Ministry of Finance regulations.
Equity Securities
Sinarmas MSIG Life allocates a portion of its investments to direct investments in equity securities. Its
direct equity investments are principally in public equities, and represented 0.7%, 17.2%, 29.2% and 7.5% of
the carrying value of total Investments as of December 2008, 2009, 2010 and September 30, 2011,
respectively. For Unit Link Investments, direct equity investments did not exceed 2.6% of total investments
as of December 2008, 2009, 2010 or September 30, 2011. Sinarmas MSIG Life’s largest equity investment as
of December 31, 2010 was PT Bumi Resources Tbk, which amounted to 59.0% of its total equity portfolio
and 17.1% of total investments. The largest equity investment as of September 30, 2011 was in PT Bank
Negara Indonesia (Persaro) Tbk, which accounted for 35.1% of its total equity portfolio. Many of the direct
equity investments of Sinarmas MSIG Life are from allocations arranged by Sekuritas Sinarmas.
Debt Securities
Sinarmas MSIG Life also holds a portfolio of Government and corporate bonds from time to time,
which comprised 4.5%, 13.9%, 12.9% and 3.1% of the carrying value of total investments as of December
2008, 2009, 2010 and September 30, 2011, respectively. Its corporate bond investments include both Rupiah
and U.S. dollar-denominated bonds.
The table below shows a breakdown of Sinarmas MSIG Life’s fixed income investments in terms of
maturity profile as of September 30, 2011:
Maturity by Period
Total
Less than
1 Year
1 to 3 Years
3 to 5 Years
More than
5 Years
41.4
—
41.4
313.1
107.0
206.1
(Rp. in billions)
Debt securities . . . . . . . . . .
Corporate bonds . . . . . . . . .
Government bonds. . . . . . . .
470.3
116.8
353.5
—
—
—
115.8
9.8
106.0
Time Deposits
Although historically time deposits have not been a significant investment for Sinarmas MSIG Life, for
the nine months ended September 30, 2011, Rp.6,123.7 billion (US$694.1 million), or 40.7%, of investments
were held in time deposits, consisting primarily of funds from MSIG’s capital contribution from its share
subscription.
Its time deposits constituted 6.9%, 5.4%, 1.6% and 40.7% of the carrying value of total Investments as
of December 2008, 2009, 2010 and September 30, 2011, respectively.
Policy Loans
When Power Save and Stable Link policyholders decide to surrender their policies, Sinarmas MSIG
Life provides policyholders with the option of having Sinarmas MSIG Life pay out 20% of the account value
as a partial withdrawal payment, with the remaining 80% to be treated as a policy loan to the policyholder.
In such cases, these policies are treated as in-force policies as of such date, and will remain as in force
policies until at most one month after such date, after which Sinarmas MSIG Life will release the
corresponding reserves held for these policies.
For the years ended December 31, 2008, 2009 and 2010 and the nine months ended September 30,
2011, policy loans constituted 8.2%, 5.5%, 3.6% and 4.6% of the carrying value of total investments,
respectively, of which approximately 99% related to Power Save and Stable Link policies.
Risk Management
Risk Management Framework
Sinarmas MSIG Life’s risk management policy is devised and implemented by its risk management
committee, comprising a representative from MSIG as the committee chairman, together with the CFO,
technical director and another representative from MSIG. The risk management committee is responsible for
assisting the board of commissioners in evaluating and assessing the effectiveness of the risk management
policy implemented by the board of directors. MSIG plans to take an active role in further developing and
improving Sinarmas MSIG Life’s risk management standards and procedures which include implementing
additional training programs for staff.
Management of Principal Risks
Sinarmas MSIG Life has certain risk exposures in the form of market risk, foreign exchange rate risk,
credit risk, interest rate risk and liquidity risk. Management policy on financial risk is intended to minimize
potential adverse and financial impacts that may arise from such risks. In this regard, management did not
allow any speculative derivative transactions during 2010.
The following is a summary of Sinarmas MSIG Life’s policy and financial risk management
objectives:
•
Market Risk. Market risk is the risk of fluctuations in the value of financial instruments as a
result of changes in market price and the possibility of financial loss caused by changes in
financial instruments’ fair values due to fluctuations in key variables, including interest rates,
equity market prices and foreign exchange rates. To manage this risk, management periodically
reviews the performance of securities and its portfolio diversification examines the relevance of
instruments it holds for its long-term strategic plan.
•
Lapse Risk. Lapse risk refers to the possibility of actual lapse experience that diverges from the
anticipated experience Sinarmas MSIG Life assumed when products were priced as well as
financial loss due to early termination of policies or contracts where acquisition cost incurred
may not be recoverable from future revenue. Most of Sinarmas MSIG Life’s products include
surrender charges that entitle it to additional fees upon early termination by policyholders,
thereby reducing exposure to lapse risk.
•
Operational Risk. Sinarmas MSIG Life also faces operational risks, which may occur during its
day to day operations. Such operation risks may include customer dissatisfaction, disruption of
information technology systems, high turnover rate of administration staff, overpayment of
customers’ claims and important documents destroyed by fire, among others. Sinarmas MSIG
Life takes steps to manage its operational risks by implementing specific action plans to address
these risks, including providing customer service training to staff and agents, continually getting
feedback from customers, ensuring adequate back-up administration staff are available,
coordinating with information technology team to perform regular system maintenance and
storing all documents in fireproof storage cabinets and storing documents online.
•
Pricing and Underwriting Risk. Pricing and underwriting risk refers to the possibility of product
related income being inadequate to support future obligations arising from a product. Sinarmas
MSIG Life faces pricing and underwriting risk when it underwrites policies. Such pricing and
underwriting risk may include underwriting policies that should have been rejected or incorrectly
pricing the premium based on the risks faced. Sinarmas MSIG Life takes steps to manage its
pricing and underwriting risks by adhering to its underwriting policy and implementing specific
action plans to address these risks, including conducting periodic underwriting training to its staff
and regularly updating its underwriting policy.
•
Interest Rate Risk. Interest rate risk on cash flows involves the risk of fluctuation of future cash
flows of a financial instrument due to changes in market interest rates. Sinarmas MSIG Life’s
exposure to interest rate risk predominantly arises from its investments in fixed income debt
securities as well as in fixed income mutual funds. Management manages its interest rate risk by
monitoring the BI Rate and inflation rate and the influence of interest rates on its investment
instruments.
•
Foreign Exchange Rate Risk. Foreign exchange rate risk is the risk that the fair value or future
cash flow of a financial instrument will fluctuate due to changes in foreign currency exchange
rates. Sinarmas MSIG Life’s exposure to exchange rate fluctuation mainly derives from its
investments and income from investments. To protect against this risk, management aims to
maintain a balance of assets and liabilities, with a matching ratio of foreign currency assets to
liabilities of at least 100% at any time.
•
Product Design Risk. Sinarmas MSIG Life faces product design risks, which may occur when it
launches or plan to launch new products. Project design risk refers to potential defects in the
development of a particular insurance product. Such product design risks may include
unfavorable market responses to its new products and its failure to meet product launch
deadlines. Sinarmas MSIG Life’s product design process is overseen by its product development
committee and all new products must be approved by its board of directors and board of
commissioners as well as the Ministry of Finance. Sinarmas MSIG Life takes steps to manage its
product design risks by closely monitoring specific action plans to address these risks, including
conducting weekly products response checks to identify of market reactions to its new products.
•
Liquidity Risk. Liquidity, or funding risk, may occur where Sinarmas MSIG Life could have
difficulties obtaining cash to meet obligations, such as in the case of surrender spikes. This may
arise when there is a mismatch of maturities of assets and liabilities. To mitigate this risk, the
management team applies a cash management policy which includes projections of up to a
certain point in time and monitors the maturity profile of financial assets and liabilities as well
as cash flows.
•
Credit Risk. Credit risk is the risk that a counterparty to a financial instrument may fail to meet
its obligations and causes the other party to suffer financial loss. For Sinarmas MSIG Life, this
risk will generally arise from reinsurance receivables, bank deposits and debt securities. The
management team manages the risks associated with savings in banks by continuing to monitor
the credibility and solvency of the banks and considers the bank’s participation in the Deposit
Insurance Agency (“LPS”).
•
Legal and Regulatory Risk. Sinarmas MSIG Life also faces legal and regulatory risks, which
may include changes in regulations governing its operations and fraud or unethical selling
practices committed by its agents. Sinarmas MSIG Life takes steps to manage its legal and
regulatory risks by implementing specific action plans to address these risks, including keeping
abreast of all regulatory changes and maintaining good relationships with regulators, and
providing adequate training to agents.
Project and underwriting risk and lapse risk are primarily assessed and monitored by Sinarmas MSIG
Life’s product development committee while market risk, foreign exchange rate risk, credit risk, interest rate
risk and liquidity risk are primarily assessed and managed by Sinarmas MSIG Life’s investment committee.
Its risk management committee is primarily responsible for assessing and monitoring operational and legal
risks. We expect that the management of Sinarmas MSIG Life’s principal risks and the roles of the
committees will change with MSIG’s participation.
Other Operations
In addition to its insurance products, Sinarmas MSIG Life also provides asset management services for
pension funds through DPLK Sinarmas, Sinarmas MSIG Life’s subsidiary. As of September 30, 2011,
Sinarmas MSIG Life managed the pension funds for 20 companies and approximately 71.1% of AUM were
attributed to affiliates within the Sinar Mas Group. As of September 30, 2011, total AUM amounted to
Rp.15.4 billion. For 2008, 2009, 2010 and the nine months ended September 30, 2011, management fees from
this unit were Rp.0.2 billion, Rp.0.3 billion, Rp.0.2 billion and Rp.0.3 billion, respectively.
Competition
Competition in the life insurance industry in Indonesia is based on many factors, including price, sales
force strength and abilities, product design features, customer service, claims services, reputation, perceived
financial strength and the experience of the insurance company in the line of insurance to be written.
Sinarmas MSIG Life also competes with other insurance companies and financial institutions to attract and
retain experienced personnel.
Sinarmas MSIG Life’s primary competitors are foreign-invested local life insurance and health insurance
companies. Some of these companies may have greater financial, management and other resources, and may
have longer and more extensive operating experience. In addition, some of its domestic competitors have
benefited from more extensive distribution networks than Sinarmas MSIG Life. Sinarmas MSIG Life also
faces competition from smaller insurance companies, which have been making efforts to expand their market
shares and may develop strong positions in various regions in which Sinarmas MSIG Life operates. Sinarmas
MSIG Life also faces potential competition in Indonesia from commercial banks, which may be able to invest
in, or form alliances with, existing insurance companies to offer insurance products and services that compete
against Sinarmas MSIG Life, or establish subsidiaries of their own to engage in insurance business directly.
We believe that Sinarmas MSIG Life’s partnership with MSIG, the core operating unit of MS&AD
Insurance Group, Japan’s second largest property-insurance casualty insurance group by net premiums, will
provide competitive benefits by allowing it to leverage MSIG’s international expertise. MSIG brings
numerous strengths to its partnership with us, including strengthening Sinarmas MSIG Life’s insurance
distribution capabilities through expansion of its productive agency force, providing training for staff and
agents, enhancement of risk management and internal control systems and contribution to product innovation
while expanding traditional life products and maintaining Sinarmas MSIG Life’s unit link business.
The presence of foreign insurance companies in the Indonesian market has continued to increase in
recent years, and their business activities have continued to expand as the industry becomes more open to
foreign competition. Although subject to an 80% foreign ownership limitation under Indonesian law, some
new foreign entrants may be able to commence operations rapidly by forming alliances and joint ventures
with other Indonesian insurance companies and by employing products and skills developed in their home
markets. As of December 31, 2010, there were 45 licensed Indonesian life insurance companies. In addition,
as of the same date, there were 17 foreign life insurance companies licensed to conduct insurance business
in Indonesia through joint ventures and other arrangements with Indonesian companies. Sinarmas MSIG
Life’s principal competitors consist of domestic providers and joint ventures between domestic and
international financial institutions, including PT Prudential Life Assurance, PT Asuransi Jiwa Manulife
Indonesia and PT AIA Financial Indonesia. Sinarmas MSIG Life also faces competition from Allianz and
AXA. Its market share in the Indonesian life insurance market, in terms of total gross premiums, based on
financial data published by Bapepam-LK in its Indonesia Insurance 2010 Report, was 12.4% for 2010.
Real Property
As of September 30, 2011, Sinarmas MSIG Life owned 23 offices comprising a total gross floor area of
approximately 10,540.7 square meters with a net book value of Rp.69.8 billion, including its headquarters
in Jakarta. As of September 30, 2011, Sinarmas MSIG Life also leased 22 properties comprising a total
gross floor area of approximately 2,295 square meters, 4 of which are leased from related parties.
Intellectual Property
Sinarmas MSIG Life owns the trademark for a number of its products such as “ekalink family”,
“EXCELLINK”, “ekamedicare”, “SEHAT”, “MAXI CARE” and “Click for Life”. Sinarmas MSIG Life is
also in the process of obtaining trademark ownership of several other trademarks.
Employees
As of September 30, 2011, Sinarmas MSIG Life had approximately 907 employees, which include
contract workers. The table below sets forth the number of employees by function as of same date.
Function
Management
Number of Employees
7
Marketing
250
Operational
503
Underwriting Experts
Qualified Insurance Practitioners
2
145
Insurance
Sinarmas MSIG Life maintains insurance coverage for its properties and vehicles underwritten by
Asuransi Sinar Mas. Sinarmas MSIG Life also carries insurance to cover against loss of monies or goods
held in trust by Sinarmas MSIG Life due to fraud or misconduct of its employees. We believe that Sinarmas
MSIG Life’s insurance coverage is similar in scope to those customary for life insurance businesses in
Indonesia.
Legal Proceedings
From time to time Sinarmas MSIG Life may be involved in legal proceedings concerning matters that
arise in the ordinary course of its business operations.
We are not aware of any potential litigation, arbitration or administrative proceeding against Sinarmas
MSIG Life which might materially affect its business, financial condition or results of operations.
Joint Venture — Mega Life
Mega Life, established in 2003, is a 50–50 joint venture formed by SMMA Group with PT Mega
Corpora, the financial services arm of Para Group, an Indonesian conglomerate. Para Group maintains active
management control of the joint venture and SMMA holds its interest as a financial investment. Mega Life
primarily distributes its products through Bank Mega branches, resulting in limited overlap between the
business of Sinarmas MSIG Life and Mega Life. Sinarmas MSIG Life provides assistance and operational
support to Mega Life.
Non-Life Insurance — Asuransi Sinar Mas
Overview
We conduct our non-life insurance business primarily through our subsidiary, Asuransi Sinar Mas in
which we own 100.0% of the share capital. Asuransi Sinar Mas is the largest non-life insurance provider in
Indonesia with 11.1% market share measured by total gross premiums for the non-life insurance industry in
Indonesia in 2010 as published by Bapepam-LK in its Indonesia Insurance 2010 Report. Net premium
income grew at a CAGR of 25.2% from 2008 to 2010.
Established in Indonesia in 1985, Asuransi Sinar Mas offers a wide range of non-life insurance
products and services, including fire and all allied perils property insurance, motor vehicle insurance, marine
hull insurance, marine cargo insurance, bonding, engineering insurance personal accident, health insurance,
casualty and other miscellaneous insurance including money insurance, golf indemnity, burglary and theft
insurance, mobile phone insurance and others. As of September 30, 2011, Asuransi Sinar Mas had a
distribution network of approximately 7,000 agents, 63 brokers, 77 finance companies, one head office and
92 sales offices and one Sharia office. Asuransi Sinar Mas also has a subsidiary in Timor Leste and is a
member of the Federation of Afro-Asian Insurers and Reinsurers (FAIR). It also participates in the Asia
Catastrophe Pool, a club of insurance providers based in Asia, through which insurers agree to participate in
a fund to provide financial support for catastrophe events in the region.
Total assets of Asuransi Sinar Mas increased from Rp.2,118.8 billion as of December 31, 2009 to
Rp.2,766.5 billion as of December 31, 2010 and Rp.3,350.8 billion as of September 30, 2011. In 2010,
Asuransi Sinar Mas had gross premiums of Rp.3,259.0 billion in 2010, increasing 13.5% from Rp.2,872.7
billion in 2009. Net underwriting income also grew 6.8% from Rp.190.4 billion in 2009 to Rp.203.3 billion
in 2010. For the nine months ended September 30, 2011, Asuransi Sinar Mas had gross premiums of Rp.3.0
trillion, an increase of 22.2% from Rp.2.5 trillion for the nine months ended September 30, 2010. Net
underwriting income grew 44.3% to Rp.236.4 billion for the nine months ended September 30, 2011 from
Rp.163.8 billion for the nine months ended September 30, 2010.
Asuransi Sinar Mas distributes its products through various distribution channels, primarily through
insurance brokers, as well as agents, direct sales, and through cooperation with Indonesian banks and finance
companies. As of September 30, 2011 its distribution channels comprised approximately 7,000 agents, 63
brokers, 77 finance companies, one head office, 92 sales offices and bancassurance relationships with
approximately 44 banks, including Bank Sinarmas. Asuransi Sinar Mas intends to gradually extend its
distribution channels through development of a telemarketing system and agency.
As of December 31, 2010 and September 30, 2011, Asuransi Sinar Mas’ solvency ratio was 337.8%
and 304.2%, respectively. See “Management’s Discussion and Analysis of Financial Condition and Results
of Operations—Capital Management—Capital Adequacy”. In 2010, Asuransi Sinar Mas was assigned a
financial strength rating of “AA+” (idn) Insurer Financial Strength (IFS) rating with stable outlook by Fitch
Ratings based on its market positioning, management of catastrophe risk, liquid investment mix and riskbased capitalization, which was affirmed in 2011.
Business Initiatives
We intend to further develop our non-life insurance business and implement our overall strategy with
respect to our non-life insurance operations by adopting the following business initiatives:
•
aggressively expand our distribution capabilities through an increase in the number of branches,
telemarketing centers, agents and new outlets such as travel agencies and hotels;
•
focus on partnership and reach through our One Million Partners campaign and initiation of
further collaboration with banks, leasing players and insurance intermediaries;
•
continue to introduce innovative products that suit our customers’ needs. We have a proven track
record of launching new products every year particularly in the motor and health sectors;
•
commit to a prudent and effective claims management process. We will continue to develop our
underwriting techniques to improve overall claims and leverage on our IT system to improve
claims process and ensure effective claims management; and
•
enhance efficiency by investing in IT and employee productivity training to maximize
operational efficiency and improve service-level customer satisfaction.
Products
The main product lines of Asuransi Sinar Mas are fire and property, motor vehicles, health, marine hull,
marine cargo and engineering. Fire insurance products, which encompass all perils property insurance
products, have been its highest performing product line, representing more than 40% of Asuransi Sinar Mas’
business based on total gross premiums for 2008, 2009, 2010 and the nine months ended September 30,
2011. Gross premium income represent premiums received from policyholders based on short-term and longterm contracts. For the nine months ended September 30, 2011, gross premiums generated from Sinar Mas
Group companies comprised 42.9% of total gross premiums. The three main business segments are fire and
property insurance, which accounted for approximately half of Asuransi Sinar Mas’ gross premium income for
the nine months ended September 30, 2011, motor vehicle insurance (cars and motorcycles), and health and
medical insurance. The other products such as marine and engineering contributed less than 4.0% each
to gross premium income for the nine months ended September 30, 2011. Asuransi Sinar Mas has a license
for each product.
The table below sets out gross premium income for its principal insurance product categories for the
periods indicated.
For the Year Ended December 31,
2008
2009
2010
For the Nine Months
Ended September 30,
2010
2011
(Rp. in billions)
Gross Premium Income:
Fire . . . . . . . . . . . . . .
Motor Vehicles . . . . . . .
Health . . . . . . . . . . . .
Marine Cargo . . . . . . . .
Marine Hull . . . . . . . . .
Engineering . . . . . . . . .
Miscellaneous . . . . . . .
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2,043.9
551.6
250.5
79.7
15.4
15.8
272.4
1,428.7
760.0
245.0
130.8
23.0
11.8
273.4
1,446.8
924.8
466.1
129.8
38.9
8.5
244.1
1,044.6
749.5
284.9
121.4
31.4
7.9
205.3
1,212.0
891.7
474.2
122.7
52.9
8.4
226.3
Total . . . . . . . . . . . . . . . . . . . . . . . . . .
3,229.3
2,872.7
3,259.0
2,445.0
2,988.2
Fire and Property Insurance
Asuransi Sinar Mas’ fire insurance product category encompasses a range of predominantly
commercial and some residential property insurance products including fire insurance. Its fire insurance and
other property insurance products is its largest non-life insurance product line in terms of gross premiums
and accounted for approximately 63.3%, 49.7%, 44.4% and 40.6% of its gross premiums in 2008, 2009 and
2010 and the nine months ended September 30, 2011, respectively. Asuransi Sinar Mas offers both
commercial and residential property insurance coverage. Asuransi Sinar Mas’ basic commercial property
insurance policy covers loss of, or damage to, insured property caused by fire, explosion or lightening. Its
basic commercial and residential property insurance coverage does not typically include typhoon and flood,
tornado, hurricane or earthquake coverage, but these coverages are available as riders. Property eligible for
commercial or residential property insurance includes buildings, furniture, fixtures, fittings, personal effects,
tools and equipment. For instance, Simas Rumah covers both residential and covers all items within the
house.
Gross premiums for fire and other property insurance products declined in 2009 and 2010 as Asuransi
Sinar Mas implemented more stringent underwriting requirements for such products beginning in 2009,
based on risk exposure management and underwriting strategy.
Motor Vehicle Insurance
Asuransi Sinar Mas’ motor vehicle insurance products consist of insurance for protection against
physical damage, theft as well as third party liability. Indonesian law currently does not require compulsory
automobile liability insurance or commercial motor vehicle insurance. Riders providing coverage for various
types of risks, such as flood, earthquake and other acts of God risks are also available. Terms for its motor
vehicle insurance are typically for three years. New entrants in the motor insurance in Indonesia are subject
to a tariff system administered by the regulator, under which they are required to charge a minimum
premium amount. The tariff system is not applicable to insurance companies such as Asuransi Sinar Mas
which have a risk and loss profile in Indonesia for the past five years. In October 2011, Asuransi Sinar Mas
launched its Sinarmas Mobil Bonus, the first of its kind in Indonesia, which provides motor vehicle
insurance coverage with full or partial refund of premiums paid if no claims are made within certain periods
of the term of the policy. The policy lapses if a claim is made. Gross premiums from its motor vehicle
insurance products accounted for approximately 17.1%, 26.5%, 28.4% and 29.8% of its gross premiums in
2008, 2009 and 2010 and the nine months ended September 30, 2011, respectively.
Health and Accident Insurance
Asuransi Sinar Mas offers a wide range of health insurance products including group and individual
short-term health insurance products, which provide reimbursement of medical expenses subject to
prescribed limits for both in-patient, including hospitalization and surgery, and out-patient services including
consultations to the insured in connection with illness. Customers of the health insurance also have the
option of adding dental, vision and other related coverage as riders to their policy to customize the policy.
The sales of its health insurance products are principally to corporates, and for the year ended December 31,
2010, approximately 98.9% of its health insurance products sold were group health insurance products and
1.1% were individual health insurance products.
Asuransi Sinar Mas also offers a broad array of accident insurance products to both individuals and
groups, which provide indemnity to the insured in connection with an accident up to policy levels, such as
travel-related accident insurance. Accident coverage is typically provided as riders to its health insurance or
motor vehicle insurance products. The terms of individual accident insurance coverage are typically shortterm, ranging from a day to one year. Asuransi Sinar Mas also sells a number of group accident insurance to
businesses.
Asuransi Sinar Mas has affiliations with hospitals and medical clinics nationwide including in major
cities as well as in rural areas, as well as partnerships with hospitals in the Southeast Asia region, such as
with two hospitals in Singapore to allow insureds to seek medical treatment without prepayment. Asuransi
Sinar Mas is also in the process of negotiating partnerships with other hospitals in the region.
Gross premiums from its health and accident insurance products accounted for approximately 7.8%,
8.5%, 14.3% and 15.8% of the gross premiums in 2008, 2009 and 2010 and the nine months ended
September 30, 2011, respectively.
Marine Cargo
Marine cargo insurance covers goods transported by land or vessel. Asuransi Sinar Mas’ customers are
primarily export and import companies and corporate groups that have a substantial need for logistics and
transportation. Gross premiums from its marine cargo insurance products were accounted for approximately
2.5%, 4.6%, 4.0% and 4.1% of its gross premiums in 2008, 2009 and 2010 and the nine months ended
September 30, 2011, respectively.
Marine Hull
Marine hull insurance covers risks of an insured vessel, including its hull, engines, equipment and
riggings. The primary customers for marine hull insurance are corporations, including shipping companies in
Indonesia. Gross premiums from its marine hull insurance products accounted for approximately 0.5%,
0.8%, 1.2% and 1.8% of its gross premiums in 2008, 2009 and 2010 and the nine months ended September
30, 2011, respectively.
Engineering Insurance
Engineering insurance covers the risks in relation to properties and liabilities in engineering projects.
Engineering insurance products primarily consist of construction all risks insurance and related third-party
liability insurance, and related third-party liability insurance, and various endorsements. Its customers for
engineering insurance coverage are typically construction contractors and machinery manufacturers. Gross
premiums from its engineering insurance products accounted for approximately 0.5%, 0.4%, 0.3% and 0.3%
of its gross premiums in 2008, 2009 and 2010 and the nine months ended September 30, 2011, respectively.
Miscellaneous
Product innovation is an important factor in delivering Asuransi Sinar Mas’ commitment to satisfy its
customers and fulfill their insurance needs. Asuransi Sinar Mas also offers other property and casualty
insurance products from time to time, and has launched some new products in the insurance industry.
Asuransi Sinar Mas also offers financial guarantee insurance products in the form of bid bonds,
performance bonds, maintenance bonds, advance payment bonds and payment bonds to mainly contractors
and customers to procure supplies, for which Asuransi Sinar Mas will have a right of subrogation. As of
September 30, 2011, Asuransi Sinar Mas had Rp.16.6 billion gross premiums from these products.
Gross premiums from its other products accounted for approximately 8.4%, 9.5%, 7.5% and 7.6% of
its gross premiums in 2008, 2009 and 2010 and the nine months ended September 30, 2011, respectively.
Asia Catastrophe Pool
Asuransi Sinar Mas joined the Asia Catastrophe Pool, a supra-regional platform for catastrophe risk
aggregation and management covering Asia Pacific, Australia and New Zealand, in 2009. The pool is
managed by Asia Capital Re (ACR), Singapore. The pool involves participation in risk-sharing amongst
Asian insurers and reinsurers, arranged through the Asia Catastrophe Pool Quota Share Retrocession Treaty,
which covers catastrophe excess of loss business and natural catastrophe pro rata business written or
renewed by the pool manager.
The agreement provides for a maximum underwriting limit per unit of US$500,000 (or equivalent in
any other currency) in any one accumulation zone per country, per natural peril and per event and an annual
aggregate loss limit per unit of US$1,000,000 (or equivalent in any other currency).
Asuransi Sinar Mas’ participation varies between three and 10 units. The premium net results after
claims for Asuransi Sinar Mas’ participation since January 1, 2009 to September 30, 2011 is approximately
US$726,404.5. Asuransi Sinar Mas’ participation excludes business emanating from Indonesia.
Distribution Network
Asuransi Sinar Mas distributes its non-life insurance products primarily through insurance brokers. It
also sells its products through banks and other intermediaries with which it has relationships, as well as
individual agents. In addition, it also sells certain insurance products directly to customers through its
internet portal and a nationwide call center. Sales agents from Asuransi Sinar Mas will also refer inquiries
on life insurance to life insurance agents of Sinarmas MSIG Life.
The following table shows gross premiums by type and distribution channel for the periods indicated.
For the Year Ended December 31,
2008
2009
2010
For the Nine Months
Ended September 30,
2010
2011
(Rp. in billions)
Gross Premium Income:
Insurance Brokers . . . . .
Other Intermediaries . . .
Bancassurance . . . . . . .
Direct Sales . . . . . . . . .
Agents . . . . . . . . . . . .
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1,692.2
1,362.2
75.1
41.4
58.4
1,292.7
1,245.6
76.0
168.8
89.6
1,716.3
1,314.3
83.4
42.8
102.1
1,599.5
689.4
65.1
30.9
60.1
1,567.7
1,242.8
75.4
33.4
68.9
Total . . . . . . . . . . . . . . . . . . . . . . . . . .
3,229.3
2,872.7
3,259.0
2,445.0
2,988.2
Insurance Brokers
Asuransi Sinar Mas sells its non-life insurance products on a non-exclusive basis through insurance
brokers who generally represent the purchasers of insurance products. Asuransi Sinar Mas has arrangements
with 63 insurance brokers. Asuransi Sinar Mas markets and sells most of its fire and other property
insurance through insurance brokers. Gross premiums generated through insurance brokers accounted for
approximately 52.7% and 52.5% of the gross premiums received by its non-life insurance operations in 2010
and for the nine months ended September 30, 2011, respectively.
Other Intermediaries
Asuransi Sinar Mas has relationships with a number of other intermediaries such as leasing companies,
automobile dealerships, multifinance companies and insurance intermediaries which distribute Asuransi Sinar
Mas’ products on a non-exclusive basis. Most of Asuransi Sinar Mas’ motor vehicle insurance products are
sold through such intermediaries. Gross premiums generated through intermediaries accounted for
approximately 40.3% and 41.6% of the gross premiums received by its non-life insurance operations in 2010
and for the nine months ended September 30, 2011, respectively.
Asuransi Sinar Mas’ marketing teams mainly function as relationship managers with the various
intermediaries through which it markets and sells its products. As of September 30, 2011, it had
arrangements with 77 finance companies. Asuransi Sinar Mas has marketing teams to market motor vehicle
insurance to leasing companies and car dealerships, who in turn will market the products.
Agents
The insurance agents that sell Asuransi Sinar Mas’ non-life insurance products include institutional
insurance agents and individual insurance agents, which act on a non-exclusive basis. Insurance agents are
compensated on a commission basis and also participate in a compensation scheme which provides referral
incentives and profit-sharing if certain set targets are met. These insurance agents do not make underwriting
decisions with respect to insurance products. As of September 30, 2011, Asuransi Sinar Mas had
approximately 7,000 agents.
Asuransi Sinar Mas provides training to its agents. Each agent is required to attend basic training
before starting work. Effective the beginning of 2011, all insurance agents are required to obtain agent
licenses in order to sell insurance products. Asuransi Sinar Mas assists its agents by providing training and
paying for the costs of the license exam. Its distribution channel management department also conducts
periodic training programs to enhance the non-life insurance product knowledge of these sales agents.
Gross premiums generated through these insurance agents accounted for approximately 3.1% and 2.3%
of its gross premiums in 2010 and for the nine months ended September 30, 2011, respectively.
Bancassurance
Asuransi Sinar Mas also sells its non-life insurance products through its relationship with national and
regional banks. It has bancassurance arrangements with Bank Sinarmas and many other national and regional
commercial banks in Indonesia for the distribution of its bancassurance products. Its products are marketed
to the banks’ customers through their employees in exchange for sales commissions that Asuransi Sinar Mas
pays to the bank. As of December 31, 2010, Asuransi Sinar Mas had bancassurance arrangements with 44
private and Government-affiliated banks in over 25 cities across Indonesia. In 2010 and for the nine months
ended September 30, 2011, gross premiums generated by its bancassurance arrangements accounted for
approximately 2.6% and 2.5%, respectively, of the gross premiums received by its non-life insurance
business.
Its bancassurance arrangements generally allow participating banks to sell the products of other
insurance companies. However, Asuransi Sinar Mas has taken steps to encourage these entities to prioritize
the sale of its insurance products over those of other insurance companies, including entering into
cooperation agreements and maintaining banking relationships with those banks.
Employees from participating banks are encouraged to attend training Asuransi Sinar Mas conducts
through which these employees are trained on product features and sales techniques. Participating banks can
also access Asuransi Sinar Mas’ centralized underwriting information technology system through a webbased portal, which facilitates the electronic submission of policy applications and the issuance of insurance
policies at these banks and their branches.
Direct Sales
Asuransi Sinar Mas makes direct sales of its non-life insurance products primarily through its internet
portal and nationwide call center. It also sells insurance products, primarily health products, to corporate
customers through in-house employees.
Asuransi Sinar Mas call center provides a variety of services including policy inquiry, policy renewal,
insurance claims processing, and insurance products marketing. The call center is available to serve its
customers 24 hours a day, seven days a week. In 2010 and for the nine months ended September 30, 2011,
gross premiums generated by its direct sales arrangements accounted for approximately 1.3% and 1.1%,
respectively, of the gross premiums received by its non-life insurance business.
Cross-Selling
Asuransi Sinar Mas also receives referrals from employees and agents from other companies within the
Group. For instance, Sinar MSIG Life’s agents will generally refer non-life insurance product inquiries they
receive to Asuransi Sinar Mas’ agents to process or Bank Sinarmas or Sinarmas Sekuritas’ branches will
generally refer customers to Asuransi Sinar Mas’ branches, which are typically located in the same building.
Customers
Most of its customers are located in Java. As of December 31, 2010, approximately 90.1% of the gross
premiums received by its non-life insurance operations were attributable to customers located in Java.
The following table sets forth gross premiums by geography for the periods indicated.
For the Year Ended December
31, 2010
Amount
% of total
For the Nine Months Ended
September 30, 2011
Amount
% of total
(Rp. in billions, except percentages)
Java . . . . .
Bali . . . . .
Sumatera . .
Kalimantan
Sulawesi . .
Irian . . . . .
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
2,936.8
21.0
188.5
66.7
41.8
4.0
90.1%
0.7%
5.8%
2.1%
1.3%
0.1%
2,706.1
24.5
150.2
63.1
40.8
3.5
90.6%
0.8%
5.0%
2.1%
1.4%
0.1%
Total . . . . . . . . . . . . . . . . . . . . . . . . . . .
3,259.0
100.0%
2,988.2
100.0%
Pricing
Asuransi Sinar Mas has an underwriting committee comprising its President Director, Technical
Director, Technical Financial Manager and Underwriting Manager, which determines benchmarking and
general prices based on the benchmarks. It reviews and adjusts pricing based on review of competition, and
benchmark based on claims experience, historical records and input from reinsurers regarding minimum
pricing thresholds for them to provide reinsurance. The committee also discusses and determines reinsurance,
such as in the case if treaties do not adequately cover the exposure.
Asuransi Sinar Mas prices its non-life insurance products primarily on the basis of expected losses,
expenses and target margins. Pricing for its non-life insurance products is generally based upon the
benchmarks set. Other than motor vehicle insurance, no set pricing is required by the Government.
The pricing of its non-life insurance products that are sold to renewing policyholders is based on the
same factors upon which pricing of the original products was based, as well as the claims history of the
specific renewing policyholder. For certain products, if the renewing policyholder has not made any claims
under the policy to be renewed, Asuransi Sinar Mas may offer a discount from the original premium paid by
the renewing policyholder based on its internal discounting policy. For motor vehicle insurance, discounting
is in accordance with standards prescribed by the Government. If a renewing policyholder has made a claim
under the policy, Asuransi Sinar Mas may offer a lower or no discount from the original premium paid by
the renewing policyholder, increase the deductible to be paid by the renewing policyholder in the event of a
subsequent claim or decide not to renew the policy. Asuransi Sinar Mas also recently introduced its Simas
Mobil Bonus product, which refunds part or all of premium paid if no claims are made within the specified
policy terms.
Underwriting
All underwriting decisions are made by the underwriting department. No branches, sub-branches or
sales outlets have the authority to underwrite any non-life insurance policies without prior approval from the
underwriting department.
Asuransi Sinar Mas’ underwriting committee establishes per policy underwriting limits which specifies
the sum insured for each and conditions that need to be met for each product, which are reviewed by the
underwriting committee annually or more frequently if competition dictates. To ensure that policy limits are
not exceeded, Asuransi Sinar Mas has implemented an automated centralized underwriting system, which
will generate an automated acceptance for policies within set underwriting limits and will not accept a
policy for underwriting if the amount of the policy exceeds the limit of the underwriter that submitted the
policy. The policy application is then forwarded to a dedicated member of the underwriting department for
review and submitted to the technical director for approval.
Asuransi Sinar Mas divides its underwriting into those policies entailing simple risks, which include
policies for residential property insurance not to exceed Rp.5.0 billion, personal health, and motor insurance
and those entailing complicated risks, which include residential property insurance above Rp.5.0 billion and
commercial property insurance. For policies carrying simple risks, brokers may obtain automatic acceptance
once information inputted into the centralized underwriting information technology system meets preset
parameters. For policies involving complicated risks, policies must be approved by the underwriting
department.
In order to be able to underwrite insurance policies, each member of its underwriting department has
to attend periodic trainings and is encouraged to obtain local professional degree qualifications. In addition,
its advanced information technology platform provides support to its underwriting department to ensure the
quality of their work. Asuransi Sinar Mas’ advanced information technology platform also allows it to set
limits for maximum underwriting and claims processing for its underwriting department. Asuransi Sinar
Mas’ Audit and Compliance department also conduct random audits of its underwriting decisions.
Claims Management
Asuransi Sinar Mas manages its claims through a web-based claims portal which is accessible by
service providers, including hospitals, medical providers and automobile repair shops, including auto repair
shops that have partnered with Asuransi Sinar Mas, through which claims can be effectively processed and
payments of claims can be made online. Asuransi Sinar Mas’ policy is to process claims for its various
insurance policies upon receipt, but in any event less than one month of the claim application.
As of September 30, 2011, Asuransi Sinar Mas has partnered with 407 repair shops nationwide,
including five repair shops which are owned by SMMA. Claims made at these repair shops can be
automatically processed through Asuransi Sinar Mas’ system without customers paying cash upfront and
seeking reimbursement afterwards which they would normally be required to do at a non-affliated repair
shop. As of September 30, 2011, approximately 59.7% of motor claims were processed through
SMMA−owned shops or Asuransi Sinar Mas’ affiliated shops.
Reinsurance
Similar to other domestic insurers, Asuransi Sinar Mas relies significantly on reinsurers to manage its
risks on large coverage amounts or for insurance coverage with certain risks, and ceded 55.2% and 51.6% of
its gross premiums for 2010 and the nine months ended September 30, 2011, respectively, to reinsurers, the
majority of which were in respect of its fire and other property insurance policies. Asuransi Sinar Mas has
established long-standing relationships with reinsurers globally to effectively manage and reduce risk. It
annually reviews the reinsurers on certain key criteria, including financial strength ratings, reputation and
expertise. The major international reinsurers used by Asuransi Sinar Mas, and their financial strength ratings
as of 2011, consist of Swiss Reinsurance Company Ltd (A+), Hannover Reinsurance Company (AA–),
Munich Reinsurance Company (AA–), The Toa Reinsurance Company Ltd (A+), Best Reinsurance Company
(A–) and Taiping Reinsurance Company Ltd (A–). Asuransi Sinar Mas also works with domestic reinsurers,
consisting of PT Tugu Reasuransi Indonesia, PT Maskapai Reasuransi Indonesia, PT Reasuransi
Internasional Indonesia, PT Reasuransi Nasional Indonesia and LIG Insurance Indonesia, all of which are
rated at least a “BBB” according to PT Pefindo Credit Rating Indonesia, as well as other international and
domestic reinsurance supports.
Asuransi Sinar Mas seeks to manage its catastrophe exposure by keeping a reasonable retention
relative to its capital base, and maintaining prudent reinsurance protection. In this regard, Asuransi Sinar
Mas works with its brokers and principal reinsurers, Swiss Reinsurance Company Ltd. and Munich
Reinsurance Company, to provide appropriate expertise and support, although they do not assist with pricing
of Asuransi Sinar Mas’ products. Asuransi Sinar Mas also works with four domestic reinsurers for its
catastrophe exposure, who accounted for less than 5% each of the total gross premium ceded to reinsurers for
the nine months ended September 30, 2011. The company uses various modeling tools at the 99.8%
confidence level (1-in-500-year catastrophe loss event) to determine reinsurance protection.
Reserves
Asuransi Sinar Mas maintains reserves to provide for the payment of claims arising from its insurance
policies in accordance with reserve requirements set forth by the Ministry of Finance. For more information
on Asuransi Sinar Mas’ reserves, see “Management’s Discussion and Analysis of Financial Condition and
Results of Operations—Critical Accounting Policies—Asuransi Sinar Mas—Reserves and Deferred Premium
Income” and Note 29 to our consolidated financial statements.
Solvency
Solvency risk is a measure of the risk that a company is unable to meet its risk based capital. In
managing these risks, a company maintains its assets quality such that such assets can be categorized as
admitted assets. A risk-based capital system is an important financial regulatory measurement for the
domestic insurance industry. Asuransi Sinar Mas is required by the Ministry of Finance to a minimum
solvency ratio of 120% of the required RBC Asuransi Sinar Mas is affected primarily by the solvency
margins it is required to maintain, which is in turn affected by the volume and type of new insurance policies
it sells, the composition of its in-force insurance policies and by regulations on the determination of statutory
reserves. As of December 31, 2010 and September 30, 2011, Asuransi Sinar Mas had solvency ratios of
337.8% and 304.2%, respectively.
For more information on Asuransi Sinar Mas’ solvency ratios, see “Management’s Discussion and
Analysis of Financial Condition and Results of Operations—Capital Management—Capital Adequacy”.
Investments
The carrying value of Asuransi Sinar Mas’ total investment portfolio was Rp.2,622.3 billion as of
September 30, 2011. Asuransi Sinar Mas invests premiums and other income generated from its insurance
business with an objective of meeting the future liabilities associated with the insurance products that it
underwrites, as well as to generate investments returns for its business.
Investment Management
Asuransi Sinar Mas has an investment management committee which is responsible for implementing
and executing its investment policy and internal controls. It establishes the overall asset allocation strategy,
mid-to-long term investment strategy and risk limits. The committee includes the head of the investment
department, the chief financial officer and President Director of Asuransi Sinar Mas. The committee meets
weekly and conducts reviews of investment-related operations and monitors the regulatory restrictions,
market opportunities for, and returns on, various types of investments as well as market and counterparty
risks.
Asuransi Sinar Mas also has an investment team which is responsible for the day-to-day
implementation of its asset allocation and investment strategies. The activities of the investment team are led
and supervised by its chief financial officer. The investment team has discretion to decide on equity
investment of up to Rp.5.0 billion. All equity investments above Rp.5.0 billion and all other investments,
including fixed income investments, require the investment management committee’s approval.
Asuransi Sinar Mas adheres to prudent risk control in its investment management and has established
investment management procedures and guidelines on specified thresholds and specified investments. Asuransi
Sinar Mas has also established a series of policies and procedures relating to its investment risk management
and internal control, as well as compliance review in connection with investment decisions. The compliance
and risk management team of its asset management unit is responsible for risk identification, assessment,
management and control, using both quantitative and qualitative measures, relating to risks such as
counterparty risk, market risk, credit risk, interest rate risk, foreign exchange risk, liquidity risk, operational
risk and compliance risk within its asset management operations and monitoring investments to ensure they
are in line with risk management policies.
It performs post-transaction audits on the investments and notifies the Investment Committee of any
breaches. Investment management procedure is set in accordance with the Ministry of Finance’s regulation.
For additional information on its risk management, see “—Risk Management—Risk Management Policy—
Insurance Risk”.
Investment Policy and Internal Controls
Asuransi Sinar Mas seeks to optimize the returns of its investment portfolio and at the same time limit
its overall risk exposure to an acceptable level taking into consideration the following factors: liquidity, time
horizon, applicable regulations and tax considerations. Asuransi Sinar Mas has adopted a specific investment
policy which complies with applicable insurance regulations and implemented internal controls to achieve
this objective. Its investment policy and internal controls, as well as the performance of its investment
portfolio, are reviewed and amended by its investment committee to the extent appropriate on an ongoing
basis. See also “—Risk Management”.
Asuransi Sinar Mas’ investments are managed with the objective of ensuring compliance with Ministry
of Finance regulations and to achieve Asuransi Sinar Mas’ investment targets. Its investments consist of time
deposits, mutual funds, stocks, bonds, direct equity, properties and mortgages. Its fund allocation limits of
total portfolio are set according to risk and return balance, operations of the business and market conditions.
Asuransi Sinar Mas is not prohibited from investing in any asset class. Asuransi Sinar Mas’ current
investment policy, which is reviewed and adjusted periodically as necessary, prescribes the following
guidelines on investments in a particular company:
•
investments in the shares of any Indonesian legal entity may not exceed 20% of the value of the
issuer;
•
investments in the shares of any foreign issuer may not exceed 10% of total investments;
•
investments in bonds of any Indonesian legal entity may not exceed 20% of the value of the
issuer;
•
investments in bonds of any foreign issuer may not exceed 10% of total investments;
•
investment in any one mutual fund may not exceed 20% of mutual fund; and
•
investment in any one building or real estate may not exceed 20% of total investments.
In addition, Asuransi Sinar Mas’ investment policy also prescribes the following guidelines on
allocations of investments for each asset class:
•
time deposits can comprise between 10% to 100% of total investments;
•
mutual funds can comprise between 0% to 70% of total investments;
•
bonds can comprise between 0% to 25% of total investments; and
•
stocks can comprise between 0% and 35% of total investments.
If Asuransi Sinar Mas exceeds investments prescribed by regulations, any such “excess” amounts of
investments are not counted as admitted assets for purposes of Asuransi Sinar Mas’ solvency ratio.
Asuransi Sinar Mas’ investment policy also provides limits on investment in a particular company. Its
investment policy prescribes limits as to the maximum investment on equity for domestic and for foreign
companies, and provides that no more than 20% (or 10% if a foreign issuer) of total investments may be
invested in any one company, no more than 20% of total investments may be invested in mutual funds,
buildings, real estate or bonds of domestic companies (10% if a foreign issuer) and other assets.
Investment Portfolio
Asuransi Sinar Mas aims for a conservative and liquid investment mix denominated mostly in Rupiah.
Mutual fund investments comprise mainly fixed-income instruments. Equities targeted are blue-chip stocks
listed on the IDX, with solid fundamentals and liquidity. For bond investments, the minimum credit quality
is an “A” rating on the national scale. Bonds below this rating will be considered and approved on a caseby-case basis and will not count as admitted assets for purposes of calculating Asuransi Sinar Mas’ solvency
ratio. Asuransi Sinar Mas had total investments of Rp.2,224.7 billion as of December 31, 2010. As of
December 31, 2010, time deposits and statutory deposits, mutual funds, marketable securities (equity and
debt) and statutory marketable securities accounted for approximately 22.3%, 51.8% and 24.4%,
respectively, of its total investment assets.
The table below shows a breakdown of its investment portfolio for the periods indicated.
As of December 31,
2008
2009
Rp.
Rp.
.
206.3
334.3
496.6
56.3
.
.
.
.
.
.
.
139.4
48.6
90.8
751.7
17.7
35.9
4.4
57.7
38.7
19.0
1,090.6
19.9
7.5
5.9
541.3
42.3
499.0
1,152.5
22.3
6.9
5.1
Total investments . . . . . . . . .
1,155.4
1,515.9
2,224.7
Investments in:
Time deposits and statutory
deposits. . . . . . . . . . . . . . . .
Marketable securities and statutory
marketable securities. . . . . . . .
Fixed income . . . . . . . . . . . .
Equity. . . . . . . . . . . . . . . . .
Mutual funds . . . . . . . . . . . . . .
Investments in shares of stocks(1) .
Investment properties . . . . . . . . .
Mortgage loans . . . . . . . . . . . .
(1)
2010
As of September 30,
2010
2010
2011
2011
Rp.
US$
584.8
670.9
76.0
61.4
4.8
56.6
130.6
2.5
0.8
0.6
412.1
42.5
369.6
1,051.1
21.4
7.1
5.1
918.9
54.6
864.3
978.1
39.7
6.5
8.2
104.2
6.2
98.0
110.9
4.5
0.7
0.9
252.2
2,081.6
2,622.3
297.2
Rp.
US$
Rp.
(Rp. in billions, US$ in millions)
Investments in shares of stock refer to Asuransi Sinar Mas’ investments in its affiliates.
Mutual Funds
Its funds portfolio principally consists of mutual funds managed by other fund managers and also
funds which Asuransi Sinar Mas manages, and mostly include fixed income mutual funds. Securities
invested by the RDPT funds are all held in custody with Bank Mega pursuant to custody agreements with
each investment manager, which provide Asuransi Sinar Mas with the right to take back the securities in the
event of any disagreement with the investment manager. Mutual funds constitute the largest asset class in its
investments, representing 65.1%, 71.9%, 51.8% and 37.3% of the carrying value of total investments as of
December 2008, 2009, 2010 and September 30, 2011, respectively. As of December 31, 2008, 2009 and
2010 and September 30, 2011, 0.0% 20.5%, 38.3%, and 46.5% of mutual fund investments were with RDPT
funds.
The table below shows a breakdown of its mutual funds portfolio for the periods indicated.
As of December 31,
Mutual funds managed by third
parties(1) . . . . . . . . . . . . . . . . . .
Mutual funds managed by related
parties . . . . . . . . . . . . . . . . . . .
Total investment in mutual funds . . . .
(1)
2008
2009
Rp.
Rp.
2010
As of September 30,
2010
2010
Rp.
US$
Rp.
(Rp. in billions, US$ in millions)
2011
2011
Rp.
US$
591.8
835.9
870.4
98.7
752.4
963.8
109.3
159.8
254.7
282.1
32.0
298.7
14.3
1.6
751.7
1,090.6
1,152.5
130.7
1,051.1
978.1
110.9
Includes RDPT funds.
As of December 31, 2010 and September 30, 2011 Asuransi Sinar Mas’ investments in mutual funds
managed by third parties accounted for 75.5% and 98.5%, respectively, of its total investments in mutual
funds. Its investments in mutual funds managed by related parties, namely Sinarmas Sekuritas, accounted for
24.5% and 1.5% of its total investments in mutual funds as of December 31, 2010 and September 30, 2011,
respectively. As of December 31, 2010, its two largest fund investments, in Si Dana Batavia Terbatas
Optimal and Maestro Flexi II, represented 31.3% and 27.1% of its total investments in mutual funds,
respectively. As of September 30, 2011, its two largest fund investments, in Maestro Flexi II and Si Dana
Batavia Terbatas Optimal, represented 39.6% and 28.0% of its total investments in mutual funds,
respectively.
The underlying investments of Asuransi Sinar Mas’ mutual funds portfolio consist of fixed income
investments, both corporate and Government bonds, equity securities of both domestic and foreign issuers.
The table below shows a breakdown of the underlying investments in the RDPT funds in which Asuransi
Sinar Mas invested on an aggregate basis for the periods indicated. Asuransi Sinar Mas did not invest in any
RDPT funds in 2008.
As of December 31,
As of September 30,
2008(1)
2009
Rp.
Rp.
—
—
—
141.4
69.5
—
165.6
261.9
—
18.8
29.7
—
. . . . . . . .
—
210.9
427.5
. . . . . . . .
. . . . . . . .
. . . . . . . .
—
—
—
4.7
—
—
Total . . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents . . . . . . .
—
—
Total . . . . . . . . . . . . . . . . . . . . .
—
Fixed income:
Government bonds . . . . . . . . . . .
Corporate bonds . . . . . . . . . . . . .
Bonds of related parties . . . . . . . .
Total . . . . . . . . . . . .
Equity:
Domestic . . . . . . . . .
Foreign . . . . . . . . . .
Equity of related parties
(1)
2010
2010
2010
2011
2011
Rp.
US$
160.3
55.2
—
162.4
258.5
—
18.4
29.3
—
48.5
215.5
420.9
47.7
3.1
—
—
0.4
—
—
5.1
—
—
10.0
—
—
1.1
—
—
4.7
8.3
3.1
10.7
0.4
1.2
5.1
4.8
10.0
23.9
1.1
2.7
223.9
441.3
50.1
225.4
454.8
51.5
Rp.
US$
Rp.
(Rp. in billions, US$ in millions)
Asuransi Sinar Mas did not invest in any RDPT funds in 2008.
The table below shows a breakdown of the underlying investments in the RDPT funds in which
Asuransi Sinar Mas invested on an aggregate basis by industry for the periods indicated.
As of December 31,
2008
(1)
2009
2010
As of September 30,
2010
2010
2011
Rp.
US$
Rp.
Rp.
.
.
.
.
.
.
.
—
—
—
—
—
—
—
193.3
—
3.0
14.6
4.7
—
8.3
81.8
303.5
17.6
24.6
2.3
0.8
10.7
9.3
34.4
2.0
2.8
0.3
0.1
1.2
203.9
—
3.1
10.5
—
—
7.9
358.0
—
24.2
29.4
13.9
5.4
23.9
40.6
—
2.7
3.3
1.6
0.6
2.7
Total . . . . . . . . . . . . . . . . . . . . .
—
223.9
441.3
50.1
225.4
454.8
51.5
Financial . . .
Banking . . .
Infrastructure
Property . . .
Mining . . . .
Consumer . .
Other(2) . . . .
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
(1)
Asuransi Sinar Mas did not invest in any RDPT funds in 2008.
(2)
Comprises investments in time deposits with banks.
Rp.
US$
Rp.
(Rp. in billions, US$ in millions)
2011
The following tables show the breakdown of Asuransi Sinar Mas’ underlying Government bond
holdings in the RDPT funds in which Asuransi Sinar Mas invested on an aggregate basis, all of which were
Indonesian Government bonds, by credit rating for the periods indicated. 0.0%, 67.0%, 38.7% and 38.6% of
our total fixed income holdings in the RDPT funds were rated ‘A’ or higher as of December 31, 2008, 2009
and 2010 and September 30, 2011, respectively. We use PT Pefindo Credit Rating Indonesia’s credit ratings.
As of December 31,
2008
(1)
As of September 30,
2009
2010
Investments
%
Government
bonds:
AAA . . . . . . . . .
—
—
141.4
100.0
165.6
Total . . . . . . .
—
—
141.4
100.0
165.6
(1)
2011
Investments
%
Investments
%
(Rp. in billions, except percentages)
Investments
%
100.0
162.4
100.0
100.0
162.4
100.0
Asuransi Sinar Mas did not invest in any RDPT funds in 2008.
The following table shows the breakdown of Asuransi Sinar Mas’ underlying corporate bond holdings
in the RDPT funds in which Asuransi Sinar Mas invested on an aggregate basis by credit rating for the
periods indicated. 78.7%, 79.5% and 53.8% of our total RDPT fixed income holdings were rated ‘A’ or
higher as of December 31, 2009 and 2010 and September 30, 2011, respectively. We use PT Pefindo Credit
Rating Indonesia’s ratings.
As of December 31,
2008
Investments
(1)
As of September 30,
2009
2010
2011
Investments
%
Corporate bonds:
AAA . . . . . . . . .
AA+ . . . . . . . . .
AA . . . . . . . . . .
AA– . . . . . . . . .
A+ . . . . . . . . . .
A. . . . . . . . . . .
A– . . . . . . . . . .
BBB+ . . . . . . . .
BBB . . . . . . . . .
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
3.2
51.5
—
—
—
3.4
11.4
—
—
4.6
74.1
—
—
—
4.8
16.5
—
12.6
9.0
73.1
—
113.4
28.7
14.1
10.9
—
4.8
3.4
27.9
—
43.3
11.0
5.4
4.2
—
39.4
41.1
38.3
3.2
17.1
104.5
2.1
12.8
—
15.3
15.9
14.8
1.2
6.6
40.4
0.8
5.0
Total . . . . . . .
—
—
69.5
100.0
261.9
100.0
258.5
100.0
(1)
Investments
%
Investments
%
(Rp. in billions, except percentages)
Investments
%
Asuransi Sinar Mas did not invest in any RDPT funds in 2008.
The RDPT funds in which Asuransi Sinar Mas invests also invest in equity securities. As of December
31, 2008, 2009 and 2010 and September 30, 2011, 0.0%, 2.1%, 0.7% and 2.2%, respectively, of investments
of Asuransi Sinar Mas’ in the RDPT funds in which Sinarmas MSIG Life invested on an aggregate basis
were in equity securities, all of which were in equities of LQ-45 companies.
As of September 30, 2011, the largest equity holding of the RDPT funds in which Asuransi Sinar Mas
invested on an aggregate basis accounted for approximately 1.2% of investments in RPDT funds and 0.2% of
total investments as of such date.
As of September 30, 2011, the five largest fixed income holdings of the RDPT funds in which
Asuransi Sinar Mas invested on an aggregate basis and their respective credit ratings by PT Pefindo Credit
Rating Indonesia were Indonesian Government bond FR0034 (“AAA”), Indonesian Government bond
FR0036 (“AAA”), Subordinate CIMB Niaga Bank II 2010 (“AA”), Summit Oto Finance III C 2009 (“AA–
”) and Subordinate BCA Finance 2010 (“AA”), which accounted for 12.4%, 12.8%, 6.6%, 4.1% and
2.3%, respectively, of investments in RPDT funds and 2.1%, 2.1%, 1.1%, 0.7% and 0.4%, respectively, of
total investments as of such date.
Marketable Securities and Statutory Marketable Securities
Asuransi Sinar Mas allocates a portion of its investments to marketable securities and statutory
marketable securities, which include equities and bonds. Asuransi Sinar Mas also holds a sizeable portfolio
of Government bonds and other Government commercial paper (“statutory marketable securities”) as
required pursuant to Ministry of Finance regulations to maintain a guarantee fund which is the higher of
20% of the required paid-up capital plus 1% of net premium and 0.25% of reassurance premium. Marketable
securities and statutory marketable securities represented 11.2% and 0.8%, 2.7% and 1.1%, 23.5% and 0.9%,
and 34.1% and 1.0% of the carrying value of its investments as of December 31, 2008, 2009 and 2010 and
September 30, 2011, respectively.
The table below sets forth a breakdown of Asuransi Sinar Mas’ investment in marketable securities and
statutory marketable securities as of the dates indicated.
As of December 31,
2008
2009
As of September 30,
2010
2011
Rp.
%
Rp.
%
Rp.
US$
%
Rp.
(Rp. in billions, US$ in millions, except percentages)
. . . .
. . . .
. . . .
. . . .
19.6
29.1
—
48.7
14.1
20.8
—
34.9
18.0
20.7
—
38.7
31.2
35.8
—
67.0
20.3
22.0
—
42.3
2.3
2.5
—
4.8
3.8
4.0
—
7.8
27.1
27.5
—
54.6
3.1
3.1
—
6.2
3.0
3.0
—
6.0
.
.
.
.
.
.
.
.
90.8
—
—
90.8
65.1
—
—
65.1
19.1
—
—
19.1
33.0
—
—
33.0
499.0
—
—
499.0
56.5
—
—
56.5
92.2
—
—
92.2
864.3
—
—
864.3
98.0
—
—
98.0
94.0
—
—
94.0
Total . . . . . . . . . . . . . . . .
139.5
100.0
57.8
100.0
541.3
61.3
100.0
918.9
104.2
100.0
Marketable securities and
statutory marketable
securities
Fixed income:
Government bonds. . . .
Corporate bonds . . . . .
Bonds of related parties .
Subtotal . . . . . . . . .
Equity:
Domestic . . . . . . . . .
Foreign . . . . . . . . . .
Equity of related parties .
Subtotal . . . . . . . . .
.
.
.
.
.
.
.
.
US$
%
As of December 31, 2009, Asuransi Sinar Mas held Rp.57.8 billion in marketable securities and
statutory marketable securities, of which Rp.38.7 billion (67.0%) was held in debt securities and Rp.19.1
billion (33.0%) was held in equity. As of December 31, 2010, Asuransi Sinar Mas held Rp.541.3 billion
(US$61.3 million) in marketable securities and statutory marketable securities, of which Rp.42.3 billion
(US$4.8 million) (7.8%) was held in debt securities and Rp.499.0 billion (US$56.5 million) (92.2%) was
held in equity. The gain in marketable securities and statutory marketable securities reflected both increases
in the value of the existing portfolio held as well as purchases of additional securities. As of September 30,
2011, Asuransi Sinar Mas held Rp.918.9 billion (US$104.2 million) in marketable securities and statutory
marketable securities, of which Rp.54.6 (US$6.2 million) (6.0%) in bonds and Rp.864.3 (US$98.0 million)
(94.0%) in equity.
Investments in Affiliates
Asuransi Sinar Mas also invests a portion of its portfolio in shares of its affiliates for strategic
purposes. Investments in Shares of Stock represented 1.5% and 1.3%, 1.0% and 1.5% of the carrying value
of its investments as of December 31, 2008, 2009 and 2010 and September 30, 2011, respectively. For the
years ended December 31, 2008, 2009 and 2010 and the nine months ended September 30, 2011, Asuransi
Sinar Mas’ investment in shares consists principally of its investment in LIG Insurance, a joint venture
company, of which it owns 30%, with LIG Insurance Co. Ltd. Korea, representing 90.3%, 80.9%, 76.5% and
86.8% of investment in shares of stock, respectively.
Time Deposits
Its time deposits and cash and cash equivalents constituted 17.9%, 22.1%, 22.3% and 25.6% of the
carrying value of total Investments as of December 2008, 2009, 2010 and September 30, 2011, respectively.
Risk Management
Risk Management Structure
Asuransi Sinar Mas’ risk management policy is devised and implemented by its risk management
committee, comprising its President Director, Risk Management Director and heads of its various
departments such as investment, marketing, legal, reinsurance, finance, information technology, underwriting
and claims department. The committee is responsible for identifying potential risks that may impede Asuransi
Sinar Mas’ objectives, establishing risk priority policies, establishing risk mitigation plan for any foreseeable
risks, reviewing effectiveness of the risk management plan and coordinating mechanisms to gather relevant
information and to effectively communicate risk management measures to all department.
The risk management committee meets bi-weekly, whereas the President Director and Risk Management
Director meet weekly. Asuransi Sinar Mas has also implemented an enterprise risk management scheme
whereas each department is required to record any identified risks on a daily basis to be reviewed by the
risk management committees, and occasionally, the board of directors.
Risk Management Policy
As a company which bears risk transfer, Asuransi Sinar Mas applies risk management procedures, runs
its operational activities prudently and considers various factors to minimize risk and prevent potential loss.
Asuransi Sinar Mas considers the following to be its principal risk exposures:
Insurance risk. Asuransi Sinar Mas considers non-life insurance risk to be a combination of the
following component risks: (i) inadequate or inappropriate product design; (ii) inappropriate underwriting or
pricing of policies; and (iii) variability of claims experience. It manages its exposure to insurance risk in
several ways. It has underwriting and actuarial personnel resources and has implemented underwriting and
actuarial guidelines and practices. It has accumulated volume of experience and data which assists in the
evaluation, pricing and underwriting of its products.
•
Product design risk. Product design risk refers to potential defects in the development of a
particular insurance product. Asuransi Sinar Mas’ product development process is overseen by its
underwriting committee which provides direction on pricing guidelines, as well as a separate
committee, the product development committee. It seeks to manage this risk by completing prelaunch reviews of a new product by underwriting, reinsurance, and claims departments. It
monitors the performance of its new products and focus on managing each part of the actuarial
control cycle to minimize risk in both in-force and new products.
•
Pricing and underwriting risk. Pricing and underwriting risk refer to the possibility of product
related income being inadequate to support future obligations arising from a product. Asuransi
Sinar Mas seeks to manage pricing and underwriting risk by adhering to its underwriting
guidelines, as well as monitoring and reviewing the pricing of its products. It maintains a team
of professional underwriters who review and select risks that are consistent with the risk appetite
and its underwriting strategy. In certain circumstances, such as when it enters new lines of
business, product or markets and do not have sufficient experience data, it uses reinsurance to
obtain product pricing expertise. The use of reinsurance subjects Asuransi Sinar Mas to the risk
that our reinsurers become insolvent or fail to make any payment when due.
•
Claims risk. Claims risk refers to the possibility that the frequency or severity of claims arising
from insurance products exceed the levels assumed when the products were priced. Claims risk
also includes risk related to the possibility of significant financial losses arising from a lack of
diversification, either geographical or by product type, of the risk insured. Asuransi Sinar Mas
seeks to mitigate claims risk by conducting regular experience studies, reviewing internal and
external historical claim data and considering the impact of such information on reinsurance
needs and product design and pricing. It also seeks to mitigate claims risk by adhering to its
underwriting and claims management policies and procedures.
Financial risk. Financial risk in Asuransi Sinar Mas includes counterparty risk, credit risk, interest rate
risk, foreign exchange rate risk, liquidity risk, investment risk and equity risk.
•
Counterparty risk arising from fraud or misconduct. To manage counterparty risk arising from
fraud or misconduct, Asuransi Sinar Mas screens investment managers before placing funds in
mutual fund instruments. Asuransi Sinar Mas’ screening process considers factors such as whether
the investment manager has good moral standing, a good track record and experience in its field.
Asuransi Sinar Mas also makes routine verifications on its portfolios which are kept with a
securities depositary that is provided by KSEI.
•
Credit risk. Credit risk arises from the possibility of financial loss arising from default by
borrowers and transactional counterparties and the decrease in value of financial instruments due
to deterioration in credit quality. The key areas where Asuransi Sinar Mas is exposed to credit
risk include repayment risk in respect of investments in debt securities, mortgage loans and
receivables (including insurance and reinsurance receivables). To manage this risk, Asuransi
Sinar Mas acquires bonds with a minimum rating of ‘A’ on the national scale and performs
fundamental analyses on the business prospects, management and financial performance of the
bond and the issuing company.
•
Interest rate risk. Asuransi Sinar Mas’ exposure to interest rate risk predominantly arises from
investments in long-term fixed income debt securities, which are exposed to fluctuations in
interest rates. To anticipate interest rate risk, Asuransi Sinar Mas adjusts its investment strategy
in accordance with macroeconomic indicators. Asuransi Sinar Mas uses data from the Draft of
State Revenue and Expenditure Budget (Rancangan Anggaran Pendapatan dan Belanja Negara)
(“RAPBN”) as an indicator of future macroeconomic policy to manage interest rate risk and its
impact on the investment portfolio.
•
Foreign exchange risk. Exchange rate risk may occur as a result of changes in exchange rate
between Indonesian Rupiah and other currencies. Asuransi Sinar Mas receives claim
reimbursements from overseas reinsurance companies in foreign currencies and also makes
overseas payments of reinsurance premiums in foreign currencies. Exchange rate fluctuations can
therefore lead to a decrease in net income, and therefore Asuransi Sinar Mas routinely analyzes
currency forecasts and market conditions.
•
Liquidity risk. Liquidity risk may arise where Asuransi Sinar Mas does not have available funds
for operational activities, payment of claims and reinsurance premiums, as well as other
obligations when they become due. Payment of liabilities in a timely manner is an important
factor to ensure that Asuransi Sinar Mas maintains its reputation. For liquidity risk management,
Asuransi Sinar Mas’ management monitors the required cash and cash equivalents required to
fund the company’s liabilities and operations. The management team also carries out a cash flow
projection and manages premium receivables.
•
Investment risk. Investment risk is related to insurance premium fund placements in investment
instruments and arises from the possibility of financial loss caused by changes in financial
instruments’ fair values or future cash flows due to fluctuations in market conditions. When
carrying out investment risk management, Asuransi Sinar Mas is guided by, and must comply
with the restrictions of, the Ministry of Finance regulations regarding the financial performance
of insurance and reinsurance companies.
•
Equity risk. Equity risk arises from changes in the market value of equity securities and equity
held in mutual funds, often as a result of stock price fluctuations on a stock exchange. Equity
risk is managed by placing investments in blue-chip stocks and diversifying stock holdings by
sector. Asuransi Sinar Mas performs fundamental and technical analyses on its investments in
stock.
•
Operational risk. Operational risk is the risk of direct or indirect loss resulting from inadequate
or failed internal processes, personnel and systems or from external events. The primary tool to
manage operational risk is Asuransi Sinar Mas’ enterprise risk management scheme, whereas
each department is required to record any identified risks on a daily basis to be reviewed by the
risk management committees, and occasionally, the board of directors. The objective of the
enterprise risk management scheme is to identify, evaluate, measure and monitor operational
risks.
Credit Rating
Measures of financial strength are an important factor affecting public confidence in its insurance
products and, as a result, its competitiveness. One measure of its financial strength is its financial strength
rating. In 2010, Asuransi Sinar Mas was assigned a financial strength rating of “AA+” ((idn) Insurer
Financial Strength (IFS) rating with stable outlook) by Fitch Ratings, which was affirmed in 2011. See “Risk
Factors—Risks Relating to Our Overall Business—An actual or perceived reduction in our financial strength,
or a downgrade in the credit ratings of our subsidiaries, could have a negative effect on us, and could
increase deposit withdrawals and insurance policy surrenders and withdrawals, reduce our assets under
management (“AUM”), damage our business relationships and negatively impact new sales of our products
and services”.
Information Technology
Asuransi Sinar Mas’ information technology system provides integration of front-end and back-end
processes. Asuransi Sinar Mas provides its business partners, such as leasing companies, banks and brokers,
with a “B2B” device which provides a web-based portal, connecting the central system with business
partners. Asuransi Sinar Mas also provides its agents with access to its “E-Partner” web-based portal, which
enables them to issue insurance policies and quotes and process the commission payment on site at any time
and to manage their insurance portfolios and its marketing staff with access to its “E-Marketing” application,
which enables them to upload insurance proposals and provide quotes which are tracked through its central
system and back-end process to the time policies are issued. In addition, Asuransi Sinar Mas has
implemented an application which allows customers to purchase policies and make claims online. Asuransi
Sinar Mas can also process claim requests and payments directly to service providers through its web-based
portal. In addition, Asuransi Sinar Mas recently introduced a data-mining application by which management
is able to obtain real-time data regarding information on policies and customers throughout its branch
network.
Competition
Asuransi Sinar Mas faces competition in its non-life insurance business. Competition depends on the
product line. Competition in the insurance industry is based on many factors, including price, sales force
strength and abilities, product design features, customer service, claims services, reputation, perceived
financial strength and the experience of the insurance company in the line of insurance to be written.
Asuransi Sinar Mas also competes with other insurance companies and financial institutions to attract and
retain experienced personnel.
Its primary competitors are domestic and foreign-invested property and casualty insurance companies.
Some of these companies may have greater financial, management and other resources than Asuransi Sinar
Mas does, and may have longer and more extensive operating experience than Asuransi Sinar Mas.
Furthermore, these companies may be able to offer a broader range of products and services and may have a
stronger capital base than that of Asuransi Sinar Mas. In addition, some of its domestic competitors have
benefited from more extensive distribution networks than Asuransi Sinar Mas. Asuransi Sinar Mas also faces
potential competition in Indonesia from commercial banks, which may be able to invest in, or form alliances
with, existing insurance companies to offer insurance products and services that compete against Asuransi
Sinar Mas, or establish subsidiaries of their own to engage in the insurance business directly. We believe
that Asuransi Sinar Mas’ relationships with approximately 44 banks, including Bank Sinarmas, provides it
with a competitive edge by allowing it to leverage their distribution networks to offer its insurance products
and services.
For motor vehicle insurance, our primary competitors are Asuransi Central Asia and Asuransi Jaya
Proteksi.
The presence of foreign insurance companies in the Indonesian market has continued to increase in
recent years, and their business activities have continued to expand as the industry becomes more open to
foreign competition. Some new foreign entrants may be able to commence operations rapidly by forming
alliances and joint ventures with other Indonesian insurance companies and by employing products and skills
developed in their home markets, mostly for property insurance products.
We also face competition from life insurance companies with respect to our health insurance products,
such as Aviva, Allianz and Manulife. Asuransi Sinar Mas’ market share in the Indonesian non-life insurance
market in terms of total gross premiums based on financial data published by Bapepam-LK in its Indonesia
Insurance 2010 Report was 11.1% in 2010.
Joint Venture — LIG Insurance
LIG Insurance is a general insurance company which was established in 1997 as a joint venture
company with 70% ownership by LIG Insurance Co. Ltd. Korea and 30% by Asuransi Sinar Mas. For the
year ended December 31, 2010, net profit amounted to Rp.3.2 billion and Rp.1.0 billion was attributable to
Asuransi Sinar Mas. As of December 31, 2010, total assets of LIG Insurance was Rp.116.4 billion. In 2010,
approximately 43.7% of the total premium received was attributable to sales of motor vehicle insurance
products and about 37.2% was attributable to sales of fire and general casualty insurance products. In 2010,
LIG Insurance generated approximately 55% of its sales through its agency force and 22% through its
brokerage relationships.
LIG Insurance’s main business is the provision of various general insurance products such as fire and
general casualty insurance, motor vehicle insurance, marine and cargo insurance, liability insurance and
engineering insurance, mainly to Korean customers in Indonesia. LIG Insurance maintains a panel of
reinsurers which includes Everest Reinsurance Company, LIG Insurance Co. Ltd. Korea, and Asia Capital
Reinsurance Group Pte. Ltd. As of December 31, 2010, LIG Insurance operates five branches in Jakarta and
its surrounding areas and employs 137 employees.
Real Property
As of September 30, 2011, Asuransi Sinar Mas owned 67 properties comprising a total gross floor area
of approximately 84,140 square meters with a net book value of Rp.134,420 million, most of which it uses
for its branches and outlets. As of September 30, 2011, Asuransi Sinar Mas also leased 14 properties
comprising a total gross floor area of approximately 3,617 square meters, 14 of which are leased from
related parties.
Intellectual Property
Asuransi Sinar Mas owns the trademark for its name as well as the trademarks for a number of its
products, including “SIMAS MOBIL”, “SIMAS SEHAT” and “SIMAS RUMAH”.
Employees
As of September 30, 2011, Asuransi Sinar Mas had approximately 1,777 employees. The table below
sets forth the number of employees by function as of the same date.
Function
Management
Marketing
Operational
Number of Employees
5
373
1,324
Underwriting Experts
25
Qualified Insurance Practitioners
50
Insurance
Asuransi Sinar Mas maintains property all risk insurance coverage for its real properties and insurance
coverage against earthquakes underwritten by itself and which it cedes to reinsurers. We believe that
Asuransi Sinar Mas’ insurance coverage is similar in scope to those customary for non-life insurance
businesses in Indonesia.
Legal Proceedings
From time to time Asuransi Sinar Mas may be involved in legal proceedings concerning matters that
arise in the ordinary course of its business operations. We are not aware of any potential litigation,
arbitration or administrative proceeding against Asuransi Sinar Mas which might materially affect its
business, financial condition or results of operations.
Banking — Bank Sinarmas
Overview
Bank Sinarmas, formerly known as PT Bank Shinta Indonesia and established in 1989, is a commercial
bank with a focus on commercial and consumer finance, including lending to civil servants and SMEs and
micro businesses. As of September 30, 2011, Bank Sinarmas had a total of 139 offices, consisting of 56
branches, 72 sub-branches, one Sharia branch, nine cash outlets and one Sharia cash outlet, total assets of
Rp.15,668.0 billion (US$1,775.8 million) and over 500,000 customer deposit accounts amounting to
Rp.13,831.0 billion (US$1,567.6 million).
Bank Sinarmas provides loans to a number of corporate banking customers. It also offers a wide range
of retail banking products such as car loans and short-term loans. In addition, it provides financial
management services, including money market transactions, foreign currency exchanges and spot
transactions.
On the commercial side, Bank Sinarmas focuses on direct loans to micro banks, SMEs and
multifinance companies. Bank Sinarmas continues to concentrate its activities on developing its relationship
with local and overseas correspondent banks and constructing and maintaining a required network among
treasury, remittance and international banking. Bank Sinarmas also holds a foreign exchange license.
Bank Sinarmas cross-sells its banking products with SMMA’s insurance and multifinance products and
services.
As of December 31, 2010 and September 30, 2011, Bank Sinarmas’ capital adequacy ratio was 14.1%
and 14.2%, respectively, as calculated in accordance with Bank Indonesia regulations.
Bank Sinarmas listed its shares on the IDX on December 13, 2010. As of December 31, 2011, it had a
market capitalization of Rp.2,451.3 billion (US$277.8 million). As of December 31, 2011, we directly held
56.48% of Bank Sinarmas.
In December 2011, Bank Sinarmas was assigned a financial rating strength rating of [Idr]A– with a
stable outlook by ICRA Limited.
Business Initiatives
We intend to further develop our banking business and implement our overall strategy with respect to
our banking operations by adopting the following business initiatives:
•
Enhance customer reach, deposit gathering and cross-selling capability through aggressive
expansion of branches and development of its retail and commercial customer base. This forms
the core of not only the Bank’s strategy but also that of SMMA. As the distribution network of
Bank Sinarmas grows, the other SMMA subsidiaries are also expected to leverage on this growth
with an increased number of “one-stop” locations and more branch officers to help sell their
products, particularly life insurance. In addition, we aim to build out the Bank’s alternative
distribution channels in the form of internet banking, call centers, mobile banking, ATMs and
other channels.
•
Broaden the bank’s SME customer base through strategic partnerships with local banks, rural
cooperatives and multifinance companies. We believe that this segment offers significant
untapped profit potential given the relatively lower level of competition, higher margins and
reasonable credit costs.
•
Grow the Bank’s fee based business by providing comprehensive products and services including
remittance, supply chain financing, payroll and bill payment systems.
•
Incorporate Bank Sinarmas’ risks management system to be in line with the Principles of
Prudential Banking and Good Corporate Governance.
•
Enhance the quality of its information technology and human resources with the aim of
providing better services to customers.
As of September 30, 2011, Bank Sinarmas had 139 offices, consisting of 56 branches, 72 subbranches, one Sharia branch, nine cash outlets and one Sharia cash outlet in 60 cities and in almost all
provinces in Indonesia. Bank Sinarmas recently expanded its branch office network to get closer to
customers, including SMEs. Bank Sinarmas focuses on the opening of new branch offices in areas with
economic potential and growth opportunities. New office openings have driven growth in commercial and
corporate loans and also growth in consumer loans in cooperation with multifinance companies and other
business partners, representing Rp.2,500.3 billion (US$283.4 million) in new loans for the nine months
ended September 30, 2011.
Lending
Bank Sinarmas offers loans to corporate, commercial and retail customers, including individual
customers. Outstanding loans amounted to Rp.7,011.8 billion (US$794.7 million) as of December 31, 2010
and Rp.9,163.7 billion (US$1,038.6 million) as of September 30, 2011. As of September 30, 2011, Bank
Sinarmas had 235,800 lending accounts. Predominantly all of Bank Sinarmas’ loans are secured. For the
years ended December 31, 2008, 2009, 2010 and September 30, 2011, approximately 2.3%, 1.4%, 3.2% and
5.9% of total loans, respectively, were unsecured, consisting principally of individual consumer loans.
The following table sets forth a breakdown of Bank Sinarmas’ loans by corporate, commercial and
retail and individual customer borrowers.
As of December 31,
2008
2009
As of September 30,
2010
2010
2011
(Rp. in billions)
Corporate . . . . . . . . . . . . . . . . . . . . . . .
Commercial and Retail . . . . . . . . . . . . . . .
Consumer . . . . . . . . . . . . . . . . . . . . . . .
183.2
38.3
4,059.9
714.6
56.3
4,643.0
1,101.2
1,298.1
4,612.6
1,070.8
1,320.8
3,812.7
1,806.4
1,369.6
5,987.8
Total . . . . . . . . . . . . . . . . . . . . . . . . . .
4,281.5
5,413.9
7,011.9
6,204.5
9,163.8
As of September 30, 2011, the Bank had 12 corporate customers, more than 25,000 commercial and
retail customers and more than 100,000 consumer customers.
Corporate Lending
Bank Sinarmas provides large corporate banking customers, which are corporate customers with
Rp.50.0 billion or more in loans, with a range of financing products, including loan facilities such as
working capital loans, investment loans and non-cash credit facilities such as bank guarantees and letters of
credit. The maximum amount that it lends to corporate banking customers is generally Rp.200.0 billion for
individual corporate customers and Rp.250.0 billion for corporate groups. As of September 30, 2011, Bank
Sinarmas had 20 lending accounts with 12 corporate banking customers, including related parties. See “—
Related Party Funding Arrangements”.
Bank Sinarmas provides Rupiah and U.S. dollar-denominated loans with maturities of typically one to
five years with the ability to roll the loan forward upon mutual agreement. These loans have fixed as well as
variable rates. Most of Bank Sinarmas’ loans are bilateral loans in which it is the sole lender. However, it
also provides syndicated Rupiah and U.S. dollar working capital and investment loans. As of September 30,
2011, the Bank’s working capital loans to corporate banking customers represented 100.0% of its corporate
banking loans and 19.7% of its total consolidated loan portfolio.
Bank Sinarmas has relationship managers and banking account managers to serve its private sector
companies and conglomerates. It has also assigned dedicated account service managers to major institutional
accounts.
Commercial and Retail Lending
Bank Sinarmas also has relationships with commercial and retail banking customers, which are
customers with loans of less than Rp.50.0 billion. This group comprises mainly SMEs that do not qualify for
the corporate category, small and micro enterprises and multifinance companies and individuals who are
borrowing for working capital purposes. Bank Sinarmas services these customers through its branch
networks.
Bank Sinarmas’ commercial and retail lending products include loans to cooperatives or members of
cooperatives and loans to SMEs. As of September 30, 2011, Bank Sinarmas had aggregate loans outstanding
to its commercial and retail banking customers of Rp.1,369.6 billion (US$155.2 million), representing 14.9%
of its total loan portfolio. As of September 30, 2011, substantially all of its commercial and retail loans were
secured by fixed assets, accounts receivables and inventory and its collateral coverage ratio for its secured
commercial loans was at least 100.0% of the principal amounts of the relevant loans outstanding, based
upon the most recent appraisal values. For loan amounts of Rp.5.0 billion or greater, Bank Sinarmas is
required by applicable regulation to have an independent valuer appraise the collateral. Bank Sinarmas
values the collateral securing its loan portfolio annually and requires borrowers to provide additional
collateral if the value falls below the coverage amount.
Bank Sinarmas’ key financing products for its commercial and retail banking customers are working
capital loans. Bank Sinarmas provides working capital loans generally to finance businesses, for working
capital needs or to finance specific projects, including export credits. It primarily offers Rupiah and U.S.
dollar-denominated working capital loans with maturities of up to one year subject to renewal upon mutual
agreement. Working capital loans generally bear interest at a floating rate. As of September 30, 2011,
working capital loan accounts accounted for 96.8% of Bank Sinarmas’ loans to its commercial banking
customers. It also provides investment loans, generally for capital expenditure, primarily in Rupiah and U.S.
dollars.
Bank Sinarmas also extends loans to small and micro enterprises, which include salaried and wageearning individuals seeking business loans of up to Rp.200.0 million. As of September 30, 2011,
approximately 13.0% of the Bank’s total loan portfolio was to small and micro enterprises. The Bank also
extends executing loans to multifinance companies, typically collateralized by accounts receivables. As of
September 30, 2011, approximately Rp.701.0 billion were executing loans to multifinance companies.
Consumer Lending
Bank Sinarmas offers a full range of products and services for its individual consumers, including loan
and deposit products, insurance and investment products, and debit cards. Bank Sinarmas’ consumer lending
also includes consumer loans extended through channeling by multifinance companies and executing loans
extended to multifinance companies. As of December 31, 2008, 2009 and 2010 and September 30, 2011, the
Bank had Rp.1,570.2 billion, Rp.1,905.9 billion, Rp.2,332.3 billion (US$264.3 million) and Rp.2,885.5
billion (US$327.0 million) of channeling loans, respectively. It serves these customers through its branch
network, dedicated mobile and in-branch sales teams, and electronic and telephonic channels. As of
September 30, 2011, it had approximately 145,235 consumer accounts, including loans given to employees
and cash collateral credits.
As of September 30, 2011, aggregate loans outstanding to the Bank’s individual consumers, excluding
loans to employees, were Rp.5,976.4 billion (US$677.4 million), or 65% of its total loan portfolio. Bank
Sinarmas has outstanding customer loans of Rp.5,589.0 billion of Rupiah-denominated loans and US$398.0
billion of U.S. dollar-denominated loans.
Bank Sinarmas offers multipurpose consumer loans, which include loans to civil servants, to purchase
assets (other than residential property) or for other needs such as retirement, education, and traveling
purposes. For multipurpose loans, its policy is to lend up to Rp.200.0 million based on the individual
consumer’s payment ability, limited to 30.0% of their household income and provided that the consumer is
not found ineligible after a required credit check is performed by the Bank through the debtor information
system of Bank Indonesia. The Bank offers a repayment period of up to three years for its multipurpose
loans. Bank Sinarmas also offers secured personal loans (other than to purchase residential property).
Collateral coverage for these loans must be at least 125.0% of the principal amount of the loans outstanding.
Loans for retired civil servants are up to eight years, loans for car or motorcycle purchases are granted for
up to three years. Generally, loans to individual consumer are unsecured except for loans to retired civil
servants, which are secured by the borrower’s pension fund distributions, and motorcycle and car loans, for
which the Bank holds car or motorcycle title certificates. As of September 30, 2011, Rp.1,828.7 billion
(US$207.3 million) of consumer loans, representing 20.0% of total loans, were originated and channeled to
Bank Sinarmas from Sinar Mas Multifinance. See “—Multifinance—Sinar Mas Multifinance and AB Sinar
Mas Multifinance—Sinar Mas Multifinance—Channeling and Direct Loans”. As of September 30, 2011,
Bank Sinarmas had umbrella agreements with 26 multifinance companies.
Bank Sinarmas also extends Sharia loans, such as Murabahah and Qardh. As of September 30, 2011,
Sharia loans accounted for Rp.470.7 billion or 5.1% of total loans outstanding.
Related Party Funding Arrangements
Bank Sinarmas also provides pass-through funding arrangements for related parties. Bank Sinarmas
provides loans to related parties which are fully or partially cash collateralized by deposits placed with the
Bank. Deposits are pledged towards the loans pursuant to deposit pledge agreements between the Bank and
the related party or a member of the related party’s group and cannot be withdrawn until the loans are fully
repaid. Unlike loans that are only partially collateralized and which count fully towards the Bank’s legal
lending limit, loans that are fully cash collateralized do not count towards the Bank’s legal lending limit.
Related parties with whom the Bank has such funding arrangements include PT Sinar Wisata Lestari, PT
Putra Alvita Pratama, Asuransi Sinar Mas, PT Lontar Papyrus Pulp & Paper, PT Smart Telecom, Sinarmas
MSIG Life, PT Maritim Sinar Utama and PT Dian Swastatika Sentosa. As of December 31, 2008, 2009 and
2010 and September 30, 2011, Rp.83.4 billion, Rp.741.9 billion, Rp.794.9 billion (US$90.1 million) and
Rp.1,436.0 billion (US$162.8 million), respectively, or 1.9%, 13.9%, 11.4% and 15.8%, respectively, of
Bank Sinarmas’ loan portfolio consisted of these cash collateralized funding arrangements. Bank Sinarmas
typically earns a spread between 0.4% to 1.0% on these related party funding arrangements.
The table below sets forth Bank Sinarmas’ loans to related parties excluding fully cash collateralized
related party loans as of the dates indicated.
As of December 31,
2008
Rp.
As of September 30,
2009
2010
2010
2010
2011
2011
Rp.
Rp.
US$
Rp.
Rp.
US$
(Rp. in billions, US$ in millions, except percentages)
Related party loans (excluding fully
cash collateralized related party
loans) . . . . . . . . . . . . . . . . . . .
2.4
0.5
38.0
4.3
172.1
5.3
0.6
Total related party loans . . . . . . . . .
83.4
741.9
794.9
90.1
858.3
1,436.0
162.8
Total loans . . . . . . . . . . . . . . . . . .
4,281.5
5,413.9
7,011.8
794.7
6,204.5
9,163.7
1,038.6
Related party loans (excluding fully
cash collateralized related party
loans) as a percentage of total
related party loans (%) . . . . . . . . .
2.9
0.1
4.8
4.8
20.1
0.4
0.4
Related party loans (excluding fully
cash collateralized related party
loans) as a percentage of total loans
(%) . . . . . . . . . . . . . . . . . . . . .
0.1
—
0.5
0.5
2.8
0.1
0.1
For further details on Bank Sinarmas’ loans to related parties, see “Related Party
Transactions—Present and Ongoing Related Party Transactions—Loans Provided to Related Parties”.
Loan Portfolio
The following table sets forth Bank Sinarmas’ loans by geographic area as of the dates specified:
As of December 31,
% of
total
2008
2009
% of
total
As of September 30,
2010
% of
total
2010
% of
total
(Rp. in billions, except percentages)
Sumatra . . . . . . .
Java . . . . . . . . .
Kalimantan . . . . .
Sulawesi . . . . . . .
Maluku . . . . . . .
Bali . . . . . . . . .
West Nusa Tenggara
East Nusa Tenggara .
Papua . . . . . . . .
.
.
.
.
.
.
.
.
.
2011
2011
% of
total
(US$ in millions)
.
600.6
. 2,963.0
.
136.5
.
293.6
.
123.1
.
56.1
21.2
.
.
33.4
.
54.0
14.0
69.2
3.2
6.8
2.9
1.3
0.5
0.8
1.3
485.7
3,889.7
130.9
451.6
238.5
54.1
31.6
51.3
80.5
9.0
71.8
2.4
8.3
4.4
1.0
0.6
1.0
1.5
1,349.4
4,358.2
205.2
540.6
327.3
83.1
42.1
33.5
72.4
19.2
62.2
2.9
7.7
4.7
1.2
0.6
0.5
1.0
1,320.8
3,602.
224.9
525.2
315.2
76.0
38.3
27.0
75.1
21.3
58.1
3.6
8.5
5.1
1.2
0.6
0.4
1.2
2,461.2
5,065.1
362.5
619.7
354.6
77.7
59.3
50.2
113.4
279.0
574.1
41.1
70.2
40.2
8.8
6.7
5.7
12.9
26.9
55.3
4.0
6.8
3.9
0.8
0.6
0.5
1.2
Total . . . . . . . . . . . 4,281.5
100.0
5,413.9
100.0
7,011.8
100.0
6,204.5
100.0
9,163.7
1,038.7
100.0
Of total loans, 6.6%, 14.4%, 11.4% and 17.0% were in U.S. dollars and 93.4%, 85.6%, 88.6% and
83.0% were in Rupiah as of December 31, 2008, 2009 and 2010 and September 30, 2011.
The following table sets forth Bank Sinarmas’ loans in Rupiah and U.S. dollars by economic sector as
of the date specified:
As of December 31,
2008
% of
total
2009
% of
total
As of September 30,
2010
% of
total
2010
% of
total
2011
% of
total
(Rp. in billions, except percentages)
Rupiah . . . . . . . . . . . . .
Business service . . . . . . .
Trading, restaurant and hotel
Construction . . . . . . . . .
Transportation, warehousing
and communication . . . .
Manufacturing . . . . . . . .
Social and public services. .
Mining . . . . . . . . . . . .
Agriculture, hunting and
agriculture facilities . . . .
Electricity, gas and water . .
Others . . . . . . . . . . . .
.
.
.
.
.
.
.
.
877.3
322.9
337.7
21.9
8.1
8.4
840.6
330.9
262.4
18.1
7.1
5.7
1,284.4
519.5
299.0
20.7
8.4
4.8
1,135.1
461.3
265.5
21.1
8.6
4.9
1,229.1
1,284.8
357.9
16.2
16.9
4.7
.
.
.
.
.
.
.
.
80.7
512.7
38.6
70.2
2.0
12.8
1.0
1.8
237.4
705.4
35.0
51.2
5.1
15.2
0.8
1.1
298.6
218.1
206.4
206.3
4.8
3.5
3.3
3.3
265.2
193.7
183.2
183.2
4.9
3.6
3.4
3.4
308.4
246.1
233.2
364.9
4.0
3.2
3.1
4.8
. .
—
40.5
. .
. . 1,717.2
—
1.0
43.0
39.7
62.1
2,070.7
0.9
1.3
44.7
58.6
22.5
3,101.2
0.9
0.4
50.0
20.0
52.0
2.628.8
0.4
0.9
48.8
40.3
83.7
3,459.0
0.5
1.1
45.5
Subtotal . . . . . . . . . . . . . 3,997.8
100.0
4,635.4
100.0
6,214.7
100.0
5,388.0
100.0
7,607.4
100.0
U.S. Dollar . . . . . . . . . . .
Manufacturing . . . . . . . .
Construction . . . . . . . . .
Mining . . . . . . . . . . . .
Transportation, warehousing
and communication . . . .
Business service . . . . . . .
Trading, restaurant and hotel
Others . . . . . . . . . . . .
Agriculture, hunting and
agriculture facilities . . . .
Social and public services. .
.
.
.
.
.
.
.
.
11.7
23.6
43.6
4.1
8.3
15.4
584.2
32.9
39.8
75.0
4.3
5.1
542.9
109.0
65.8
68.1
13.7
8.3
555.7
111.6
67.3
68.1
13.6
8.2
1,202.1
99.3
76.7
77.2
6.4
4.9
.
.
.
.
.
.
.
.
—
99.5
95.3
10.0
—
35.1
33.6
3.5
—
36.0
85.6
—
—
4.6
11.0
—
24.5
16.3
13.7
25.0
3.1
2.0
1.7
3.1
25.0
16.7
14.0
26.2
3.1
2.1
1.7
3.2
14.7
57.9
58.1
—
1.0
3.7
3.7
—
. .
. .
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
8.3
39.2
0.6
2.5
Subtotal . . . . . . . . . . . . .
283.7
100.0
778.5
100.0
797.1
100.0
816.5
100.0
1,556.3
100.0
Total . . . . . . . . . . . . . . . . 4,281.5
Allowance for impairment losses .
(52.7)
5,413.9
(90.9)
7,011.8
(77.6)
6,204.5
(141.9)
9,163.7
(97.2)
Net . . . . . . . . . . . . . . . . . 4,228.8
5,323.0
6,934.2
6,062.6
9,066.5
The following table sets forth an analysis of Bank Sinarmas’ loan portfolio by remaining time to
contractual maturity as of the dates indicated:
As of December 31,
2008
% of
total
2009
% of
total
As of September 30,
2010
% of
total
2010
% of
total
2011
% of
total
(Rp. in billions, except percentages)
Rupiah
1 year or less . . . . . . . . .
More than 1 year until 2 years
More than 2 years until 5
years . . . . . . . . . . . . .
More than 5 years . . . . . . .
997.2
659.8
24.9
16.5
1,156.1
593.7
24.9
12.8
1,440.8
1,342.9
23.2
21.6
1,145.8
879.9
21.3
16.3
1,869.4
1,274.3
24.5
16.8
. 1,585.0
755.8
.
39.7
18.9
2,044.7
840.9
44.1
18.2
2,257.6
1,173.4
36.3
18.9
2,633.7
728.6
48.9
13.5
3,074.8
1,388.8
40.4
18.3
Subtotal . . . . . . . . . . . . . 3,997.8
100.0
4,635.4
100.0
6,214.7
100.0
5,388.0
100.0
7,607.3
100.0
U.S. dollar
1 year or less . . . . . . . . .
More than 1 year until 2 years
More than 2 years until 5
years . . . . . . . . . . . . .
More than 5 years . . . . . . .
.
.
.
.
208.9
26.7
73.6
9.4
677.6
7.7
87.0
1.0
607.6
24.9
76.2
3.1
36.4
575.0
4.5
70.4
1,253.9
27.4
80.5
1.8
.
.
48.1
—
17.0
—
93.2
—
12.0
—
57.9
106.7
7.3
13.4
93.6
111.5
11.5
13.6
177.0
98.1
11.4
6.3
Subtotal . . . . . . . . . . . . .
283.7
100.0
778.5
100.0
797.1
100.0
816.5
100.0
1,556.4
100.0
Total. . . . . . . . . . . . . . . . . 4,281.5
Allowance for impairment losses .
(52.7)
Net . . . . . . . . . . . . . . . . . 4,228.8
5,413.9
(90.9)
5,323.0
7,011.8
(77.6)
6,934.2
6,204.5
(141.9)
6,062.6
9,163.7
(97.2)
9,066.5
As of December 31, 2010 and September 30, 2011, Rp.3,075.5 billion (US$398.6 million), or 43.9%,
and Rp.6,404.3 billion (US$725.9 million), or 69.9%, respectively, were fixed interest loans and Rp.3,936.2
billion (US$446.1 million), or 56.1%, and Rp.2,759.4 billion (US$312.8 million), or 30.1%, respectively,
were variable interest loans.
As of December 31, 2010 and September 30, 2011, Rp.226.2 billion (US$25.6 million), or 3.2%, and
Rp.540.7 billion (US$61.3 million), or 5.9%, respectively, were unsecured loans.
Credit Approval
Bank Sinarmas’ credit approval process involves the evaluation of an applicant’s assets, liabilities, cash
flow and liquidity. Bank Sinarmas has 10 regional managers. For amounts below Rp.5.0 billion, the regional
credit committee has discretion to approve the loan based on credit guidelines, and pricing will generally be
based on the collateral provided and the length of relationship with the customer. For all amounts of Rp.5.0
billion or above, approvals are sent to the Bank’s head office for approval. As an additional check, the
President Director has the right to review and reject any loans, but does not have the authority to approve
loans as the President Director is not a member of the credit committee. Any loan amounts above Rp.5.0
billion are also required to be reviewed by Bank Sinarmas’ risk management and compliance departments.
Bank Sinarmas’ loans are collateralized by tangible and financial assets, including the asset being
financed, except for certain loans to civil servants and other individual consumers’ multipurpose loans.
Collateral may include land, building or machinery, inventory or receivables for a working capital loan. The
Bank generally seeks to revalue fixed assets collateral annually as required by Bank Indonesia regulations, at
which time it evaluates the legal documentation relating to its security interest. It typically values collateral
based on its estimated fair market value, as well as liquidation value.
Other Services
In addition to loans, Bank Sinarmas also provides other financial services, including non-cash credit
facilities, cash management services, debit cards, bill payment services and bancassurance and insurance
products, in line with its long-term strategy to develop its wholesale transactional banking business. Bank
Sinarmas also plans to launch a VISA credit card in 2012, subject to the approval of Bank Indonesia.
Treasury
To prevent the occurrence of idle funds, Bank Sinarmas utilizes excess liquidity by placing funds in
bonds, primarily Government bonds, mutual funds and corporate bonds.
Non-Cash Credit Facilities
Bank Sinarmas provides its corporate banking customers with bank guarantees, letters of credit and
foreign exchange facilities. As of September 30, 2011, it had extended guarantees, letters of credit and
foreign exchange facilities to 78 of its corporate banking customers.
Cash Management Services
Bank Sinarmas provides treasury products for its retail customers, including telegraphic transfer and
bank notes for foreign exchange transactions.
Debit Cards
Bank Sinarmas’ debit cards allow savings account customers to purchase goods from merchants in
Indonesia through the Prima Debit/Debit BCA Network and through the VISA network for local or
international transactions and to make ATM cash withdrawals. As of September 30, 2011, it had issued more
than 400,000 active debit cards (as compared to approximately 300,000 active cards as of December 31,
2010). Fee based income from debit cards was Rp.2.7 billion (US$0.3 million) and Rp.3.2 billion (US$0.4
million) in 2010 and the nine months ended September 30, 2011, respectively.
Bill Payment Services
At its branches, Bank Sinarmas offers its customers a utility bill payment service for electricity,
telephone and mobile phone bills in addition to allowing them to make payments for their loans and
premiums on insurance products. Customers may also review and pay their fixed line and mobile phone bills
through the Bank’s ATMs.
Bancassurance
Bank Sinarmas provides bancassurance products in cooperation with Sinarmas MSIG Life which focus
on investment and insurance needs through its distribution channels. It provides a distribution channel for
Sinarmas MSIG Life and Asuransi Sinar Mas, as well as for third party insurance companies, with respect to
insurance products. Bank Indonesia regulations require banks in Indonesia to carry at least two insurance
company products. Together with Sinarmas MSIG Life, Bank Sinarmas develops bancassurance products
which combine savings and insurance protection. These products are offered either through partnership or
co-branding with Sinarmas MSIG Life.
Others
Bank Sinarmas offers other services, including safe deposit boxes. Through a variety of distribution
arrangements, it also distributes mutual funds offered by Sinarmas Sekuritas.
Funding
Funds are raised principally through conventional products, such as demand deposits, savings accounts
and time deposits, which are offered to all customers. As of September 30, 2011, Bank Sinarmas’ funding
products include Sinarmas Savings, Tabunganku, Simas Gold, Simas Valas, Sinarmas Saving Plan, time
deposits, on call deposits and demand deposits. Time deposits remain the Bank’s predominant source of
funding and, as such, Bank Sinarmas’ cost of funds is highly dependent upon the amount of funds raised
through time deposits. As of September 30, 2011, Bank Sinarmas had 587,690 deposit accounts, of which
1,796 are Sinar Mas Group companies’ accounts. As of September 30, 2011, lower cost demand deposits and
savings accounts constituted 25.2% of total deposits from customers. Its funding products for corporate
banking customers primarily comprise deposit accounts and time deposits. As of September 30, 2011, the
Bank had 36 corporate deposit accounts with 36 corporate depositors. As of September 30, 2011, Bank
Sinarmas had total deposits from outstanding corporate customers of Rp.5,579.3 billion (US$632.3 million),
representing 40.3% of its total deposits. The Bank currently does not engage in wholesale funding.
Deposits
The following tables set forth Bank Sinarmas’ deposits by type for its customers as of the dates
indicated:
As of December 31,
2008
Demand Savings Time
2009
(1)
Total
%
Demand Savings Time
2010
(1)
Total
%
Demand Savings Time(1) Total
%
(Rp. in billions, except percentages)
Related
Parties. .
Third
Parties. .
Total . . . .
(1)
308.2
16.9
1,364.4 1,689.5
32.0
495.7
4.2
2,485.0 2,984.9
43.7
947.2
7.7
3,488.4 4,443.3 45.3
461.9
577.2
2,546.6 3,585.7
68.0
602.1
966.2
2,279.2 3,847.5
56.3
920.5
1,363.8
3,091.6 5,375.9 54.7
770.1
594.1
3,911.0 5,275.2 100.0 1,097.8
970.4
4,764.2 6,832.4 100.0 1,867.7
1,371.5
6,580.1 9,819.2 100.0
Time deposits are all short-term, maturing within one year.
As of September 30,
2010
Demand
Savings
Time(1)
2011
Total
%
Demand
Savings
Time(1)
Total
%
(Rp. in billions, except percentages)
Related Parties . . . . . .
Third Parties . . . . . . .
788.4
893.1
5.1
1,237.9
3,763.6
2,346.1
4,557.1
4,477.1
50.4
49.6
448.6
1,106.4
6.5
1,922.6
5,023.2
5,323.7
5,478.3
8,352.7
39.6
60.4
Total . . . . . . . . . . .
1,681.5
1,243.0
6,109.7
9,034.2
100.0
1,555.0
1,929.1
10,346.9
13,831.0
100.0
(1)
Time deposits are all short-term, maturing within one year.
As of December 31, 2008, 2009 and 2010 and September 30, 2011, 32.0%, 43.7%, 45.3% and 39.6%
of the Bank’s deposits were from related parties. See “Related Party Transactions” for further discussion on
deposits from related parties.
Demand Deposits
Bank Sinarmas offers demand deposits with monthly interest payments. Such deposits are payable upon
demand of the customer at any time. As of September 30, 2011, it had 9,836 demand deposit accounts with
an aggregate of Rp.1,555.0 billion (US$176.2 million) outstanding.
Bank Sinarmas offers demand deposit accounts denominated in Rupiah and a number of foreign
currencies, including U.S. dollars, Euros, Japanese yen, Chinese renminbi, Singapore dollars and Australian
dollars. Demand deposits bear interest at variable rates. As of September 30, 2011, demand deposits
denominated in U.S. dollars accounted for Rp.582.4 billion (US$66.0 million) of total demand deposits (on a
Rupiah basis). As of September 30, 2011, Bank Sinarmas’ Rupiah-denominated demand deposits from
customers represented 62.5% of total demand deposits from customers, with foreign currency accounts,
primarily in U.S. dollars, representing the balance. As of September 30, 2011, demand deposits denominated
in U.S. dollars accounted for 35.0% of total demand deposits (on a Rupiah basis). In the nine months ended
September 30, 2011, the average cost of funds for Rupiah-denominated demand deposits from customers
was between 1.0% and 6.0% per annum and the average cost of funds for foreign currency denominated
demand deposits was between 0.1% and 3.0% per annum.
As of December 31, 2010, demand deposits amounted to Rp.1,867.7 billion (US$211.7 million),
representing a significant increase over demand deposits of Rp.1,097.8 billion as of December 31, 2009. The
increase was primarily the result of Bank Sinarmas’ expansion through the opening of branch offices in
several regions.
Time Deposits
Bank Sinarmas offers time deposits, which are deposits that typically may not be withdrawn prior to
their stated maturities, at one, three, six and 12 month maturities. At maturity, the principal amount, together
with accrued interest, is payable to the customer. Customers may also choose to have interest paid on a
monthly basis. Typically, a penalty applies for early withdrawal of funds from time deposits prior to
maturity. As of September 30, 2011, the Bank had 9,554 time deposit accounts with an aggregate balance of
Rp.10,346.8 billion (US$1,172.7 million).
As of September 30, 2011, its Rupiah-denominated time deposits represented 79.8% of total time
deposits, with the remaining amounts in a number of foreign currencies, including U.S. dollars, Australian
dollars and Chinese renminbi. In the nine months ended September 30, 2011, the average cost of funds for
Rupiah-denominated time deposits was between 6.3% and 10.0% per annum and the average cost of funds
for foreign currency denominated time deposits was between 0.4% and 3.8% per annum.
Time deposits increased from Rp.4,764.3 billion as of December 31, 2009 to Rp.6,580.1 billion
(US$745.8 million) as of December 31, 2010, representing an increase of 38.1%, principally as a result
of the development of Bank Sinarmas’ office network and higher interest rates when compared with
demand deposits and savings accounts.
The following table sets forth a breakdown of Bank Sinarmas’ time deposits by date of maturity:
As of December 31,
2008
2009
As of September 30,
2010
2011
(Rp. in billions)
1 month or less . . . . . . . . . . . . . . .
From over 1 month to three months . .
From over three months to six months .
From over six months to 12 months . .
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
3,062.5
485.3
142.0
221.2
2,891.9
997.7
345.3
529.4
4,680.8
1,071.2
169.9
658.2
6,926.4
1,329.7
534.4
1,556.3
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3,911.0
4,764.3
6,580.1
10,346.8
For time deposits from related parties and other corporate customers, Bank Sinarmas may offer special
arrangements from time to time which permits early withdrawal from the time deposit prior to maturity
without penalty but at a discounted rate. As of December 31, 2008, 2009 and 2010 and September 30, 2011,
34.9%, 52.2%, 53.0% and 48.5% of Bank Sinarmas’ time deposits, respectively, were from related parties.
Savings Deposits
Bank Sinarmas offers Rupiah-denominated savings deposits to its customers. As of September 30,
2011, it had 568,300 savings deposit accounts with an aggregate balance of Rp.1,929.1 billion (US$218.6
million). In the nine months ended September 30, 2011, the average cost of funds for savings deposits was
between 0.3% and 6.5% per annum.
Savings deposits reached Rp.1,371.5 billion (US$155.4 million) as of December 31, 2010, representing
an increase of 41.3% over savings deposits of Rp.970.4 billion as of December 31, 2009, principally
attributable to Bank Sinarmas’ expansion through the opening of branch offices in several regions.
Sharia Funding
Bank Sinarmas established Sharia, or Islamic, banking in November 2009 to offer financing and
funding products and services that comply with Islamic law. The Bank raises funds primarily through direct
methods to offer Sharia-compliant demand, savings and time deposit accounts. The majority of the Bank’s
Sharia customers are individuals with funding accounts.
As of September 30, 2011, Bank Sinarmas had total deposits (comprising demand, savings and time
deposits) from Sharia customers of Rp.859.5 billion (US$97.4 million) representing 6.2% of its total deposits
by value.
Distribution Channels
Bank Sinarmas’ extensive domestic network spans across Indonesia. As of September 30, 2011, Bank
Sinarmas had 139 offices, consisting of 56 conventional branch offices, 72 sub-branch offices, nine cash
outlets, one Sharia branch office and one Sharia cash outlet in 60 cities and in almost all provinces in
Indonesia. Bank Sinarmas intends to open an additional 273 offices in 2012.
Branches and Sub-branches
Bank Sinarmas classifies its domestic branch network into branches, sub-branches, based on asset size,
number of employees, size of total deposits and loans and the type of domestic and international services
provided. The classification determines the type of financing and funding products and services offered and
the lending limits of each branch and sub-branch. Branches provide financial services to customers in all
segments, coordinate with direct sales teams to sell credit products and maintain customer relationships.
Sub-branches currently take deposits and also provide transaction services and non-credit products, advise on
financial products and encourage sales of credit and financial services through cross-selling. Services such as
lending and bank guarantees are not provided at sub-branches. The domestic branches are organized into 10
geographic regions within Indonesia.
Cash Outlets
Bank Sinarmas’ cash outlets take deposits, handle customer service inquiries and permit customers to
withdraw from their accounts. Bank Sinarmas has been rapidly expanding the number of cash outlets and
plans to further increase the number of its cash outlets. The number of cash outlets has grown from three as
of December 31, 2008 to nine as of September 30, 2011.
Sharia Branch
Bank Sinarmas’ Sharia branch in Jakarta provides a full range of Sharia products and services, and has
dedicated relationship managers and customer service operators who are trained to advise on its Sharia
products and services, including transaction services and non-credit products.
ATMs
Bank Sinarmas’ ATM cardholders can use its ATMs to withdraw funds, make balance inquiries, make
payments on certain utility and credit card bills, purchase airline tickets, reload prepaid mobile phones,
register for electronic banking through phone banking and internet banking and transfer funds between Bank
Sinarmas savings and current accounts (including to the account of another account holder). Additionally, the
Bank has arrangements with third party service providers to permit Bank Sinarmas ATM cardholders to pay
various bills such as telephone, mobile phone, credit card, water and other bills using the ATMs of such
third party service providers. This is a particularly convenient service in Indonesia where bills are otherwise
often paid in person. ATM cardholders can also purchase prepaid vouchers for cellular phone service at
Bank Sinarmas ATMs. Bank Sinarmas ATM cardholders can also undertake transactions through non-Bank
Sinarmas ATM machines which are integrated with Plus, ALTO, PRIMA and ATM Bersama networks and
with merchants integrated with VISA and Prima Debit.
As of September 30, 2011, the Bank’s network comprised approximately 228 ATMs, with more than
400,000 ATM cards in circulation. Bank Sinarmas has ATMs located at all of its branches and cash outlets,
as well as in shopping centers, office buildings and residential areas.
Call Center and Phone Banking
Bank Sinarmas has established a phone banking call center. This is an automated telephone banking
service which allows customers to carry out secure and convenient banking transactions over the phone.
Phone banking allows customers to transfer funds and obtain information on account balances and recent
transactions, reload prepaid mobile phones, pay utility, credit card and insurance bills, and access various
information regarding its various products and services. With more than 30 call center staff, the phone
banking call center services customers in all banking segments, including SMEs, retail and corporate
customers.
Mobile Banking
Bank Sinarmas also provides customers access to their account balances on a real time basis through
mobile banking in connection with SmartFren, a third party provider. Customers can check their balance or
transfer funds, pay certain utility and credit card bills and reload prepaid mobile phones at any time from
anywhere with mobile phone reception.
Internet Banking
Bank Sinarmas launched its internet banking services in 2007. Internet banking users can transfer funds
between accounts, transfer funds to other domestic banks, make payments for certain utility bills, reload
prepaid phone cards, monitor their transaction history and obtain information on interest rates, foreign
exchange rates and various other banking products. As of September 30, 2011, the Bank’s internet banking
services had 15,781 users. To ensure data security, Bank Sinarmas’ website is equipped with a multi-level
security system and transactions are executed in a secure environment by using a dynamic identification
number provided to the customer.
Description of Assets and Liabilities
Average Balance Sheet
The following tables set forth the average balances of Rupiah-denominated assets and liabilities of the
Bank for each of the periods specified. For purposes of the following tables, the averages are calculated on
the basis of monthly averages.
Nine Months Ended September 30,
2010
Average
Balance
2011
Average
Rate
Interest
Average
Balance
Average
Rate
Interest
(Rp. in billions, except percentages)
ASSETS
Interest-Earning Assets:
Current account at BI . . . .
SBI, FASBI, BI Time Deposit
Placements with other banks .
Securities . . . . . . . . . . . . .
Securities purchased under
agreements to resell . . . . .
Loans . . . . . . . . . . . . . . .
Government obligations . . . .
.
.
.
.
295.7
300.5
170.0
49.3
—
12.9
5.9
5.6
—
4.3%
3.4%
11.4%
854.9
1,370.4
278.1
79.5
3.4
64.8
12.1
8.0
0.4%
4.7%
4.3%
10.0%
.
.
.
15.9
5,008.0
593.8
1.2
554.7
44.1
7.4%
11.1%
7.4%
44.2
6,957.1
599.7
3.4
741.4
45.2
7.7%
10.7%
7.5%
Total Interest-Earning
Assets . . . . . . . . . . . . .
6,433.2
624.4
97.0%
10,183.9
878.3
8.6%
970.7
1,094.7
3,445.5
539.3
21.3
42.9
206.6
24.1
2.2%
3.9%
6.0%
4.5%
1,126.0
1,580.7
5,892.6
967.7
24.0
60.6
391.1
46.4
2.1%
3.8%
6.6%
4.8%
80.6
92.7
1.3
4.6
1.6%
5.0%
1.9
32.0
—
0.6
0.2%
1.7%
6,223.5
300.8
4.8%
9,600.9
522.7
5.4%
LIABILITIES
Interest-Bearing Liabilities:
Liabilities immediately payable
Demand deposits . . . . . . . . .
Saving deposits . . . . . . . . . .
Time deposits . . . . . . . . . . .
Deposits On Call . . . . . . . . .
Securities sold under
agreements to repurchase . . .
Placements from other banks . .
Total Interest-Bearing
Liabilities . . . . . . . . . . . .
(1)
SBI represents Certificates of Bank Indonesia. FASBI represents placements in the form of Bank Indonesia deposit facility.
Year Ended December 31,
2008
2009
Average
Average Average
Balance Interest
Balance Interest
Rate
2010
Average Average
Balance Interest
Rate
Average
Rate
(Rp. in billions, except percentages)
ASSETS
Interest-Earning Assets:
Current account at BI . . . . . . . . .
SBI, FASBI, BI Time Deposit . . . . .
Placements with other banks . . . . . .
Securities . . . . . . . . . . . . . . . .
Securities purchased under agreements
resell . . . . . . . . . . . . . . . . .
Loans . . . . . . . . . . . . . . . . . .
Government obligations . . . . . . . .
. .
48.3
166.2
. .
. .
48.3
. .
364.8
to
. .
14.8
. . 3,417.3
. .
581.4
1.4
10.9
2.0
3.2
2.9%
6.6%
4.1%
0.9%
254.8
524.2
216.5
40.1
—
36.2
6.9
7.4
—
6.9%
3.2%
18.5%
347.6
370.6
182.7
53.9
0.4
21.31
6.8
7.9
0.1%
5.7%
3.7%
14.6%
4.8
483.9
55.3
32.7%
14.2%
9.5%
23.6
3,855.7
592.6
1.1
611.6
55.7
4.5%
15.9%
9.4%
21.1
5,258.8
594.9
2.1
749.5
59.0
10.0%
14.3%
9.9%
Total Interest-Earning Assets . . . . . 4,641.1
561.5
12.1%
5,507.5
719.0
13.1%
6,829.6
847.0
12.4%
Year Ended December 31,
2008
2009
2010
Average
Average Average
Balance Interest
Balance Interest
Rate
Average Average
Balance Interest
Rate
Average
Rate
(Rp. in billions, except percentages)
LIABILITIES
Interest-Bearing Liabilities:
Liabilities immediately payable . . .
Demand deposits . . . . . . . . . . .
Saving deposits . . . . . . . . . . . .
Time deposits . . . . . . . . . . . . .
Deposits On Call . . . . . . . . . . .
Securities sold under agreements to
repurchase . . . . . . . . . . . . .
Placements from other banks . . . .
.
.
.
.
.
.
.
.
.
.
.
.
482.9
.
365.1
. 3,085.3
.
299.5
22.5
25.8
289.9
24.9
4.7%
7.1%
9.4%
8.3%
720.5
784.4
2,994.9
647.6
26.0
45.4
301.5
46.2
3.6%
5.8%
10.1%
7.1%
1,045.8
1,133.5
3,651.7
606.9
30.6
59.5
297.5
36.2
2.9%
5.3%
8.1%
6.0%
51.5
162.0
7.2
16.8
13.9%
10.4%
40.6
61.3
1.3
4.3
3.2%
7.0%
60.4
90.5
1.3
4.2
2.2%
4.6%
Total Interest-Bearing Liabilities . . . 4,446.3
387.1
8.7%
5,249.3
424.7
8.1%
6,588.8
429.3
6.5%
(1)
. . .
. . .
SBI represents Certificates of Bank Indonesia. FASBI represents placements in the form of Bank Indonesia deposit facility.
The following tables set forth the Rupiah equivalent of average balances of foreign currency assets and
liabilities for each of the periods specified. For purposes of the following tables, the averages are calculated
on the basis of monthly averages.
Nine Months Ended September 30,
2010
Average
Balance
2011
Interest
Average
Rate
Average
Balance
Interest
Average
Rate
(Rp. in billions, except percentages)
ASSETS
Interest-Earning Assets:
Current account at BI . . . .
Placements with other banks
Securities . . . . . . . . . . . .
Securities purchased under
agreements to resell . . . .
Loans . . . . . . . . . . . . . .
Government obligations . . .
. .
. .
. .
172.8
633.5
129.9
—
1.9
7.1
—
0.3%
5.5%
156.0
253.7
58.8
—
1.2
9.0
—
0.5%
15.3%
. .
. .
. .
1.1
741.3
170.5
—
30.0
10.9
0.4%
4.0%
6.4%
—
907.5
182.9
—
42.7
10.6
—
4.7%
5.8%
Total Interest-Earning
Assets . . . . . . . . . . . . .
1,849.1
49.9
2.7%
1,558.9
63.5
4.1%
LIABILITIES
Interest-Bearing Liabilities:
Liabilities immediately
payable . . . . . . . . . . . . . .
Demand deposits . . . . . . . . .
Time deposits . . . . . . . . . . .
Deposits On Call . . . . . . . . .
Placements from other banks . .
1,060.4
1,537.4
124.3
50.6
5.9
31.8
0.1
—
0.6%
2.1%
0.1%
—
1,081.9
1,293.8
245.0
14.5
2.9
26.3
0.3
—
0.3%
2.0%
0.1%
0.1%
Total Interest-Bearing
Liabilities . . . . . . . . . .
2,772.7
37.8
1.4%
2,635.2
29.5
1.1%
(1)
SBI represents Certificates of Bank Indonesia. FASBI represents placements in the form of Bank Indonesia deposit facility.
Year Ended December 31,
2008
2009
Average
Average Average
Balance Interest
Balance Interest
Rate
2010
Average Average
Balance Interest
Rate
Average
Rate
(Rp. in billions, except percentages)
ASSETS
Interest-Earning Assets:
Current account at BI . . . . . . . . .
Placements with other banks . . . . . .
Securities . . . . . . . . . . . . . . . .
Securities purchased under agreements
resell . . . . . . . . . . . . . . . . .
Loans . . . . . . . . . . . . . . . . . .
Government obligations . . . . . . . .
. .
. .
. .
to
. .
. .
. .
41.9
148.4
138.7
—
14.1
6.7
—
9.5%
4.8%
87.9
132.1
102.1
—
0.8
9.4
—
0.6%
9.2%
167.7
662.8
119.5
—
2.7
8.9
—
0.4%
7.4%
3.3
211.9
65.3
—
14.1
4.7
0.7%
6.7%
7.2%
4.4
526.6
167.4
0.3
38.8
14.2
6.8%
7.4%
8.5%
0.8
766.9
172.4
—
42.8
14.6
0.4%
5.6%
8.5%
Total Interest-Earning Assets . . . . .
609.5
39.6
6.5%
1,020.5
63.5
6.2%
1,890.1
69.0
3.7%
289.8
494.8
221.4
8.5
4.5
18.6
5.4
0.1
1.6%
3.8%
2.4%
1.2%
718.5
887.9
111.7
—
5.0
26.1
0.7
—
0.7%
2.9%
0.6%
0.0%
1,069.3
1,573.4
136.1
37.9
7.9
42.4
0.2
—
0.7%
2.7%
0.1%
0.0%
Total Interest-Bearing Liabilities . . . 1,014.5
28.6
2.8%
1,718.1
31.8
1.9%
2,816.7
50.5
1.8%
LIABILITIES
Interest-Bearing Liabilities:
Liabilities immediately payable .
Demand deposits . . . . . . . . .
Time deposits . . . . . . . . . . .
Deposits On Call . . . . . . . . .
Placements from other banks . .
(1)
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
SBI represents Certificates of Bank Indonesia. FASBI represents placements in the form of Bank Indonesia deposit facility.
The following tables set forth the average balances of aggregated Rupiah-denominated and foreign
currency assets and liabilities for each of the periods indicated. For purposes of the following tables, the
averages are calculated on the basis of monthly averages.
Nine Months Ended September 30,
2010
Average
Balance
2011
Interest
Average
Rate
Average
Balance
Interest
Average
Rate
(Rp. in billions, except percentages)
ASSETS
Interest-Earning Assets:
Current account at BI . . . . .
SBI, FASBI, BI Time Deposit
Placements with other banks .
Securities . . . . . . . . . . . . .
Securities purchased under
agreements to resell . . . . .
Loans . . . . . . . . . . . . . . .
Government obligations . . . .
.
.
.
.
295.7
300.5
803.5
179.2
—
12.9
7.8
12.7
—
4.3%
1.0%
7.1%
854.9
1,370.4
531.8
138.2
3.4
64.8
13.3
17.0
0.4%
4.7%
2.5%
12.3%
.
.
.
17.0
5,749.3
764.3
1.2
584.7
55.0
7.0%
10.2%
7.2%
44.2
7,864.7
782.6
3.4
784.1
55.8
7.7%
10.0%
7.1%
Total Interest-Earning
Assets . . . . . . . . . . . . .
8,109.5
674.3
8.3%
11,586.8
941.8
8.1%
Nine Months Ended September 30,
2010
Average
Balance
2011
Average
Rate
Interest
Average
Balance
Average
Rate
Interest
(Rp. in billions, except percentages)
LIABILITIES
Interest-Bearing Liabilities:
Liabilities immediately
payable . . . . . . . . . . . . . .
Demand deposits . . . . . . . . .
Saving deposits . . . . . . . . . .
Time deposits . . . . . . . . . . .
Deposits On Call . . . . . . . . .
Securities sold under
agreements to repurchase . . .
Placements from other banks . .
Total Interest-Bearing
Liabilities . . . . . . . . . .
(1)
2,031.2
1,094.7
4,982.8
663.5
27.3
42.9
238.4
24.2
1.3%
3.9%
4.8%
3.6%
2,207.9
1,580.7
7,186.4
1,212.7
26.9
60.6
417.4
46.7
1.2%
3.8%
5.8%
3.9%
80.6
143.3
1.3
4.6
1.6%
3.2%
1.9
46.5
—
0.6
0.2%
1.2%
8,996.1
338.7
3.8%
12,236.1
552.2
4.5%
SBI represents Certificates of Bank Indonesia. FASBI represents placements in the form of Bank Indonesia deposit facility.
Year Ended December 31,
2008
2009
Average
Average Average
Balance Interest
Balance Interest
Rate
2010
Average Average
Balance Interest
Rate
Average
Rate
(Rp. in billions, except percentages)
ASSETS
Interest-Earning Assets:
Current account at BI . . . . . . . . .
SBI, FASBI, BI Time Deposit . . . . .
Placements with other banks . . . . . .
Securities . . . . . . . . . . . . . . . .
Securities purchased under agreements
resell . . . . . . . . . . . . . . . . .
Loans . . . . . . . . . . . . . . . . . .
Government obligations . . . . . . . .
. .
48.3
166.2
. .
. .
196.7
. .
503.4
to
. .
18.1
. . 3,629.2
. .
646.7
1.4
10.9
16.1
9.9
2.9%
6.6%
8.2%
2.0%
254.8
524.2
348.6
142.2
—
36.2
7.7
16.8
—
6.9%
2.2%
11.8%
347.6
370.6
845.5
173.5
0.4
21.3
9.5
16.8
0.1%
5.7%
1.1%
9.7%
4.8
498.0
60.0
26.8%
13.7%
9.3%
28.0
4,382.3
760.0
1.4
650.5
69.9
4.8%
14.8%
9.2%
21.9
6,025.7
767.3
2.1
792.3
73.6
9.6%
13.1%
9.6%
Total Interest-Earning Assets . . . . . 5,208.6
601.1
11.5%
6,440.1
782.5
12.1%
8,552.1
916.0
10.7%
27.0
25.8
308.6
30.2
3.5%
7.1%
8.6%
5.8%
1,439.0
784.4
3,882.8
759.3
31.0
45.4
327.6
46.9
2.2%
5.8%
8.4%
6.2%
2,115.1
1,133.5
5,225.1
743.0
38.5
59.5
339.9
36.4
1.8%
5.3%
6.5%
4.9%
51.5
170.5
7.2
16.9
13.9%
9.9%
40.6
61.3
1.3
4.3
3.2%
7.0%
60.4
128.5
1.3
4.2
2.2%
3.2%
Total Interest-Bearing Liabilities . . . 5,460.7
415.7
7.6%
6,967.4
456.5
6.6%
9,405.6
479.8
5.1%
LIABILITIES
Interest-Bearing Liabilities:
Liabilities immediately payable . . .
Demand deposits . . . . . . . . . . .
Saving deposits . . . . . . . . . . . .
Time deposits . . . . . . . . . . . . .
Deposits On Call . . . . . . . . . . .
Securities sold under agreements to
repurchase . . . . . . . . . . . . .
Placements from other banks . . . .
(1)
.
.
.
.
.
.
.
.
.
.
.
.
772.6
.
365.1
. 3,580.1
.
520.9
. . .
. . .
SBI represents Certificates of Bank Indonesia. FASBI represents placements in the form of Bank Indonesia deposit facility.
The following table sets forth Bank Sinarmas’ return on assets and equity for the periods specified.
Nine Months Ended
September 30,
Year Ended December 31,
2008
2009
2010
2010
2011
(Rp. in billions, except percentages)
Net income . . . . . . . . . . . . . . . . . . . . .
Average total assets . . . . . . . . . . . . . . . .
Average shareholders’ equity . . . . . . . . . .
Net income as a percentage of: . . . . . . . . .
Average total assets . . . . . . . . . . . . . .
Average shareholders’ equity . . . . . . . . .
Declared cash dividends . . . . . . . . . . . . .
Dividends payout ratio . . . . . . . . . . . . . .
Average shareholders’ equity as a percentage
of average total assets . . . . . . . . . . . . .
Return on Assets . . . . . . . . . . . . . . . . . .
Return on Equity. . . . . . . . . . . . . . . . . .
.
.
.
.
.
.
.
.
12.9
5,766.5
343.4
48.8
7,050.3
494.5
101.8
9,634.1
741.5
76.8
9,054.8
611.6
73.4
13,450.1
1,084.2
0.2%
3.8%
—
—
0.7%
9.9%
—
—
1.1%
13.7%
—
—
0.8%
16.8%
—
—
0.5%
9.0%
—
—
.
.
.
6.0%
0.3%
3.9%
7.0%
0.9%
8.5%
7.7%
1.4%
15.3%
6.8%
1.4%
15.3%
8.1%
1.1%
10.6%
The following tables set forth Bank Sinarmas’ balance sheet maturity profile as of the dates specified.
As of September 30, 2011
1 month
or less
More
than 1
month
until 3
months
More
than 3
month
until 6
months
More
than 6
month
until 12
months
More
than 1
year
until 2
years
More
than 2
years
until 5
years
More
than 5
years
Total
(Rp. in billions)
Assets
Cash . . . . . . . . . . . . . .
Demand deposits with
Bank Indonesia . . . . . .
Demand deposits with
other Banks . . . . . . . .
Placements with other
Banks . . . . . . . . . . . .
Securities — third parties .
Securities purchased under
agreements to resell . . .
Loans — gross . . . . . . . .
Interest receivable . . . . . .
Other assets . . . . . . . . . .
579.5
—
—
—
—
—
—
579.5
1,362.2
—
—
—
—
—
—
1,362.2
69.0
—
—
—
—
—
—
69.0
412.1
1,436.3
—
407.2
—
828.0
—
55.4
—
85.0
—
251.1
—
375.2
412.1
3,438.2
40.3
2.8
56.2
21.0
—
1.4
—
—
—
89.5
—
—
—
3,041.8
—
—
—
1,306.8
—
—
—
3,264.5
—
—
—
1,492.7
—
—
40.3
9,199.5
56.2
21.0
Total . . . . . . . . . . . . . .
3,979.4
408.6
917.5
3,097.2
1,391.8
3,515.6
1,867.9
15,178.0
Liabilities
Liabilities immediately
payable . . . . . . . . . . .
Deposits . . . . . . . . . . . .
Deposits from other Banks.
Securities issued . . . . . . .
Accrued interest . . . . . . .
Other Liabilities . . . . . . .
142.9
10,410.5
326.0
0.9
36.5
3.9
—
1,329.7
—
—
—
—
—
534.4
—
—
—
—
—
1,556.3
2.1
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
142.9
13,830.9
328.1
0.9
36.5
3.9
Total . . . . . . . . . . . . . .
10,920.7
1,329.7
534.4
1,558.4
—
—
—
14,343.2
As of December 31, 2010
More
than 1
month
until 3
months
1 month
or less
More
than 3
month
until 6
months
More
than 6
month
until 12
months
More
than 1
year
until 2
years
More
than 2
years
until 5
years
More
than 5
years
Total
(Rp. in billions)
Assets
Cash . . . . . . . . . . . . . .
Demand deposits with
Bank Indonesia . . . . . .
Demand deposits with
other Banks . . . . . . . .
Placements with other
Banks . . . . . . . . . . . .
Securities — third parties .
Securities purchased under
agreements to resell . . .
Loans — gross . . . . . . . .
Interest receivable . . . . . .
Other assets . . . . . . . . . .
269.3
—
—
—
—
—
—
269.3
1,067.9
—
—
—
—
—
—
1,067.9
86.6
—
—
—
—
—
—
86.6
706.2
171.3
—
435.4
—
—
—
—
—
—
—
226.8
—
638.6
706.2
1,472.1
19.4
4.9
47.4
19.5
55.5
7.4
—
—
—
77.7
—
—
—
1,967.1
—
—
—
1,374.1
—
—
—
2,326.6
—
—
—
1,285.8
—
—
74.9
7,043.6
47.4
19.5
Total . . . . . . . . . . . . . .
2,392.5
498.3
77.7
1,967.1
1,374.1
2,553.4
1,924.4
10,787.5
Liabilities
Liabilities immediately
payable . . . . . . . . . . .
Deposits . . . . . . . . . . . .
Deposits from other Banks.
Securities issued . . . . . . .
Accrued interest . . . . . . .
Other Liabilities . . . . . . .
46.7
7,919.9
303.8
1.6
24.6
2.8
—
1,071.2
—
—
—
—
—
169.9
—
—
—
—
—
658.2
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
46.7
9,819.2
303.8
1.6
24.6
2.8
Total . . . . . . . . . . . . . .
8,299.4
1,071.2
169.9
658.2
—
—
—
10,198.7
The following table sets forth Bank Sinarmas’ interest carrying deposits with other banks broken down
by currency as of the dates specified.
As of December 31,
2008
2009
As of September 30,
2010
2010
2011
(Rp. in billions, except percentages)
Rupiah . . . . . . . . . . . .
Foreign currency:
U.S. dollar . . . . . . . .
Euro . . . . . . . . . . . .
Pound sterling . . . . . .
Hong Kong dollar . . .
Australia dollar . . . . .
Japanese Yen. . . . . . .
China renminbi . . . . .
Singapore dollar. . . . .
Total foreign currency .
. . . . . . . . . . . . .
1.9
102.8
104.2
9.0
203.4
.
.
.
.
.
.
.
.
.
191.9
—
1.1
—
1.1
0.3
—
1.1
195.5
241.1
4.1
3.9
0.6
6.6
1.6
—
3.9
261.8
671.3
4.3
3.9
0.5
0.5
0.2
—
7.9
688.6
642.9
19.2
1.9
0.3
0.9
—
—
6.4
671.6
269.9
1.0
2.5
0.7
0.1
3.9
2.8
6.7
287.6
Total . . . . . . . . . . . . . . . . . . . . . . . . . .
197.3
364.6
792.8
680.6
491.0
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
The following tables set forth Bank Sinarmas’ loans, classified by collectability.
As of December 31,
2008
Amount
2009
% of total
Amount
2010
% of total
Amount
% of total
(Rp. in billions, except percentages)
Rupiah. . . . . . . . . . . . . . . .
Related third parties . . . . . .
Third parties . . . . . . . . . .
83.4
3,914.4
2.0
91.3
164.1
4,471.3
3.0
82.6
240.8
5,973.9
3.4
85.2
Subtotal . . . . . . . . . . . . .
3,997.8
93.3
4,635.4
85.6
6,214.7
88.6
Foreign currencies
Related third parties . . . . . .
Third parties . . . . . . . . . .
—
283.7
—
6.7
577.8
200.7
10.7
3.7
554.1
243.0
7.9
3.5
Subtotal . . . . . . . . . . . . .
283.7
6.7
778.5
14.4
797.1
11.4
Total . . . . . . . . . . . . . . . . .
Allowance for impairment
losses . . . . . . . . . . . . . . .
4,281.5
100.0
5,413.9
100.0
7,011.8
100.0
Net . . . . . . . . . . . . . . . . . .
4,228.8
(52.7)
(90.9)
(77.6)
5,323.0
6,934.2
As of September 30,
2010
Amount
2011
% of total
Amount
% of total
(Rp. in billions, except percentages)
Rupiah . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Related third parties . . . . . . . . . . . . . . . . . .
Third parties . . . . . . . . . . . . . . . . . . . . . . .
309.4
5,078.6
5.0
81.9
236.2
7,371.2
2.6
80.4
Subtotal . . . . . . . . . . . . . . . . . . . . . . . . . .
5,388.0
86.9
7,607.4
83.0
Foreign currencies
Related third parties . . . . . . . . . . . . . . . . . .
Third parties . . . . . . . . . . . . . . . . . . . . . . .
548.9
267.6
8.8
4.3
1,199.8
356.5
13.1
3.9
Subtotal . . . . . . . . . . . . . . . . . . . . . . . . . .
816.5
13.1
1,556.3
17.0
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Allowance for impairment losses . . . . . . . . . . . .
6,204.5
(141.9)
100.0
9,163.7
(97.2)
100.0
Net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
6,062.6
9,066.5
NPLs
NPLs are handled within each branch and then delegated to the Settlement Committee of NonPerforming Loans. The function of this committee is to verify the analysis of credit proposals of loan
restructurings and to take necessary actions to resolve loan problems.
Analysis of NPLs by Industry Sector
The following table shows the industry classification of Bank Sinarmas’ NPLs as of the dates
specified.
As of December 31,
2008
2009
As of September 30,
2010
2010
2011
(Rp. in billions)
Rupiah:
Agriculture, hunting and agriculture
facilities . . . . . . . . . . . . . . . .
Manufacturing . . . . . . . . . . . . . .
Construction . . . . . . . . . . . . . . .
Trading, restaurant and hotel . . . . .
Transportation, warehousing and
communication . . . . . . . . . . . .
Business services . . . . . . . . . . . .
Social and public services. . . . . . .
Others . . . . . . . . . . . . . . . . . . .
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
0.5
3.8
16.6
2.0
—
22.1
31.9
0.4
12.5
—
22.3
4.3
12.6
4.6
15.6
5.0
0.5
0.8
21.8
4.8
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
—
41.0
—
0.9
52.1
—
—
6.3
12.5
33.5
0.1
3.1
14.5
72.0
—
3.0
12.5
34.1
0.1
12.5
Total domestic . . . . . . . . . . . . . . . . . . .
64.8
112.8
88.3
127.3
87.1
—
—
20.4
20.4
—
4.7
—
4.7
—
—
—
—
—
4.5
—
4.5
—
—
—
—
Total . . . . . . . . . . . . . . . . . . . . . . . . . .
Allowance for impairment losses . . . . . . . . .
85.3
(11.6)
117.5
(28.3)
88.3
(10.2)
131.8
(14.1)
87.1
(6.0)
Net . . . . . . . . . . . . . . . . . . . . . . . . . . .
73.7
89.2
78.1
117.6
81.1
Foreign currency:
Mining . . . . . . .
Manufacture . . . .
Construction . . . .
Total international
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
Provisions for Loan Losses
The following table sets forth the charges in allowance for possible losses on loans as of the dates
specified.
As of December 31,
2008
2009
As of September 30,
2010
2010
2011
(Rp. in billions)
Balance at beginning of the year:
Individual . . . . . . . . . . . . . . . . . . . . .
Collective . . . . . . . . . . . . . . . . . . . . .
Adjustment on SFAS No. 55 Revised 2006 . .
Recovery:
Individual . . . . . . . . . . . . . . . . . . . . .
Collective . . . . . . . . . . . . . . . . . . . . .
Provision during the year:
Individual . . . . . . . . . . . . . . . . . . . . .
Collective . . . . . . . . . . . . . . . . . . . . .
Accrual interest on impairment loans . . . . . .
Write-off. . . . . . . . . . . . . . . . . . . . . . . .
Exchange rate differences . . . . . . . . . . . . .
Balance at end of year . . . . . . . . . . . . . . .
—
34.0
—
—
52.7
—
14.2
76.7
4.3
14.2
76.7
4.3
3.6
74.1
—
—
—
—
—
—
—
—
—
6.3
—
11.2
38.6
—
(5.3)
2.2
6.8
12.3
—
(0.2)
(5.5)
—
17.1
—
—
1.6
—
73.4
—
(16.0)
(19.2)
4.9
48.3
(5.2)
(63.0)
(2.6)
52.7
90.9
77.6
141.9
97.2
Prior to January 1, 2010, minimum levels of loss allowances maintained by the Bank are based on
classifications of non-productive assets and allowances for impairment losses on non-productive assets based
on Bank Indonesia regulations. Beginning January 1, 2011, the Bank no longer applies the Bank Indonesia
transitional provisions for collective impairment of loans and uses an “incurred loss” methodology for
collective asset impairments.
The following table sets forth the movement of loans written-off as of the dates specified.
As of December 31,
2008
2009
As of September 30,
2010
2010
2011
(Rp. in billions)
Balance at beginning of period
Mutation during the year: . . .
Write-off . . . . . . . . . . . .
Delete Notes . . . . . . . . . .
Recovery . . . . . . . . . . . .
Exchange rate difference . .
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
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.
.
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.
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.
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.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
0.8
0.7
13.6
13.7
74.8
—
—
—
—
16.0
(2.0)
—
(1.0)
63.0
—
—
(1.8)
5.3
—
—
(1.9)
0.2
—
(6.2)
(1.2)
Balance at end of period . . . . . . . . . . . . . .
0.8
13.7
74.8
17.1
67.6
Capital Adequacy
Bank Sinarmas maintains capital adequacy ratios in accordance with the requirements of Bank
Indonesia which follow the Basel II framework. The following table sets forth a breakdown of Bank
Sinarmas’ capital adequacy as of the dates specified.
As of December 31,
2008
2009
As of September 30,
2010
2010
2011
(Rp. in billions, except percentages)
Capital Stock Component:
Core Capital . . . . . . . . . . . . . . . . . . . . .
Supplementary Capital . . . . . . . . . . . . . . .
462.0
44.3
597.6
51.1
912.1
62.0
660.7
64.3
1,272.9
72.2
Total Core and Supplementary Capital. . . .
506.3
648.7
974.1
725.0
1,345.1
Risk Weighted Assets:
Credit risk after considering specific risk . .
Market risk. . . . . . . . . . . . . . . . . . . . .
Operational risk . . . . . . . . . . . . . . . . . .
3,987.5
15.2
—
4,648.9
38.0
—
6,529.9
54.3
322.3
5,147.1
8.6
322.2
8,647.1
73.2
749.0
Total Risk Weighted Assets for credit, market
and operational risk . . . . . . . . . . . . . . .
4,002.7
4,686.9
6,906.5
5,477.9
9,469.3
11.5%
12.8%
13.2%
12.1%
13.4%
12.7%
12.7%
n/a
n/a
8.0%
14.0%
13.8%
n/a
n/a
8.0%
14.9%
14.8%
14.2%
14.1%
8.0%
14.1%
14.1%
13.3%
13.2%
8.0%
15.6%
15.4%
14.3%
14.2%
8.0%
Core Capital Ratio. . . . . . . . . . . . . . . .
Capital Adequacy Ratio: . . . . . . . . . . . .
With credit risk . . . . . . . . . . . . . . . .
With credit and market risk. . . . . . . . .
With credit and operational risk . . . . . .
With credit, operational and market risk .
Required minimum capital adequacy ratio .
.
.
.
.
.
.
.
.
.
.
.
.
.
.
Reserves
In addition to interest income on credit extended and customer deposits, Bank Sinarmas also maintains
a higher level of minimum reserve requirements than that required by Bank Indonesia in anticipation of the
withdrawal of deposits by customers in large numbers.
Information Technology
The role of information technology is important to the Bank’s business. Bank Sinarmas invests in the
development of information technology to provide and support all of its business requirements and focuses
on work effectiveness, efficiency improvement and customer orientation.
Risk Management
Credit Risk
Credit risk is the risk that a debtor, counterparty or other party will fail to fulfill its obligations as they
fall due. Credit risk may arise from a variety of activities such as funding, investment and trade finance.
Credit risk can be managed by an independent opinion or risk mitigation review with respect to credit
exposure of a significant amount, credit-related products or credit activities which have a high inherent risk.
Risk mitigation review is designed to manage individual credit risk in the Bank. The process involves
review of compliance and legal aspects, early warning signals, quality of credit analysis, loan documentation
and covenants, and portfolio management. The Bank measures and monitors the risk of each debtor as an
individual, its economic sector and its overall credit portfolio by employing the “four-eyes” principle.
The objectives of credit risk management include:
•
identification and determination of the credit risks inherent in banking operations;
•
dealing with credit risk in banking activities;
•
increasing the balance between sound credit expansion and prudent credit management so as to
avoid a decrease in the quality of the Bank’s loans or the number of NPLs;
•
optimization of the capital allocated to credit risk by ensuring that credit is extended in
accordance with sound credit extension principles; and
•
ensuring that any deviation from policies, procedures and limits have been appropriate.
For the purpose of implementing credit risk management practices, Bank Sinarmas has prepared a
variety of credit risk parameters, policies and procedures which are capable of ensuring that credit portfolios
are properly managed. As of August 2010, the bank adopted the three-pillar assessment of credit asset
quality to help rating analysis of debtors with respect to any credit facility proposal of Rp.1.0 billion or more.
The three-pillar assessment involves analysis of the debtor’s business prospects, financial performance and
capacity to pay. Business prospects include potential for business growth, market condition, position compared
to its competitors, quality of management and employee issues, support from the debtor’s group or affiliates
and the debtor’s maintenance of standard of living. Financial performance includes the debtor’s profitability,
capital structure, cash flow and sensitivity to market risk. Capacity to pay the loan includes accuracy of
payment of principal and interest, availability and accuracy of the debtor’s financial information, fulfillment
of loan documentation, compliance with loan contracts, the debtor’s drawdown of loans in compliance with
the purpose of the loans and the debtor’s source of payment.
Market Risk
This risk may occur due to the variables of the portfolios owned by the Bank, such as interest rates
and exchange rates. The Bank’s investments include securities, foreign exchange and placements with other
financial institutions.
Market risk is managed within an overall risk limit, such as hedging. All commercial activities relating
to foreign exchange, the money market and securities are monitored on a daily basis and reviewed through
the mark-to-market method according to specified limits and in accordance with Bank of Indonesia
regulations.
Interest rate risk is calculated according to the position of financial instruments recorded in the trading
book as being exposed to interest rate risk. The risk comprises both specific risks (employing Interest Rate
Rating in Banking Book method) and general risk. Interest Rate Rating in Banking Book method aids Bank
to specify for both of Risk Sensitivity of Assets and Risk Sensitivity of Liabilities, and then identifies
mismatches in their maturity basis for fixed interest rate. Mismatches for the floating interest rate will be
found based on adjustment of their next interest rate period. The Bank sets saving interest rates on the basis
of the results of monitoring the fluctuations in Deposit Insurance Corporation interest rates and by reviewing
saving account interest rates that have set by other comparable banks. Credit interest rates are set by adding
certain margins such as risk premium and strategic management adjustment to Bank Sinarmas’ cost of funds.
Exchange rate risk is managed according to the limits of net open positions regulated by Bank
Indonesia, whereby the Bank is required to manage and maintain its net open position not higher than 20.0%
of equity every 30 minutes between the opening and closing times of Bank Sinarmas’ treasury system.
Liquidity Risk
Liquidity risk is the risk that Bank Sinarmas fails to make payments for its obligations which fall due
and may arise from the Bank’s activities in the funding, treasury and investment and credit instrument areas.
This risk is managed by the Bank’s policy, supervisory and limitation frameworks to ensure that there
is minimum funding concentration as well as diversified sources and terms of funding. The Bank proactively
manages its core funds base, being those funds which are assumed to be stable, and ensures that the existing
liquidity limits are complied with.
In liquidity risk management, Bank Sinarmas takes into account such liquidity factors as pricing and
gapping of sources of funds and credit, analysis of capital and current asset adequacy, including securities
investments.
Operational and Information Technology Risk
Operational and information technology risk is the risk of a malfunction of existing internal processes,
frauds, human error, system failure, weak handling of customer complaints and other external problems that
have the potential to produce operational risk. Operational risk is managed through the adoption of policy,
processes and procedures undertaken by working units through the identification, assessment, monitoring and
minimization of existing operational risk.
In addition, independent second opinions are solicited which may take the form of risk mitigation
review with respect to, among other things, the creation of standard operating procedures. New products and
activities are assessed to ensure that any related operational risks can be identified and continually managed.
Legal Risk
Legal risk is the risk of uncertainties arising from applicable or changing regulations, uncertainties in
the law arising from lawsuits, lack of legislative support or weak contracts. The Bank’s Corporate Legal
Department ensures that all legal risks are monitored and properly managed. Given that legal risk may arise
from each business and operational activity of the Bank, there is continual management and mitigation of
this risk.
Reputation Risk
Reputational risk is the risk that the failure to adopt business practices, non-compliance with applicable
laws and regulations, and adverse publicity relating to the Bank’s operations will lead to negative
perceptions of Bank Sinarmas. This could result in a decrease in the Bank’s number of customers and
income, and require an increase in public relations costs to recover customer, partner and regulator trust.
All employees of Bank Sinarmas are responsible for this risk type, and it can be measured from
customer complaint reports which are handled by the Customer Care Unit. The Customer Care Unit receives
and deals with customer complaints relating to Bank Sinarmas’ products and services, whereas the Corporate
Secretary carries out a variety of public relations activities to create positive publicity regarding Bank
Sinarmas.
Strategic Risk
This risk relates to the potential loss arising from erroneous strategic business decisions, inaccurate
business strategies or the Bank’s inability to respond to business opportunities and changes in the external
environment.
To manage its strategic risk, Bank Sinarmas takes steps which include:
•
gathering strategic information and market monitoring;
•
preparation of business plans according to Bank Sinarmas’ vision and mission and taking into
account its abilities and business prospects;
•
communicating Bank Sinarmas’ business plans to its officers and employees at each
organizational level for proper implementation so that its goals can be achieved; and
•
collective and comprehensive decision-making processes by supervisory and executive
committees.
Compliance Risk
This risk may arise if Bank Sinarmas fails to comply with or fulfill the requirements under applicable
laws and regulations. In order to manage this risk, the Bank adopts strict monitoring and internal control
systems to ensure that business processes run smoothly in accordance with regulations. The Bank identifies
any potential breach of business activity procedures that may incur the risk of interrupting the Bank’s
finances and reputation. In addition, good corporate governance practices are effective tools to ensure and
monitor compliance with both internal and external regulations. See “—Corporate Governance”.
Risk Management Certification
In order to improve human resources in risk management, Bank Sinarmas encourages its Executives
and Officers to join and pass the Risk Management Certification Tests conducted by the Risk Management
Certification Agency.
Risk Profiles
Risk profiles are self-assessed quarterly reports submitted to Bank Indonesia. All types of risk factors
are assessed with an emphasis on the risks inherent in each of Bank Sinarmas’ activities.
In accordance with Bank Indonesia Regulation No. 11/25/PBI of 2009, dated July 1, 2009, regarding
Amendments to Bank Indonesia Regulation No. No. 5/8/PBI of 2003 regarding the Adoption of Risk
management by Commercial Banks, with effect from July 1, 2010, risks are no longer classified into three
categories (1 — low, 2 — moderate, and 3 — high) but five (1 — low, 2 — low to moderate, 3 —
moderate, 4 — moderate to high and 5 — high). Based on the assessment as of December 31, 2010, Bank
Sinarmas’ overall risk was assessed as being low and stable in comparison with the overall risk assessment
of the previous period.
Risk Management Practices
The effective and comprehensive adoption of risk management practices is an essential element of
Bank Sinarmas’ business activities, and benefits the Bank and its stakeholders by creating shareholder value,
as well as assisting Bank Sinarmas’ management and decision-making system. Bank Sinarmas’ risk
management framework provides for accurate measurement of the Bank’s performance, its assessment of
risks inherent in its instruments and business activities, and continuation of a strong risk management
infrastructure to help strengthen its competitiveness.
Bank Sinarmas has adopted a risk management strategy which adheres to the principles of prudence
with clear accountability. Risk frameworks and processes have been established in anticipation of a variety
of internal and external risks. The strategy covers active supervision by management, adoption of policy and
procedures, establishment of risk limits, risk identification, measurement and monitoring processes, and
application of information, risk control and internal control systems.
Bank Sinarmas assesses credit, market, liquidity and operational risks of each activity, with awareness
of other risks inherent in non-operational activities such as legal, reputation, strategic and compliance risks.
Risk Management Organization
In order to identify, measure, monitor and control risks which may arise from the Bank’s commercial
activities, the Bank established a risk management organization that ensures that risk management processes
are in place in all areas of Bank Sinarmas’ activities and existing business lines.
Risk Management Working Unit
The Risk Management Working Unit operates independently of risk taking units such as the treasury
and investments, credit, funding, accounting and internal control working units.
The Risk Management Working Unit is managed by the Directorate of Risk Management. Given the
growth by Bank Sinarmas of risk management scope, as of 2010 this unit has increased the number of its
personnel dealing with risk management.
This unit’s duties and responsibilities include:
•
monitoring the implementation of the risk management strategy recommended by the Risk
Management Committee and approved by the board of directors;
•
further monitoring of the overall risk exposure level by type of risk and functional activity;
•
periodic review of risk management processes;
•
preparation and presentation of quarterly risk profile reports to Bank Indonesia; and
•
recommending the maximum amount or highest degree of risk exposure which Bank Sinarmas
can retain.
For the purposes of active supervision and monitoring of risk management by the Risk Management
Working Unit, the Risk Management Committee and the Risk Monitoring Committee have been established
at the executive officer, director and commissioner level.
Risk Management Committee
This committee adopts an effective risk management framework and ensures risk supervision through
risk tolerance, limits and management strategy. The Risk Management Committee is led by the Risk
Management Director and its key role is to set risk management policy, strategy and guidelines, improve the
application of risk management procedures based on results of its regular evaluation of the performance of
risk management procedures, justification of issues related to any irregularities in the business, developing
risk management culture at all levels of the organization, and ensuring that risk management has been
implemented independently.
Risk Monitoring Committee
This committee implements the duties and responsibilities of the board of commissioners and evaluates
the consistency and adequacy of the risk management policy and its implementation and works in
conjunction with the Risk Management Committee and the Risk Management Working Unit.
Assets and Liabilities Committee
Bank Sinarmas also has an Asset and Liability Committee (“ALCO”) which formulates strategies for
the management of asset and liabilities and recommends to management the interest rates for funding and
placement of funds in order to improve Bank Sinarmas’ competitiveness. The duties of Bank Sinarmas’
ALCO include policy-making and approval, forming strategy and preparation of interest rate risk guidelines,
liquidity policy, setting guidelines for and approval of funding, preparation of general measurement methods
for the bank relating to market risks (covering interest rates, exchange rates and securities valuations),
liquidity risk, setting of the overall limit of each currency for market risk and liquidity risk management
purposes, monitoring, approval and refusal of excess limits and the occurrence of excess limits in
accordance with the risk management policy in place. ALCO is chaired by the President Director and
comprises other directors, head of risk management, members of the credit committee and heads of various
operational departments and meets on a monthly basis to review macro and micro economic circumstances
and other factors which affect Bank Sinarmas’ interest rate policy.
Corporate Governance
In addition to Bank Sinarmas’ risk management policies and activities, it has the following programs
and units.
Audit Committee
Our audit committee was formed with the aim of assisting the board of commissioners in performing
its supervisory duties and functions with respect to matters relating to financial information, internal control
systems, internal and external audit effectiveness, risk management effectiveness and compliance with the
applicable laws and regulations.
The committee’s duties, authority and responsibility include, but are not limited to, the monitoring and
assessment of audit plans and implementation and further monitoring of audit findings for the purpose of
evaluating internal control adequacy, including that of the financial reporting process.
In order to carry out its duties, the audit committee monitors and evaluates:
•
the performance of duties by the Internal Audit Working Unit (“SKAI”);
•
consistency of audit implementation by public accountants with the applicable audit standards;
•
consistency of financial statements with the applicable audit standards; and
•
follow up by the board of directors on the findings of the SKAI, public accountants and results
of Bank Indonesia supervision so as to offer recommendations to the board of commissioners.
The committee holds meetings on a periodic basis to evaluate the performance of the Internal Audit
Working Unit and follow up by board of directors on the results of internal and external auditors so as to
offer recommendations to board of commissioners. In 2010, the committee held three meetings to discuss the
Audit implementation and work of the SKAI.
Internal Control System
For efficient and effective management purposes, the Bank has established an Internal Control System
(“ICS”) to serve as the basis of sound and secure operations.
As control is a function of management, the ICS is responsible for assisting management in ensuring
that internal controls are adequate and run in a proper manner.
Bank Indonesia Regulation No. 5/8/PBI/2003, dated May 19, 2003 regarding the Adoption of Risk
Management by Commercial Banks and Bank Indonesia has issued Circular No. 5/22/DPNP, dated
September 29, 2003, regarding the Standard Guidelines for ICS at Commercial Banks require every
commercial bank to prepare ICS Guidelines which cover:
•
management oversight and control culture;
•
risk recognition and assessment;
•
control activities and segregation of duties;
•
accounting system, information and communication; and
•
monitoring activities and correcting deficiencies.
The Bank’s ICS was adopted by its board of commissioners and board of directors through Order No.
002/0001.095, dated December 15, 2004 regarding ICS Guidelines. These guidelines serve as a reference for
all Bank levels for the performance of daily operational activities.
SKAI
In the performance of monitoring activities, the SKAI carries out several activities which include:
•
performing regular audits on branches/work units focusing on the risk exposure level at each
branch/work unit. The audit includes all aspects and activities of the branches/work units
(including operational, loan and human resources aspects) and audit results are submitted to all
members of the board of directors and audit committee;
•
reviewing each standard operating procedure that will be adopted by Bank Sinarmas;
•
making recommendations for the efficient and effective achievement of bank objectives through
proposed policies, systems and procedures to ensure proper internal controls; and
•
identification, evaluation and implementation of risk management procedures.
In addition, SKAI has branch auditors in several branches which function as daily auditors as well as
consultants for those branches. Branch auditors are always independent from any operational work unit or
branch activities.
External Audit
In accordance with Bank Sinarmas’ Articles of Association, its board of commissioners is required to
recommend public accountants to perform the audit of Bank Sinarmas’ books. The accountants must hold a
license issued by the Department of Finance and be registered with Bapepam-LK.
The accountants conduct general audits so as to arrive at opinions on the reasonableness of Bank
Sinarmas’ financial statements and determine that they are presented in accordance with Indonesian PSAK.
The Bank at all times ensures the adequacy of procedures and policies in place so as to comply with
applicable laws and regulations. Its policies and procedures are subject to periodic reviews and assessments
by the relevant units. The Bank has set risk limits through parameters and/or indicators of risk monitoring
and measurement.
Risk exposure is monitored on a comprehensive basis by type of risk (credit risk, market risk, liquidity
risk, operational risk, law risk, reputational risk, strategic risk and compliance risk) and by functional
activity. In addition, data and information management are subjected to continual improvement to help
enhance risk measurement and monitoring processes.
Verification and review are conducted periodically and continually with respect to dealing with any
material weaknesses and determining follow up measures to be undertaken to remedy any inconsistencies.
This unit is independent of risk-taking units such as the treasury, investment, credit, funding and
accounting units, and the SKAI.
The Risk Management Working Unit falls under the Directorate of Risk Management. As Bank
Sinarmas has expanded the scope of risk management, as of 2010 this unit has increased the number of staff
dealing with risk management.
Compliance Working Unit
The Compliance Working Unit was formed as part of Bank Sinarmas’ corporate governance strategy and
to fulfill Bank Indonesia regulations. It is responsible for ensuring Bank Sinarmas’ compliance with any and
all the applicable Bank Indonesia and other regulations and upholding prudential principles with respect to
the bank’s core business, lending. This unit also monitors Bank Sinarmas’ obligation to submit regular reports
to Bank Indonesia and the PPATK and designs internal policies for the Director of Compliance to ensure that
management policies are consistent with applicable laws and regulations. In addition, this unit ensures the
Bank’s compliance with all the agreements made by and between Bank Sinarmas and Bank Indonesia and
other competent authorities. The unit’s main function is to ensure consistency with any and all the provisions
of the applicable laws and regulations, fulfillment of commitments to the competent authorities,
implementation of reasonable business activities, that is, lending and provision of products and services,
compliance of each unit’s operational activities and implementation of AML and TPF principles.
In order to perform its compliance function, the Compliance Working Unit is responsible for ensuring
that Bank Sinarmas follows the fundamentals of compliance function performance.
In order to avoid conflicts of interest, Bank Sinarmas established a special work unit or appointed
independent officials. The Compliance Work Unit has initiatives, among others, to develop the monitoring
process through a transaction identification system carried out by Walk in Consumer (“WIC”) for suspicious
transactions and cash transactions of large amounts.
In order to improve understanding of the implementation of AML and TPF principles, the unit at all
times communicates and socializes with all business units through face-to-face encounters and the
compliance portal. As part of the supplementary media to accelerate understanding, pocket practical guides
for KYC principles are distributed.
In order to apply good corporate governance in accordance with prevailing regulations, Bank Sinarmas
appointed Salis Teguh Hartono as Compliance and Legal Director.
Under Bank Indonesia Regulation No. 13/2/PBI/2011, dated January 12, 2011, regarding the
Performance by Commercial Banks of the Compliance Function, the Director of Compliance is responsible
for:
•
strategy formulation so as to encourage the creation of a bank compliance culture;
•
proposing of compliance policies and principles for adoption by the board of directors;
•
determination of compliance systems and procedures for adoption in the preparation of bank
internal rules and guidelines;
•
ensuring that all Bank Sinarmas’ policies, rules, systems, procedures and business activities
follow the applicable Bank Indonesia and other regulations and laws, including those concerning
the Sharia principles for Islamic commercial banks and business units;
•
mitigation of bank compliance risk;
•
ensuring that any policy and/or decision made by Bank Sinarmas’ board of directors follows the
applicable Bank Indonesia and other regulations and laws; and
•
performing other duties relating to compliance.
In his duties and responsibilities, the Compliance and Legal Director is supported by the Compliance
Unit and UKPN.
Implementation of the Anti-Money Laundering and Terrorism Funding Prevention Program
In order to implement Bank Indonesia Regulation No. 11/28/PBI/2009, dated July 1, 2009 regarding
the Implementation by Commercial Banks of the Anti-Money Laundering (“AML”) and Terrorism Funding
Prevention (“TFP”) Program, Bank Sinarmas has adopted the following measures:
•
requiring provision of complete customer particulars;
•
careful examination of any customer candidate intending to open a bank account;
•
monitoring the financial profiles of customers, including the transactions consummated by
walk-in customers; and
•
developing an information technology system for the monitoring of customers’ unusual or
suspicious financial transactions.
The policy and risk management procedures relating to AML and TFP principles form part of the
Bank’s overall policy and procedures and are incorporated into elements such as supervision by bank
management, delegation of authority, separation of duties and responsibility, internal control system and
employee training.
Branch office heads, operations heads and supervisors are fully responsible for the implementation of
the AML and TFP program in their respective branch offices.
For effectiveness purposes, the adoption by Bank Sinarmas of AML and TFP principles is monitored
by a section-head level special working unit under the Know your Consumer Working Unit (“UKPN”) at the
head office. The UKPN is responsible to the head in charge of operations under the Compliance Division,
acting in his capacity as the Special Officer designated by the board of directors and under the Bank
Indonesia regulation regarding the responsibility mechanism of Special Officers directly under the director of
Compliance.
In addition, the Bank has developed and adopted an adequate information system for the identification,
analysis, monitoring and furnishing of reports on money laundering transactions made by customers to the
competent authorities.
The reports made to the Financial Transaction Reporting and Analytical Centre (“PPATK”) are as
follows:
•
if according to the monitoring of a branch office or a report on a customer cash transaction of
equal or greater than Rp.500.0 million a customer makes a cumulative cash transaction with
Bank Sinarmas of Rp.500.0 million or greater on a single day, the branch office makes a cash
transaction report (“CTR”) to the head office’s UKPN. Upon examination by the UKPN and
approval by the Director of Compliance, the report will be forwarded to the PPATK; and
•
Suspicious Transaction Reports (“STR”) are made on the basis of reports made by the officer in
charge of AML and TFP activities at a branch office and the results of monitoring and analysis by
the UKPN. If upon repeat analysis a conclusion is made that there is a suspicious transaction, the
UKPN will seek the consent of the Director of Compliance for the direct forwarding of the report
to the PPATK.
The adoption of AML and TFP principles is at all times subject to the internal audit division, Bank
Indonesia and the PPATK. The Bank continually makes improvements to its consumer identification files so
as to increase the accuracy and completeness of customer particulars and make these consistent with Bank
Indonesia regulations and international standards.
Competition
Bank Sinarmas’ primary competitors across all its principal businesses are other large and mid-size
domestic banks as well as foreign banks operating in Indonesia. Bank Sinarmas also faces indirect
competition from a variety of other types of financial services companies, such as multifinance and
securities companies, savings cooperatives, leasing and factoring companies and venture capital companies,
as well as from certain Government-owned or affiliated entities that provide industrial development funding
and export/import lending and services. Additionally, our investment banking, insurance and Sharia banking
businesses also face competition from companies that specialize in those industries.
Bank Sinarmas’ broad product offering and extensive branch network allow it to compete effectively
with other mid-size banks. As the development and reform of the Indonesian financial sector continues, Bank
Sinarmas expects to face increasing competition from financial institutions that may offer a wider array of
banking services and products or have larger lending limits or stronger balance sheets. In addition, domestic
competitors have formed, and can be expected to continue to form, strategic alliances with foreign banks
with significantly greater financial, management and other resources.
Bank Sinarmas competes principally on pricing (for both loans and deposits), by monitoring
relationships and on its ability to provide specific solutions to its customers’ needs. Its principal competitors
are its peer banks, such as Bank Artha Graha Internasional Tbk, Bank ICBC Indonesia, Bank Economi,
Bank Victoria, Bank Mutiara Tbk and Bank Mayapada. Bank Sinarmas’ key competitors in consumer finance
are Adira Finance, WOM Finance and Astra Sedaya.
Real Property
As of September 30, 2011, Bank Sinarmas owned 48 properties comprising a total gross floor area of
approximately 8,042 square meters with a net book value of Rp.112.4 billion (US$12.7 million), most of
which it uses for its branches, sub-branches and cash outlets. As of September 30, 2011, Bank Sinarmas also
leased 91 properties comprising a total gross floor area of approximately 19,000 square meters, 84 of which
are leased from related parties.
Intellectual Property
Bank Sinarmas is in the process of obtaining the trademark for the name of the Bank. It does not have
any other intellectual properties.
Employees
As of September 30, 2011, Bank Sinarmas had a total of approximately 3,014 employees, including
697 contract workers. In accordance with Bank Indonesia regulations, Bank Sinarmas has allocated at least
5.0% of its employee expenses to training. In 2010 and the nine months ended September 30, 2011,
approximately 5.5% and 7.0%, respectively, of the Bank’s employee expenditures were allocated to training.
Bank Sinarmas’ education and training center, established in 2005, offers training programs for its
employees. Operational staff are trained through on-line programs which focus on the skills for their
respective areas. Operational staff are required to participate in at least 40 hours of basic training per year.
For supervisors and officers, Bank Sinarmas also provides management training programs.
Insurance
Bank Sinarmas maintains insurance coverage for its vehicles, property insurance and insurance
coverage against earthquakes underwritten by Asuransi Sinar Mas. We believe that Bank Sinarmas’ insurance
coverage is similar in scope to those customary for banking businesses in Indonesia.
Legal Proceedings
From time to time Bank Sinarmas may be involved in legal proceedings concerning matters that arise
in the ordinary course of its business operations. We are not aware of any potential litigation, arbitration or
administrative proceedings against Bank Sinarmas which might materially affect its business, financial
condition or results of operations.
Securities — Sinarmas Sekuritas
Overview
We conduct our securities business primarily through our subsidiary, Sinarmas Sekuritas, which holds a
license from Bapepam-LK as a stockbroker, investment manager and underwriter. Sinarmas Sekuritas has a
full service securities business, offering a wide range of services such as trading and brokerage, investment
banking and financial advisory services and offers asset management services through its asset management
division. Sinarmas Sekuritas also engages in proprietary trading.
Sinarmas Sekuritas provides debt and equity brokerage and trading services to individual and
institutional investors. The investment banking division of Sinarmas Sekuritas provides corporate finance
advisory and underwriting services and assists corporate consumers in raising funds in the capital markets
through public offerings and private placements.
Sinarmas Sekuritas’ asset management division provides asset management and investment advisory and
management services to institutional, corporate and individual clients, which include pension funds, insurance
companies and other financial institutions and high net-worth individuals. Its asset management division
manages mutual funds and invests and manages a certain portion of Sinarmas Sekuritas’ equity on a
proprietary basis. As of September 30, 2011, Sinarmas Sekuritas managed various types of mutual funds,
including equity funds, fixed income funds, mixed balance funds, money market funds and protected funds
with total AUM of Rp.5,045.4 billion (US$571.8 million).
Sinarmas Sekuritas’ operations benefit from synergies and cross-selling activities with SMMA’s other
subsidiaries, in particular Bank Sinarmas. For example, Sinarmas Sekuritas complements Bank Sinarmas’
corporate banking activities by offering mutual funds products to Bank Sinarmas’ customers. Sinarmas
Sekuritas also supports Bank Sinarmas’ retail banking activities through retail brokerage and asset
management services provided to retail customers. Sinarmas Sekuritas has also opened a number of its
branches in selected Bank Sinarmas branch offices in Jakarta and other major cities to provide asset
management and retail brokerage services.
As of September 30, 2011, Sinarmas Sekuritas had one head office and 48 branch offices in several
cities in Indonesia, all of which provide asset management services and 24 branch offices of which also
provide brokerage services, including five branches in Jakarta. Through this branch network, Sinarmas
Sekuritas has established relationships with approximately 500 institutional and individual agents who
market its products.
As of December 31, 2010 and September 30, 2011, Sinarmas Sekuritas had Rp.1,221.1 billion
(US$138.4 million) and Rp.1,038.2 billion (US$117.7 million), respectively, in assets and had executed
Rp.627.0 billion (US$71.1 million) and Rp.458.5 billion (US$52.0 million), respectively, in equity trades.
Sinarmas Sekuritas also has an extensive distribution network, and according to Investor Magazine August
2011, has one of the highest risk-weighted adjusted capital of Indonesian investment banks. For 2010 and the
nine months ended September 30, 2011, Sinarmas Sekuritas had underwritten Rp.1,095.0 billion (US$124.1
million) and Rp.1,325.3 billion (US$150.2 million) in bond and equity offerings, respectively. All services
offered through Sinarmas Sekuritas generated Rp.85.5 billion (US$9.7 million) in revenues in the nine months
ended September 30, 2011. For the year ended December 31, 2010, Sinarmas Sekuritas
recorded a net profit of Rp.238.9 billion (US$27.1 million) and had total assets amounting to Rp.1,221.1
billion (US$138.4 million) as of that date. For the nine months ended September 30, 2011, Sinarmas
Sekuritas recorded a net profit of Rp.39.9 billion (US$4.5 million) and as of September 30, 2011 had total
assets amounting to Rp.1,038.2 billion (US$117.7 million).
In October 2004, Sinarmas Sekuritas, together with Sinar Mas Multifinance, established PT Sinarmas
Futures which engages in foreign exchange, gold and commodity trading.
Business Initiatives
We intend to further develop our securities and asset management business by focusing on the
following key business initiatives:
•
expand distribution of retail products using its existing network and growing as Bank Sinarmas
grows its branch network;
•
enhance Sinarmas Sekuritas’ technological capability to better support its online trading platform
to expand its customer base;
•
increase retail client acquisitions through market education programs by establishing a “Capital
Market Corner” in a select number of universities across Indonesia; and
•
focus on marketing to employees of the larger Sinar Mas Group, in particular in collaboration
with Bank Sinarmas.
Products and Services
Sinarmas Sekuritas’ core business consists of proprietary trading, mutual fund management, retail
brokerage and underwriting. The following table shows a breakdown of Sinarmas Sekuritas’ consolidated
revenue breakdown by source for the periods indicated.
For the Year Ended December 31,
2010
2010
For the Nine Months Ended
September 30,
2008
2009
2010
Rp.
Rp.
23.6
67.9
34.3
26.0
4.4
26.3
30.7
28.4
45.3
3.4
3.2
5.1
22.2
27.8
31.7
33.6
5.9
51.6
3.8
0.7
5.8
—
0.2
5.3
0.9
1.1
2.7
1.2
1.2
5.6
0.1
0.1
0.6
1.0
1.1
5.3
0.2
0.2
8.6
—
—
1.0
Rp.
US$
Rp.
(Rp. in billions, US$ in millions)
2011
2011
Rp.
US$
Revenue sources:
Brokerage commissions income . . .
Underwriting fee and selling fees . .
Investment management income . . .
Commissions from commodity
exchange transactions . . . . . . . .
Fixed income transaction fees. . . . .
Dividends . . . . . . . . . . . . . . . . .
Gain (loss) on sale of equity
securities . . . . . . . . . . . . . . . .
Unrealized gain (loss) on fair value
of marketable securities . . . . . . .
43.0
68.9
51.2
5.8
43.6
141.4
16.0
(72.8)
102.9
101.7
11.5
9.5
(156.1)
(17.7)
Total Revenues. . . . . . . . . . . . . . .
101.5
233.2
265.3
29.8
142.2
85.4
9.6
Proprietary Trading
Sinarmas Sekuritas generates a substantial a portion of revenue from its proprietary trading activities.
Sinarmas Sekuritas invests and manages its equity on a proprietary basis, and as of December 31, 2008,
2009 and 2010 and September 30, 2011, such investments accounted for approximately 33.4%, 23.7%,
11.4% and 6.2%, respectively, of its total AUM and 3.1%, 2.6%, 1.6% and 0.7%, respectively, of SMMA’s
total assets. Its proprietary trading includes investments in both equity and debt with a focus on high quality
liquid stocks namely, the 45 largest stocks traded on IDX in terms of market capitalization. The investment
strategies for its proprietary trading, such as the composition of funds, sectors to hold and holding limits for
certain categories of stock, are determined by its investment committee, which meets once a month. All the
stocks held in its proprietary trading portfolio are LQ-45 stocks, which are selected for inclusion in the stock
composite based on liquidity, market capitalization and transaction volume. As of September 30, 2011,
Sinarmas Sekuritas had a team of five traders, three of whom make trading decisions. For the years ended
December 31, 2008, 2009 and 2010 and the nine months ended September 30, 2011, Sinarmas Sekuritas
derived 42.3%, 29.5%, 19.4% and 165.5% of its revenue from proprietary trading activities. For the years
ended December 31, 2008, 2009 and 2010 and the nine months ended September 30, 2011, unrealized gain
(loss) on the fair value of its marketable securities represented (71.7)%, 44.1%, 38.3% and (182.8)% of total
revenues, respectively.
Asset Management
Sinarmas Sekuritas provides asset management services to its customers from which it generates
investment management fees. As of December 31, 2008, 2009 and 2010 and September 30, 2011, Sinarmas
Sekuritas had AUM of Rp.1,424.4 billion, Rp.2,148.4 billion, Rp.3,884.6 billion (US$441.0 million) and
Rp.5,045.4 billion (US$571.8 million), respectively, of which Rp.86.8 billion, Rp.115.8 billion, Rp.26.9
billion (US$3.0 million) and Rp.40.9 billion (US$4.6 million) comprised assets from Sinar Mas Group
companies other than the SMMA Group. Its funds include both open-end and closed-end funds, and are
predominantly fixed-income funds. As of September 30, 2011, Sinarmas Sekuritas had 13 funds, including
six fixed income funds, three money market funds, two hybrid funds (which invest in both fixed income and
equity) and one equity fund which provides protection against price movements as its investments comprise
bonds that are held to maturity. As of the same date, 81.7% of AUM were held in fixed income funds,
10.0% of AUM were held in hybrid funds, 3.7% of AUM were held in money market funds and 3.5% of
AUM were held in equity funds, with the remainder held in the protected fund.
Sinarmas Sekuritas typically charges a front-end fee at the time of initial purchase for equity funds and
a management fee for all funds at month end. Front-end fees average 1.0% for equity funds, and there is no
front-end fee for the purchase of domestic fixed-income funds. Front-end fees are discounted for large
purchases of equity funds, typically made by institutional investors, and average 0.3% to 0.5%. Management
fees average 1.0% to 2.5% for equity funds and approximately 1.0% to 1.8% per annum for fixed-income
funds. They also typically charge a redemption fee if unit owners resell their units within one year. Sinarmas
Sekuritas focuses mainly on retail investors, including high net worth individuals, who formed
approximately 89% of its customer base based on AUM as of September 30, 2011. Other customers include
insurance companies and pension funds. As of September 30, 2011, Sinarmas Sekuritas serviced over 7,000
customers of its asset management business through 48 branches across Indonesia. For the years ended
December 31, 2008, 2009 and 2010 and the nine months ended September 30, 2011, investment management
income represented 33.8%, 11.3%, 17.1% and 60.4% of total revenues, respectively.
Brokerage
Sinarmas Sekuritas provides brokerage services to corporate and retail customers for their trading of
equities and fixed income securities. Sinarmas Sekuritas generates brokerage commissions from executing
and clearing the buy and sell orders of its clients. For the years ended December 31, 2008, 2009 and 2010
and the nine months ended September 30, 2011, brokerage commissions represented 23.2%, 11.1%, 11.6%
and 39.3% of total revenues, respectively. From 2008 to 2010, the value of total transactions performed has
grown at a CAGR of 17.9%. As of September 30, 2011, Sinarmas Sekuritas managed approximately 10,000
accounts.
Sinarmas Sekuritas intends to complement its network of branches with alternative trading platforms
such as its online trading platform and touch-tone phone and mobile phone trading which covers all major
mobile platforms including Blackberry, Android, iPhone and iPad. As of September 30, 2011, Sinarmas
Sekuritas had over 3,500 online trading accounts registered and for the nine months ended September 30,
2011, over 7.9% of total retail customer trading volume derived from trades executed through its alternative
trading platforms. As its system continues to improve, Sinarmas Sekuritas expects the contribution of its
online trading to significantly increase, along with the number of its customers. See also “Risk Factors—
Risks Relating to Our Overall Business—Our business relies on our information technology systems and
significant security breaches in our computer system and network infrastructure or system failures could
harm our relationships with customers or adversely affect our provision of services to customers and
materially and adversely impact our business.”.
Underwriting, Advisory and Financing
Sinarmas Sekuritas provides underwriting services to customers for both equity and debt. It
underwrites corporate bonds, initial public offerings, secondary offerings as well as rights issues. It
underwrote Rp.1,095.0 billion (US$124.1 million) and Rp.1,325.3 billion (US$150.2 million) of initial public
offerings of securities in 2010 and the nine months ended September 30, 2011, respectively, including the
initial public offerings of Indostrait and Bank Sinarmas in 2010. In 2010, it underwrote nine initial public
offerings in total. It also conducts private placements, provides advisory services for merger and acquisitions
and provides project financing and pre-initial public offering financing. It earns underwriting commissions,
advisory fees and interest income and from time to time receives share allocations. For the years ended
December 31, 2008, 2009 and 2010 and the nine months ended September 30, 2011, underwriting fees and
selling fees represented 66.9%, 1.9%, 10.7% and 6.9% of total revenues, respectively.
Distribution
As of September 30, 2011, Sinarmas Sekuritas had 48 branch offices in several cities in Indonesia, all
of which provide asset management services, and 24 of which also provide brokerage services, including
five branches in Jakarta. Its branches function as its points of sale, where most of its services, aside from
investment banking services, are offered. Sinarmas Sekuritas has approximately 500 individual agents
located throughout its branches. Its agents mostly sell asset management products of Sinarmas Sekuritas and,
to a lesser extent, other securities products of Sinarmas Sekuritas. Its agents sell its products on an exclusive
basis, as Sinarmas Sekuritas does not share its agents with other subsidiaries of the Company. Additionally,
Bank Sinarmas also acts as Sinarmas Sekuritas’ institutional agent, allowing it to market its products on
Bank Sinarmas’ premises.
Net Adjusted Working Capital
Net adjusted working capital is a measure of liquidity which includes cash and cash equivalents and
marketable securities. Bapepam-LK requires securities companies operating in Indonesia to meet a minimum
net adjusted working capital of Rp.25.2 billion. As of September 30, 2011 Sinarmas Sekuritas had a net
adjusted working capital of Rp.549.9 billion. Sinarmas Sekuritas is required to report its net adjusted
working capital amount to Bapepam-LK and IDX on a daily basis.
The following table shows Sinarmas Sekuritas’ net adjusted working capital as of the dates indicated.
As of December 31,
2008
2009
Rp.
Rp.
347.5
74.6
588.3
142.3
1,142.8
466.2
129.5
52.8
Working Capital . . . . . . . . . . . . . .
Adjustment: . . . . . . . . . . . . . . . . .
Related Parties . . . . . . . . . . . . . . .
272.9
446.0
676.6
—
—
Adjusted Gross Working Capital . . . .
Risk Adjustment: . . . . . . . . . . . . . .
Equity in shares in recorded in BEI .
Other in shares in recorded in
Bapepam-LK . . . . . . . . . . . . .
272.9
Adjusted Net Working Capital . . . . . .
Adjusted Net Working Capital
Compulsory. . . . . . . . . . . . . . . .
Net Working Capital:
Total Current Assets . . . . . . . . . .
Total Liabilities . . . . . . . . . . . . .
Amounts in excess of Net Adjusted
Working Capital . . . . . . . . . . . . .
2010
As of September 30,
2010
2010
2011
2011
Rp.
US$
1,261.6
707.4
901.0
304.8
102.1
34.5
76.7
554.2
596.2
67.6
6.2
0.7
7.5
0.5
0.1
446.0
670.4
76.0
546.7
595.7
67.5
8.3
29.5
62.7
7.1
50.1
45.8
5.2
22.1
39.1
64.4
7.3
55.4
—
—
242.5
377.4
543.3
61.6
441.2
549.9
62.3
25.2
25.2
25.2
2.9
25.2
25.2
2.9
217.3
352.2
518.1
58.7
416.0
524.7
59.4
Rp.
US$
Rp.
(Rp. in billions, US$ in millions)
Risk Management
Risk Management Structure
Sinarmas Sekuritas’ risk management policy is determined and implemented by its investment
committee. Its investment committee comprises its President Director, its investment department head, two
internal investment managers, the President Commissioner of SMMA and the investment manager for
Asuransi Sinar Mas. The committee meets once a month and supervises the entire investment activities of
Sinarmas Sekuritas, including asset management and proprietary trading. The committee decides on Sinarmas
Sekuritas’ investment strategies and policies, determines its risk management guidelines, including trading
limits for its brokerage customers, decides on institutions in which to invest its mutual fund units and selects
which project financing projects to take on. Its investment committee, with assistance from its research
department, adjusts such policies and strategies depending on prevailing market conditions. Sinarmas
Sekuritas implements trading limits for its brokerage customers through a remote trading application which
automatically imposes pre-set trading limits for each customer based on the amount of assets pledged by the
respective customer. Sinarmas Sekuritas must also comply with other limitations
prescribed by Bapepam-LK.
Risk Management Policy
Sinarmas Sekuritas identifies its risks as follows:
•
Personnel Risks. Personnel risks includes risks relating to its employees’ conduct, such as misuse
of authorities, unauthorized access to confidential data, unintended human errors and poor
customer service.
•
System Risks. System risks include risks relating to its information technology system, such as
hardware and software failures, database crashes, network failures and virus/hacker attacks.
•
Credit Risks. Credit risks include risks relating to credit exposures to customers, such as
provision of trading limits which are excessive, insufficient assets pledged by customers and
inaccurate customer data. It is also exposed to credit risk relating to credit exposures in
connection with project and pre-initial public offering financings.
•
Infrastructure/Safety Risks. Infrastructure/safety risks include risks relating to Sinarmas Sekuritas’
infrastructure and premises, such as natural disasters and inadequate telephone lines and working
space.
•
Investment/Trading Risks. Investment/trading risks include risks relating to trading or investment
activities such as corporate risk, equity risk, foreign exchange risk, interest risk and liquidity risk.
•
Payment Risks. Payment risks include risks relating to payment matters such as double payments,
wrong or fraudulent transfers, late payments, and other problems experienced by banks or
custodians in executing payment requests.
•
Legal Risks. Legal risks include risks relating to compliance with prevailing regulations and
ability to meet contractual obligations.
•
Underwriting Risks. Underwriting risk includes the risk that an underwriter overestimates
demand for an underwritten issue. To mitigate this risk, Sinarmas Sekuritas’ corporate finance
team cooperates with its research and marketing teams to explore target markets before entering
into any mandate with an issuer. Underwriting risk also includes the risk that market conditions
change suddenly. To mitigate this risk, the corporate finance team will work with the issuer to
revisit and renegotiate valuation as necessary.
Margin Lending
Sinarmas Sekuritas’ internal margin loan approval standards are based on set margin loan limits in
connection with applicable Bapepam-LK regulations. When margin loan thresholds are reached, Sinarmas
Sekuritas will automatically cease further lending.
Sinarmas Sekuritas monitors its balance sheet risk and exposure to margin lending daily. According to
IDX regulations, Sinarmas Sekuritas may extend margin lending in the aggregate of not more than ten times
of its net adjusted working capital and the maximum margin borrowing amount by an account holder may
not result in the balance of short positions exceeding 15% of its net adjusted working capital. As of
December 31, 2010 and September 30, 2011, the outstanding margin borrowing amounts were Rp.40.2 billion
(US$4.6 million) and Rp.99.2 billion (US$11.2 million), respectively.
Underwriting
In order to limit balance sheet risk or exposure to underwriting, Sinarmas Sekuritas has adopted
approval procedures for potential underwriting mandates. Such procedures include the review by an
underwriting review committee and the approval of the President Director for any potential underwriting
involving a commitment in excess of US$1.0 million. Sinarmas Sekuritas limits the amount of capital that it
invests in the equity of any particular issuer in connection with an underwriting to the lower of US$50.0
million and its risk managed capital in accordance with Bapepam-LK regulations. As of September 30, 2011,
the aggregate value of securities underwritten by Sinarmas Sekuritas that it continued to hold in its own
account did not exceed 10.0% of its total assets or its risk managed capital.
Proprietary Transactions
Sinarmas Sekuritas monitors its proprietary trading positions weekly, and follows the following
guidelines:
•
the combined investment position for any individual company, including stocks, depositary
receipts, convertible bonds and other types of bonds may not exceed 100.0% of Sinarmas
Sekuritas’ shareholders’ equity in the prior month; and
•
the investment position for each individual stock may not exceed 25.0% of its total exposure.
In addition, Sinarmas Sekuritas’ investment committee imposes limits on investment positions for
different types of investments. The investment committee meets every month to assess investment positions
and market risks and makes adjustments to trading positions in accordance with market conditions and set
targets. Sinarmas Sekuritas has also established a stop-loss mechanism, consisting of different stop-loss
thresholds for different types of investments. When a loss on investment reaches a certain threshold, the
stop-loss mechanism is executed to control risk unless overridden by the investment committee.
Competition
Competition in the securities industry in Indonesia has been and is likely to remain intense. Its
competition is based on a number of factors, including price, products and services, transaction execution
capabilities, reputation, experience and knowledge of its staff and geographic scope.
Sinarmas Sekuritas competes primarily with well-established investment banks, asset management
companies and brokerage houses in Indonesia. In its investment banking business, its principal competitors
are domestic and regional investment banks, including CIMB, Bahana Securities and PT Danareksa
Sekuritas. Its main competitors in the asset management business include Bank Panin, Bank Mandiri,
Schroder Investment Management, BNP Paribas and Manulife Asset Management. In its retail brokerage
business, its competitors include Indo Premier and E-trading.
Real Property
As of September 30, 2011, Sinarmas Sekuritas owned eight properties comprising a total gross floor
area of approximately 9,000.2 square meters with a net book value of Rp.52.7 billion (US$6.0 million). As
of September 30, 2011, Sinarmas Sekuritas also leased 28 properties comprising a total gross floor area of
approximately 3,818.8 square meters, all of which are leased from other subsidiaries in the Group.
Intellectual Property
Sinarmas Sekuritas does not own any intellectual property rights.
Employees
As of September 30, 2011, Sinarmas Sekuritas had approximately 412 employees.
Insurance
Sinarmas Sekuritas maintains insurance coverage for its vehicles, property insurance coverage against
fire and group health insurance underwritten by Asuransi Sinar Mas. We believe that Sinarmas Sekuritas’
insurance coverage is customary for securities businesses in Indonesia.
Legal Proceedings
From time to time Sinarmas Sekuritas may be involved in legal proceedings concerning matters that
arise in the ordinary course of its business operations. We are not aware of any potential litigation,
arbitration or administrative proceedings against Sinarmas Sekuritas which might materially affect its
business, financial condition, or results of operations.
Multifinance — Sinar Mas Multifinance and AB Multifinance
Our multifinance business is conducted principally through our 100.0% owned subsidiaries, Sinar Mas
Multifinance and AB Multifinance. Our multifinance business comprises retail consumer financing, with a
focus on financing vehicle purchases and refinancing loans as well as leasing capital goods and heavy
equipment and providing factoring services, principally to Sinar Mas Group companies.
Business Initiatives
We intend to further develop our multifinance business and implement our overall strategy with respect
to our consumer financing operations by focusing on the following business initiatives:
•
cross-sell within the Sinar Mas Group businesses and focus on the retail market;
•
expand into the under-penetrated motorcycle market, which we believe has high growth prospects
outside of Java; and
•
optimize internet-based and real-time technology to enhance operational efficiency.
Sinar Mas Multifinance
Overview
Sinar Mas Multifinance, established in 1985, is primarily engaged in consumer financing with a focus
on new and used car and motorcycle financing and refinancing loans. As of September 30, 2011,
approximately 70.0% of its revenue was derived from financing for the purchase of new and used cars and
motorcycles and multipurpose financing, or refinancing loans, secured by new and used cars or motorcycles.
In January 2010, Sinar Mas Multifinance entered the motorcycle financing and refinancing market. As of
September 30, 2011, loans for the purchase of motorcycles and multipurpose loans secured by used
motorcycles comprised approximately 8.1% of total loans originated and generated 37.1% of Sinar Mas
Multifinance’s consumer financing income for the nine months ended September 30, 2011. It expects
motorcycle financing and refinancing to represent an increasing proportion of the loans it originates, which
currently generate a higher profit margin as compared to new and used car financings.
As of September 30, 2011, Sinar Mas Multifinance had one head office, 56 branches and 247 outlets
for its consumer financing business. Each branch typically manages approximately six to nine outlets within
a radius of 10 to 15 kilometers. Its branches also provide back-office operations for its outlets, such as
accounting and finance, custody of titles and administrative support. Each branch also serves as a point of
sale for origination of both car and motorcycle financing, while its outlets only serve as a point of sales for
motorcycle financing. As of September 30, 2011, Sinar Mas Multifinance employed approximately 5,849
employees as compared to 2,578 employees as of December 31, 2010, a significant increase largely due to
its entry into the new and used motorcycle market and the increase in the number of its outlets. In the first
nine months of 2011, Sinar Mas Multifinance opened 12 new branches in Sukabumi, Palu, Cilacap, Tuban,
Sumedang, Salatiga, Muara Bungo, Gorontalo, Batam, Banjarmasin, Dumai and Kendari, and 50 outlets to
provide motorcycle financing.
As of December 31, 2010 and September 30, 2011, consumer financing income from Sinar Mas
Multifinance’s operations amounted to Rp.169.5 billion (US$19.2 million) and Rp.204.1 billion (US$23.1
million), respectively. As of December 31, 2010 and September 30, 2011, Sinar Mas Multifinance had total
assets of Rp.904.8 billion (US$102.6 million) and Rp.1,382.7 billion (US$156.7 million), respectively.
Lending
Sinar Mas Multifinance offers two types of financing to customers: consumer financing for the
purchase of new and used cars and motorcycles (“financing loans”), and multipurpose loans to customers,
which are secured by title to the customer’s car or motorcycle (“refinancing loans”).
Sinar Mas Multifinance offers customers financing loans and refinancing loans, typically no greater
than Rp.100.0 million or 80.0% of the appraised value of the car or motorcycle being purchased or securing
the loan, whichever is lower, at a fixed interest rate for a term of one to three years, with principal and
interest payable on a monthly basis. Customers are charged an administrative fee. Loans are extended for up
to three years in the case of a car purchase or refinancing loan secured by a car, and up to two years in the
case of a motorcycle purchase or refinancing loan secured by a motorcycle, with car financing loans and
refinancing loans averaging 24 months in length and motorcycle financing loans and refinancing loans
averaging 15 months in length. Sinar Mas Multifinance holds the title to the car or motorcycle until the
borrowing is repaid in full. Customers are also required to have motor vehicle insurance for the car or
motorcycle. As of September 30, 2011, all of Sinar Mas Multifinance’s car and motorcycle financing loans
and refinancing loans were secured, with a collateral coverage ratio of at least 115.0% based upon the most
recent appraisal values.
Channeling and Direct Loans
Sinar Mas Multifinance originates financing and refinancing loans through its branches and outlets. All
of the refinancing loans Sinar Mas Multifinance originates are channeled to commercial banks in Indonesia,
primarily Bank Sinarmas, with whom Sinar Mas Multifinance has channeling arrangements Sinar Mas
Multifinance has also entered into channeling credit transfer agreements for facilities ranging from Rp.300.0
billion to Rp.750.0 billion to bridge the time period between origination of the loans and acceptance of
channeled loans by the banks. The banks in turn provide the loans directly to the customers and record the
loans in their respective loan portfolio. Sinar Mas Multifinance channels substantially all of its refinancing
loans to banks with whom it has arrangements. For 2010 and the nine months ended September 30, 2011,
Sinar Mas Multifinance channeled Rp.1,896.0 billion (US$214.9 million), or 100.0%, and Rp.2,125.7 billion
(US$240.9 million), or 100.0%, of its refinancing loans, respectively, all of which were channeled to Bank
Sinarmas. By channeling these loans to Bank Sinarmas and other banks with whom it has such channeling
arrangements, Sinar Mas Multifinance is able to benefit from banks’ competitive funding costs and the banks
in turn are able to capitalize on Sinar Mas Multifinance’s origination network. Sinar Mas Multifinance
typically administers all financing and refinancing loans it originates, including the loans it channels to
banks.
In certain cases, a bank with whom Sinar Mas Multifinance has a channeling arrangement will reject a
loan originated by Sinar Mas Multifinance after a required credit check is performed by the bank through
the debtor information system of Bank Indonesia and the borrower is found to be ineligible for a loan. In
such instance, Sinar Mas Multifinance will retain the loan in its account and attempt to channel another loan
to the bank which meets with the bank’s requirements.
Sinar Mas Multifinance originates and extends all of its financing loans directly to customers and
records such loans in its loan portfolio. In such cases, Sinar Mas Multifinance pays the seller or dealers
directly for the new and used car or motorcycle, holds the title certificate, and earns the margin between the
interest rate charged to it under its facilities and the interest rate carried on the financing loan. For 2010 and
the nine months ended September 30, 2011, Sinar Mas Multifinance held Rp.374.8 billion (US$42.5 million)
and Rp.579.7 billion (US$65.7 million), respectively, of financing loans in its portfolio.
Sinar Mas Multifinance previously participated in joint financing loans with commercial banks,
typically with 90.0% of the financing provided by the bank and 10.0% of the financing provided by Sinar
Mas Multifinance. As at September 30, 2011, Sinar Mas Multifinance had no outstanding loans from joint
financing.
Sinar Mas Multifinance funds its lending through short-term (generally under one year) revolving loan
facilities from both local state-owned and private banks, including Bank BNI, Bank CIMB Niaga, Bank
Panin, Bank Victoria and Bank Capital, for its working capital. As of December 31, 2010 and September 30,
2011, it had total outstanding amounts under its loan facilities of Rp.473.7 billion (US$53.7 million) and
Rp.791.2 billion (US$89.7 million), including a Rp.5.0 billion overdraft facility from Bank Sinarmas,
respectively. As of December 31, 2010 and September 30, 2011, Sinar Mas Multifinance had total net loans
to customers outstanding in the amount of Rp.374.5 billion (US$42.4 million) and Rp.578.4 billion (US$65.6
million), respectively.
The following table sets forth a breakdown of Sinar Mas Multifinance’s loan portfolio by loans
channeled, direct loans and joint financing loans for the periods indicated.
For the Year Ended December 31,
2008
% of
total
2009
% of
total
2010
For the Nine Months Ended September 30,
% of
total
2010
% of
total
(Rp. in billions, except percentages)
Loans channeled:
Financings . . . . . . . .
Refinancings . . . . . .
2011
2011
% of
total
(US$ in millions)
—
418.2
—
51.0
—
500.1
—
58.0
—
1,399.0
—
75.0
—
1,134.4
—
72.0
—
1,907.3
—
216.2
—
70.6
Total . . . . . . . . . . .
Direct loans:
Financings . . . . . . . .
Refinancings . . . . . .
418.2
51.0
500.1
58.0
1,399.0
75.0
1,134.4
72.0
1,907.3
216.2
70.6
327.2
—
40.0
—
351.5
—
40.0
—
473.7
—
25.0
—
445.7
—
28.0
—
791.2
—
89.7
—
29.4
—
Total . . . . . . . . . . .
Joint financing loans . .
327.2
74.8
40.0
9.0
351.5
14.7
40.0
2.0
473.7
—
25.0
—
445.7
1.2
28.0
—
791.2
—
89.7
—
29.4
—
Total . . . . . . . . . . .
820.2
100.0
866.3
100.0
1,872.7
100.0
1,581.3
100.0
2,698.5
305.9
100.0
Leasing and Factoring
Sinar Mas Multifinance also purchases capital goods and heavy equipment, such as machinery and
transportation equipment and leases them to other members of the SMMA Group and the larger Sinar Mas
Group. In addition, Sinar Mas Multifinance engages in factoring activities for suppliers and vendors of the
SMMA Group and the larger Sinar Mas Group. See “Related Party Transactions—Present and Ongoing
Related Party Transactions—Finance Leases Receivables” and “Related Party Transactions—Present and
Ongoing Related Party Transactions—Factoring Receivables”. Leasing income accounted for 8.3% and 5.6%
of Sinar Mas Multifinance’s revenue for 2010 and the nine months ended September 30, 2011, respectively.
Factoring income accounted for 2.8% and 5.9% of Sinar Mas Multifinance’s revenue for 2010 and the nine
months ended September 30, 2011, respectively.
Approval Process
Each Sinar Mas Multifinance outlet has an outlet head, who in turn reports to a marketing manager.
Each marketing manager supervises two or three outlets within a radius of five kilometers. Each loan
application received through the outlets must be approved by the outlet head and the marketing manager
supervising the respective outlet, who together are authorized to approve loan applications of up to Rp.10.0
million for motorcycle financing and refinancing loans. For car financing and refinancing loans, each loan
application must be approved by the branch manager and the operation head, who together are authorized to
approve loan applications of up to Rp.150.0 million. For any amounts above these limits, the application
must be approved by the regional head who oversees the branches.
Prior to approval of any loan application, financial and other information provided by potential
customers on the application form is verified by a surveyor who visits the potential customer’s residence
and/or conducts interviews. Customers are also required to produce their vehicles for inspection and
valuation by the head of the respective branch or outlet based on vehicle pricing lists periodically provided
to Sinar Mas Multifinance from Asuransi Sinar Mas.
For leasing and factoring, Sinar Mas Multifinance generally approves the supplier or vendor based on
the recommendation of the Group member for which it engages in the leasing or factoring, and will also
evaluate the supplier or vendor’s credit history and length of relationship with the Group.
Collection and Delinquency
For loans channeled to Bank Sinarmas, as well as direct loans it makes, Sinar Mas Multifinance
encourages customers to open a bank account with Bank Sinarmas and make their monthly payments
through this account. For loans it channels to Bank Sinarmas as well as loans channelled to other banks, if a
customer fails to make a monthly payment, Sinar Mas Multifinance sends a notice to the customer before
sending its collection staff to collect payment. If its collection staff is unsuccessful, it may also engage
collection agencies to collect outstanding amounts. Sinar Mas Multifinance’s policy is to initiate
repossession of cars and motorcycles securing its loans on the 12th day after payment becomes overdue.
With respect to direct loans it makes, Sinar Mas Multifinance’s policy is to write-off a car financing loan or
refinancing loan on the 121st day after payment becomes overdue and a motorcycle financing loan or
refinancing loan on the 91st day after payment becomes overdue.
Sinar Mas Multifinance records loans in its loan portfolio on a cash basis, and when a loan is overdue,
the loan is immediately recorded as a NPL in its account. As of December 31, 2010 and September 30,
2011, Sinar Mas Multifinance’s delinquency rate for car financing and refinancing loans was 0.8% and
1.0%, respectively, and its delinquency rate for motorcycle financing and refinancing loans was 1.1% and
3.4%, respectively.
AB Multifinance
AB Multifinance was established in 1995 and engages primarily in leasing and factoring activities.
Almost all of AB Multifinance’s customers are members of the SMMA Group or the larger Sinar Mas
Group. See “Related Party Transactions—Present and Ongoing Related Party Transactions—Finance Leases
Receivables” and “Related Party Transactions—Present and Ongoing Related Party Transactions—Factoring
Receivables”.
AB Multifinance leases capital goods and heavy machinery to members of the SMMA Group and the
Sinar Mas Group after purchasing the goods or machinery required by the SMMA Group or Sinar Mas
Group member. In accordance with prevailing Government regulation governing leasing activities, all leases
are for durations of over three years. AB Multifinance also engages in factoring activities for suppliers and
vendors of the SMMA Group and the Sinar Mas Group. Suppliers and vendors which hold account
receivables from members of the SMMA Group and the Sinar Mas Group may sell the account receivable to
AB Multifinance at a discount. AB Multifinance collects the account receivable from the respective SMMA
Group or Sinar Mas Group member and deducts an amount from the amount to be paid to the supplier or
vendor. During 2010 and the nine months ended September 30, 2011, AB Multifinance did not experience
any material delinquencies by Group or Sinar Mas Group companies. Most of the factoring projects engaged
in by AB Multifinance have a time frame of six months. As of December 31, 2010 and September 30, 2011,
AB Multifinance had total factoring income of Rp.22.3 billion (US$2.5 million) and Rp.17.1 billion (US$1.9
million), respectively, and total leasing income of Rp.21.4 billion (US$2.4 million) and Rp.15.8 billion
(US$1.8 million), respectively.
AB Multifinance has entered into working capital facility agreements with various banks. See
“Material Agreements—Sinar Mas Multifinance and AB Multifinance Working Capital Facility Agreements”.
These banking facilities are used to fund AB Multifinance’s working capital which it uses to purchase and
lease heavy equipment and other assets. As of September 30, 2011, AB Multifinance had total indebtedness
of Rp.95.0 billion (US$10.8 million).
For 2010 and the nine months ended September 30, 2011, AB Multifinance had total assets of
Rp.167.2 billion (US$19.0 million) and Rp.229.3 billion (US$26.0 million), respectively.
Risk Management
In selecting which loan applications to approve, Sinar Mas Multifinance applies certain risk
management procedures. As a financing company, it is vulnerable to employees’ misconduct and negligence
in performing their duties such as the negligence of its surveyors in conducting the required site checks or
interviews, which increases its exposure to potential NPLs. As such, it requires its sales function and
surveying function to be performed by separate and independent teams.
AB Multifinance’s management is fully committed to implementing risk management and ensuring it
comprehensively effects risk management policies, procedures and methods so that AB Multifinance can
carry out its business activities while minimizing risk to an acceptable level and simultaneously maintaining
profitability. AB Multifinance has a credit risk policy which requires that credit applications are dealt
prudently and that the credit is surveyed and analyzed and submitted for approval by the audit committee.
Regulation
Both Sinar Mas Multifinance and AB Multifinance are regulated by the Ministry of Finance and are
required to obtain a license from the Ministry of Finance in order to operate a multifinance business. Each is
subject to a minimum gearing ratio requirement, which requires it to limit its outstanding loans to less than
10 times its equity and subordinated loans (less any amounts of participation interests). For 2010 and
September 30, 2011, Sinar Mas Multifinance had equity of Rp.396.0 billion (US$44.9 million) and Rp.546.5
billion (US$61.9 million) and a gearing ratio of total outstanding loans equal to 1.2 times and 1.4 times of its
equity and subordinated loans, respectively. For 2010 and September 30, 2011, AB Multifinance had equity
of Rp.115.7 billion (US$13.1 million) and Rp.128.8 billion (US$14.6 million) and a gearing ratio of total
outstanding loans equal to 0.4 times and 0.8 times of its equity and subordinated loans, respectively.
Both Sinar Mas Multifinance and AB Multifinance report monthly to the Ministry of Finance on bad
debts. There is currently no requirement for multifinance companies to maintain bad debts at a certain level.
Sinar Mas Multifinance is not subject to any regulations regarding the calculation of, or provision for, its
NPLs in its loan portfolio.
Competition
Although there are approximately 400 companies registered with the Ministry of Finance to conduct a
multifinance business, the main competitors for Sinar Mas Multifinance are Adira Dinamika Multifinance,
Astra Multifinance, and BFI Finance. AB Multifinance does not compete directly with third parties since its
focus is on the serving the SMMA Group and the wider Sinar Mas Group.
Information Technology
Sinar Mas Multifinance maintains a centralized database system at its head office. All outlets and
branches are linked to this database, allowing all loan applications to be sent on a real time basis to the
centralized database system at the head office.
AB Multifinance maintains a centralized database system at its head office.
Real Property
As of September 30, 2011, Sinar Mas Multifinance owned 62 properties comprising a total gross floor
area of approximately 32,457 square meters with a net book value of Rp.167.3 billion (US$19.0 million),
most of which it uses for its branches and also parts of which it leases to other members of the SMMA
Group for their respective businesses. As of September 30, 2011, Sinar Mas Multifinance also leased 237
properties comprising a total gross floor area of approximately 8,295 square meters, 23 of which are leased
from related parties, most of which are used for its outlets.
As of September 30, 2011, AB Multifinance owned one property comprising a total gross floor area of
approximately 542 square meters with a net book value of Rp.3.9 billion (US$0.4 million). As of September
30, 2011, AB Multifinance also leased one property comprising a total gross floor area of approximately 166
square meters, which is leased from a related party.
Intellectual Property
Sinar Mas Multifinance is in the process of obtaining its certificate of ownership for the intellectual
property rights in its products, including “SiFinO”. AB Multifinance does not own any intellectual property
rights.
Employees
As of September 30, 2011, Sinar Mas Multifinance had approximately 5,849 employees and AB
Multifinance had 10 employees.
Insurance
Sinar Mas Multifinance maintains fire and property all risk insurance coverage for its real properties
underwritten by Asuransi Sinar Mas. AB Multifinance maintains insurance coverage for its vehicles
underwritten by Asuransi Sinar Mas. We believe that Sinar Mas Multifinance and AB Multifinance’s
insurance coverage are similar in scope to other multifinance businesses in Indonesia.
Legal Proceedings
From time to time Sinar Mas Multifinance and AB Multifinance may be involved in legal proceedings
concerning matters that arise in the ordinary course of their business operations. We are not aware of any
potential litigation, arbitration or administrative proceedings against Sinar Mas Multifinance or AB
Multifinance which might materially affect their respective business, financial condition, or results of
operations.
Other Operations
Security Administration — Sinartama Gunita
Sinartama Gunita is a security administration bureau that received business permit from Bapepam-LK
under Number Kep-082/PM/1991 on September 30, 1991. It manages the administration of shares for public
companies listed on the IDX. As of September 30, 2011, Sinartama Gunita provided shares administration
services to 76 public companies.
Water Treatment — Wahana Tehno
Wahana Tehno is a joint venture 35.2% owned by us, 50.0% owned by NIHON TRIM Co. Ltd Japan
and 14.8% owned by PT Sejahtera Puramas. Its initial business is the trading of machines that treat raw
water (i.e., tap water and groundwater) but packaging drinking water became the main focus of its business
in 2006. Its packaged drinking water is sold under the brand “pristine” and in 330 milliliter, 600 milliliter
and 1,500 milliliter and 19 liter bottles. Wahana Tehno is supported by four distributors located in Jakarta,
Bogor, Depok, Tangerang and Bekasi (Jabodetabek). Wahana Tehno distributes its products through its own
distribution network and also in cooperation with outlets such as grocery stores and hotels in Indonesia.
Automotive Financing — Oto Multiartha
Oto Multiartha is an independent automotive finance company established in 1994 through a joint
venture company 16.1% owned by us, 83.6% owned by Sumitomo Corporation, Japan, and 0.3% owned by
PT Summit Auto Group. Oto Multiartha’s main business is consumer financing for the purchase of new and
used cars. It operates one head office and 56 branches in major cities such as Java, Bali, Lombok, Sumatera,
Kalimantan and Sulawesi. In order to provide the best service to its customers, Oto Multiartha has
collaborated with prominent retail banks such as Bank Central Asia, Bank Mandiri, Bank BRI, Bank
Sinarmas, Bank Internasional Indonesia, Bank Danamon, Bank CIMB Niaga, Bank Bukopin and PT Pos
Indonesia to provide Payment Points. In July 2011, PT Pefindo Credit Rating Indonesia raised the credit
rating of Oto Multiartha to “AA”.
Money Changer — Simas Money Changer
Simas Money Changer, previously known as PT Shinta Forex, is effectively 100% owned by us and
engages in the business of money changing for various foreign currencies and derives income from the
spread between buy and sell prices. As of September 30, 2011, it had one money changer outlet in Jakarta.
Employment Services — JobStreet Indonesia
JobStreet Indonesia is a joint venture, 40.0% owned by us and 60.0% owned by JobStreet Corporation
Berhad, Malaysia, engaged in the field of providing employment services (jasa tenaga kerja) through worker
sites (situs tenaga kerja) in Indonesia. As of December 31, 2010, more than 950,000 active job seekers have
registered at the website JobStreet.com, and JobStreet Indonesia had more than 13,500 multinational and
domestic clients.
Insurance of the Group
We maintain insurance coverage for SMMA’s vehicles and property insurance coverage for its
building but we do not maintain insurance coverage on a Group basis.
Intellectual Property of the Group
Trademarks for names of entities are registered by our respective subsidiaries to the extent they are
registered. The Sinar Mas name and logo are not owned by the Company or any of its subsidiaries, although
we use the logo based on informal arrangements with the wider Sinar Mas Group. The Company does not
own any other intellectual property rights.
Real Property of the Group
As of September 30, 2011, SMMA owned one property comprising a total gross floor area of
approximately 17,950 square meters with a net book value of Rp.68.3 billion (US$7.7 million). As of
September 30, 2011, SMMA also leased one property comprising a total gross floor area of
approximately
17,950 square meters, which is leased from a related party.
Employees of the Group
The table below sets out the number of employees (excluding contract workers), by holding
company and key subsidiaries, as of the dates below:
As of December 31,
As of September 30,
2008
2009
2010
2011
.
.
.
.
.
.
.
10
862
1,234
310
1,691
258
103
8
707
1,262
344
2,041
277
145
6
714
1,588
378
2,460
2,578
157
6
762
1,777
412
3,014
5,849
173
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4,468
4,784
7,881
11,993
SMMA . . . . . . . . . . .
Sinarmas MSIG Life . . .
Asuransi Sinar Mas . . .
Sinarmas Sekuritas . . . .
Bank Sinarmas . . . . . .
Sinar Mas Multifinance .
Others. . . . . . . . . . . .
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
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.
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.
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.
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.
.
.
We have short-term employee benefits in the form of wages, salaries and social security (Jamsostek)
contributions and bonuses, post-employment benefits and unfunded defined-benefit plans which are
determined based on years of service and salaries of the employees at the time of receiving their
pension.
We determine post-employment benefits in accordance with Indonesian law. We do not fund postemployment benefits. We also annually budget for technical and non-technical training for the
development of our employees, such as the Management Development Program which was held by the
Company and certain subsidiaries in 2010, to improve the skills of employees with the most development
potential.
Legal Proceedings of the Group
From time to time we may be involved in legal proceedings concerning matters that arise in
the ordinary course of our business operations. We are not aware of any existing or potential
litigation, arbitration or administrative proceedings, which could have a material adverse effect on
our business, financial condition, results of operations or prospects.
SELECTED FINANCIAL INFORMATION AND OTHER DATA
We have derived our selected financial information from our audited consolidated financial statements
as of and for the years ended December 31, 2008, 2009 and 2010, each prepared in accordance with
Indonesian PSAK. The audited consolidated financial statements as of and for the years ended December 31,
2008, 2009 and 2010 have been audited in accordance with auditing standards established by the IAPI, by
Moore Stephens, independent public accountants, with an unqualified opinion.
We have derived the selected interim financial information below for the nine months ended September
30, 2010 and September 30, 2011 from our unaudited interim consolidated financial statements. These
financial statements have been prepared on the same basis as our audited consolidated financial statements
and reflect all adjustments, consisting of only normal recurring adjustments necessary for a fair presentation
of our results of operations and financial condition. These financial statements have been reviewed by Moore
Stephens in accordance with SA 722, as stated in their review report. A review conducted in accordance with
SA 722 is substantially less in scope than an audit conducted in accordance with IICPA auditing standards.
Our results for any interim period may not be indicative of our results for the full year or for any period.
We have derived the selected financial information below relating to our life insurance subsidiary,
Sinarmas MSIG Life, and our non-life insurance subsidiary, Asuransi Sinar Mas, from each of their
respective financial statements as of and for the years ended December 31, 2008, 2009 and 2010, prepared
in accordance with Indonesian PSAK. The audited financial statements for Sinarmas MSIG Life and
Asuransi Sinar Mas as of and for the years ended December 31, 2008, 2009 and 2010 have been audited in
accordance with IICPA auditing standards by Anwar and Rekan, independent public accountants, with
unqualified opinion. We have derived the summary interim financial data relating to Sinarmas MSIG Life
and Asuransi Sinar Mas below for the nine months ended September 30, 2010 and September 2011, from
their respective unaudited interim financial statements for such periods, as reviewed by Moore Stephens.
We have derived the selected financial information relating to our banking subsidiary, Bank Sinarmas,
from its audited financial statements as of and for the years ended December 31, 2008, 2009 and 2010 and
unaudited interim financial statements as of and for the nine months ended September 30, 2010 and
September 30, 2011, each prepared in accordance with Indonesian PSAK. The audited financial statements
for Bank Sinarmas as of and for the years ended December 31, 2008, 2009 and 2010 have been audited in
accordance with IICPA auditing standards by Moore Stephens, with unqualified opinion. The unaudited
financial statements for Bank Sinarmas as of and for the nine months ended September 30, 2010 and
September 30, 2011 have been reviewed by Moore Stephens.
In addition, we have derived the selected financial information relating to our multifinance subsidiary,
Sinar Mas Multifinance, from its audited financial statements as of and for the years ended December 31,
2008, 2009 and 2010, as audited by Moore Stephens, and its unaudited interim financial statements as of and
for the nine months ended September 30, 2010 and September 30, 2011. We have derived selected financial
information relating to our securities subsidiary, Sinarmas Sekuritas from its consolidated financial statements
as of and for the years ended December 31, 2008, 2009 and 2010, as audited by Achmad, Rasyid, Hisbullah
& Jerry and the unaudited interim consolidated financial statements of Sinarmas Sekuritas as of
and for the nine months ended September 30, 2010 and September 30, 2011.
Our functional currency is Rupiah and, accordingly, our financial statements are reported in Rupiah.
We have prepared and presented our consolidated financial statements in accordance with Indonesian PSAK,
which differs in certain material respects from U.S. GAAP and IFRS.
Selected Consolidated Income Statement of SMMA
Nine Months Ended
September 30,
(Unaudited)
Year Ended December 31,
2011
2011
Rp.
US$
7,397.9
739.2
11,118.3
1,106.3
1,260.2
125.4
141.3
951.7
912.0
103.4
313.6
83.4
169.8
47.2
45.3
35.5
9.5
19.3
5.4
5.1
128.4
107.2
87.0
20.2
31.7
732.6
169.1
165.1
85.1
51.6
83.0
19.2
18.7
9.6
5.8
31.6
46.0
23.4
60.3
29.3
27.8
6.8
3.3
3.2
51.1
12.6
17.5
39.7
34.3
18.5
4.5
3.9
2.1
—
3.3
41.9
2.0
28.4
3.2
3.2
0.4
23.1
2.3
5.3
2.0
0.6
0.2
—
—
223.2
54.3
189.9
—
—
49.4
184.9
12.7
—
95.5
21.0
1.4
—
10.8
54.2
12.7
—
77.7
—
—
—
145.0
—
—
—
16.4
8,035.4
11,116.5
14,049.7
1,592.4
9,714.5
14,584.9
1,653.0
.
.
.
.
.
.
.
6,381.3
450.4
221.0
239.3
59.8
—
37.1
8,758.8
496.7
250.7
262.2
72.2
193.5
154.1
11,136.2
537.8
335.8
327.1
78.8
53.3
47.2
1,262.2
61.0
38.1
37.1
8.9
6.0
5.3
7,823.7
380.1
257.2
221.9
56.0
57.9
20.3
11,189.8
636.6
382.6
297.1
81.9
12.6
85.1
1,268.2
72.1
43.4
33.7
9.3
1.4
9.6
.
.
10.6
10.0
64.5
8.6
44.9
16.6
5.1
1.9
50.3
10.9
20.1
12.0
2.3
1.4
.
.
37.2
6.8
2.5
3.7
10.7
8.2
1.2
0.9
7.2
5.2
2.6
11.5
0.3
1.3
Operating Income:
Insurance underwriting income . . . . .
Interest income . . . . . . . . . . . . . . .
Gain on investments in units of mutual
funds . . . . . . . . . . . . . . . . . . . .
Gain on sale of short-term investments
— net . . . . . . . . . . . . . . . . . . .
Administration fee and commissions . .
Consumer financing income . . . . . . .
Sales . . . . . . . . . . . . . . . . . . . . .
Investment management income . . . . .
Stock brokerage and underwriting
income . . . . . . . . . . . . . . . . . . .
Factoring income . . . . . . . . . . . . . .
Finance lease income . . . . . . . . . . .
Equity in net income of the associated
companies — net . . . . . . . . . . . .
Shares administration fee . . . . . . . . .
Unrealized gain on increase in fair
value of securities . . . . . . . . . . . .
Gain on sale of investment . . . . . . . .
Gain on foreign exchange — net . . . .
Other income . . . . . . . . . . . . . . . .
Total Operating Income . . . . . . . . . .
Operating Expenses:
Insurance underwriting expenses . . .
Interest expense . . . . . . . . . . . . . .
Salaries and employee benefits . . . .
General and administrative expenses .
Depreciation and amortization . . . . .
Loss on foreign exchange — net . . .
Cost of goods sold . . . . . . . . . . . .
Provision for possible losses on
earning and non-earning assets . . .
Provision for doubtful accounts . . . .
Stock brokerage and underwriting
expenses. . . . . . . . . . . . . . . . .
Investment management expenses. . .
2008
2009
2010
2010
Rp.
Rp.
5,964.7
625.4
8,210.7
864.5
10,648.8
1,052.4
1,206.9
119.3
722.0
1,195.9
1,247.1
53.2
100.1
84.1
37.3
34.3
51.6
108.8
120.0
154.5
26.3
91.7
28.9
12.9
2010
Rp.
US$
Rp.
(Rp. in billions, US$ in millions)
Nine Months Ended
September 30,
(Unaudited)
Year Ended December 31,
Other financial charges . . . . . . . . .
Mudharabah for participants . . . . . .
Unrealized loss on decrease in fair
value of securities . . . . . . . . . . .
Equity in net loss of the subsidiaries
and associated companies — net . .
Others. . . . . . . . . . . . . . . . . . . .
2008
2009
Rp.
Rp.
2010
2010
2010
Rp.
US$
Rp.
(Rp. in billions, US$ in millions)
.
.
2.0
0.3
1.5
0.3
3.5
0.2
0.4
—
0.7
(0.2)
.
175.9
—
—
—
.
.
5.7
48.8
—
67.6
—
81.8
Total Operating Expenses . . . . . . . . .
7,686.2
10,336.9
Income Before Tax . . . . . . . . . . . .
349.2
779.6
Tax Expense (Benefit):
Current . . . . . . . . . . . . . . . . . . . .
Deferred . . . . . . . . . . . . . . . . . . .
34.6
23.7
Total . . . . . . . . . . . . . . . . . . . . .
Net Income . . . . . . . . . . . . . . . . .
Other Comprehensive Income
(Expense):
Unrealized gain (loss) on change in
fair value of available for sale
securities of subsidiaries . . . . . . . .
Translation adjustment of a subsidiary .
Realized loss on dilution of ownership
interest in subsidiaries . . . . . . . . .
Gain (loss) on change in ownership
interest in subsidiaries and
associates . . . . . . . . . . . . . . . . .
2011
2011
Rp.
US$
0.7
—
0.1
—
—
146.5
16.6
—
9.3
—
57.6
—
98.8
—
11.2
12,682.1
1,437.3
8,948.8
12,977.9
1,470.9
1,367.6
155.0
765.7
1,607.0
182.1
48.1
(2.2)
68.0
21.8
7.7
2.5
47.2
18.3
83.0
6.8
9.4
0.7
58.3
45.9
89.8
10.2
65.4
89.8
10.1
290.9
733.7
1,277.8
144.8
700.2
1,517.2
172.0
(81.4)
—
47.2
—
135.7
—
15.4
—
6.0
—
(253.7)
(0.0)
(28.8)
(0.0)
—
—
(2.7)
(0.3)
(2.7)
—
—
—
1.0
(0.6)
(0.1)
(0.6)
38.5
4.4
(215.2)
(24.4)
Total Comprehensive Income (Loss) .
(81.4)
48.2
132.4
15.0
2.7
Total Comprehensive Income . . . . .
209.5
781.9
1,410.2
159.8
702.9
1,302.0
147.6
Income attributable to:
Equity holders of the Parent
Company . . . . . . . . . . . . . . . .
Non-controlling interests . . . . . . . .
263.6
27.3
700.1
33.6
1,277.8
—
144.8
—
700.2
—
1,382.5
134.7
156.7
15.3
290.9
733.7
1,277.8
144.8
700.2
1,517.2
172.0
182.6
26.9
747.8
34.1
1,445.2
(35.0)
163.8
(4.0)
702.9
—
3,963.7
(2,661.7)
449.2
(301.6)
209.5
781.9
1,410.2
159.8
702.9
1,302.0
147.6
Comprehensive income attributable to:
Equity holders of the Parent
Company . . . . . . . . . . . . . . . .
Non-controlling interests . . . . . . . .
Selected Consolidated Financial Position of SMMA
Nine Months Ended
September 30,
Year Ended December 31,
Cash and Cash Equivalents — Net.
Short-term Investments:
Related parties . . . . . . . . . . . . .
Third parties . . . . . . . . . . . . . .
Allowance for impairment losses. .
2008
2009
Rp.
Rp.
2010
2010
2010
Rp.
US$
Rp.
(Rp. in billions, US$ in millions)
2011
2011
Rp.
US$
.
824.5
1,754.2
1,980.9
224.5
2,819.0
8,383.8
.
.
.
1,202.0
5,777.0
(0.2)
460.8
5,910.5
(1.1)
534.5
7,510.0
—
60.6
851.2
—
539.0
6,320.1
(0.1)
706.1
14,385.9
(0.1)
80.0
1,630.5
—
Net . . . . . . . . . . . . . . . . . . .
6,978.8
6,370.2
8,044.5
911.8
6,859.0
15,091.9
1,710.5
Segregated Funds Net Assets − Unit
Link . . . . . . . . . . . . . . . . . . . .
512.7
3,154.1
7,032.3
797.0
5,672.0
5,270.2
597.3
Loans:
Related parties . . . . . . . . . . . . . .
Third parties . . . . . . . . . . . . . . .
83.4
4,168.1
741.9
4,672.0
794.9
6,216.9
90.1
704.6
858.3
5,346.2
1,436.0
7,727.7
162.8
875.8
4,251.5
(52.7)
5,413.9
(90.9)
7,011.8
(77.6)
794.7
(8.8)
6,204.5
(141.9)
9,163.7
(97.2)
1,038.6
(11.0)
Net . . . . . . . . . . . . . . . . . . .
4,198.8
5,323.0
6,934.2
785.9
6,062.6
9,066.5
1,027.6
Investment in Shares of Stock . . . . .
321.2
372.3
558.8
63.3
552.6
586.6
66.5
Property and Equipment — Net:
Cost . . . . . . . . . . . . . . . . . . . .
Accumulated depreciation . . . . . . .
669.1
(169.4)
845.7
(210.2)
1,009.9
(271.8)
114.5
(30.8)
944.1
(255.4)
1,284.1
(330.1)
145.6
(37.4)
Net Book Value . . . . . . . . . . . .
499.7
635.5
738.1
83.7
688.7
954.0
108.1
Total Assets . . . . . . . . . . . . . . . . .
15,537.2
19,700.3
27,845.0
3,156.0
25,086.5
42,980.2
4,871.4
Deposits and Deposits from Other
Banks . . . . . . . . . . . . . . . . . . .
Related parties . . . . . . . . . . . . . .
Third parties . . . . . . . . . . . . . . .
1,193.3
3,665.8
2,619.5
4,071.2
3,875.6
5,728.5
439.3
649.3
3,666.6
4,706.9
4,738.1
8,666.9
537.0
982.3
Total . . . . . . . . . . . . . . . . . .
4,859.1
6,690.7
9,604.1
1,088.5
8,373.5
13,405.0
1,519.3
Liability for Future Policy Benefits .
5,119.5
3,372.9
2,481.3
281.2
2,576.3
6,569.5
744.6
Segregated Funds Contract
Liabilities − Unit Link . . . . . . . .
522.2
3,365.8
7,054.7
799.6
6,122.7
5,103.1
578.4
Unearned Premiums and Estimated
Own Retention Claims . . . . . . . .
456.9
494.6
674.4
76.4
639.2
890.7
101.0
Loans Received . . . . . . . . . . . . . .
302.8
348.9
512.3
58.1
487.2
886.4
100.5
Total Liabilities . . . . . . . . . . . . . .
12,770.1
16,102.8
22,584.0
2,559.7
20,773.7
28,989.7
3,285.7
Non-Controlling Interests . . . . . . . .
113.1
0.1
200.4
22.7
—
4,842.3
548.8
Total Equity . . . . . . . . . . . . . . . .
2,767.1
3,597.5
5,261.0
596.3
4,312.8
13,990.5
1,585.7
Total Liabilities and Equity . . . . . .
15,537.2
19,700.3
27,845.0
3,156.0
25,086.5
42,980.2
4,871.4
Total . . . . . . . . . . . . . . . . . .
Allowance for impairment losses. . .
950.2
Selected Consolidated Cash Flow Statement of SMMA
Nine Months Ended
September 30,
Year Ended December 31,
Net Cash Provided by Operating
Activities . . . . . . . . . . . . . . . . .
Net Cash Used in Investing Activities .
Net Cash Provided by Financing
Activities . . . . . . . . . . . . . . . . .
2008
2009
2010
2010
2010
Rp.
Rp.
215.9
(242.1)
1,277.2
(221.1)
819.5
(324.7)
92.9
(36.8)
1,519.5
(266.5)
269.2
195.8
364.1
41.3
113.2
Rp.
US$
Rp.
(Rp. in billions, US$ in millions)
2011
2011
Rp.
US$
(50.1)
(324.4)
7,644.9
(5.7)
(36.8)
866.5
Other Consolidated Financial and Operating Data and Key Performance Indicators for SMMA
Nine Months Ended
September 30,
Year Ended December 31,
2008
2009
2010
2010
2011
(%)
Cost to income ratio(1) . . . . . . . . . . . . .
Return on Average Assets(2) . . . . . . . . . .
Return on Average Equity Attributable to
Equity Holders of the Parent Company(3)
Charge-off ratio(4) . . . . . . . . . . . . . . . .
NPL ratio(5) . . . . . . . . . . . . . . . . . . . .
Coverage ratio(6) . . . . . . . . . . . . . . . . .
Equity/assets ratio(7). . . . . . . . . . . . . . .
. .
. .
95.7
2.0
93.0
4.2
90.3
5.4
92.1
4.2
89.0
5.7
.
.
.
.
.
10.5
0.5
2.0
61.8
17.8
22.4
1.2
2.2
77.3
18.3
29.5
(0.2)
1.3
87.9
18.9
23.6
0.8
2.0
107.7
17.2
25.9
0.3
1.0
111.7
32.6
.
.
.
.
.
(1)
Cost to income ratio is calculated as a ratio of operating expenses divided by total operating income (summation of net interest
income and non-interest income).
(2)
Return on Average Assets is calculated as net income for the relevant period (annualized) divided by average total assets at the
beginning and end of the period.
(3)
Return on Average Equity attributable to equity holders of the Parent Company is calculated as net income attributable to equity
holders of the Parent Company for the relevant period (annualized) divided by average total equity attributable to equity holders
of the Parent Company at the beginning and end of the period.
(4)
Charge-off ratio is calculated as a ratio of current year credit loss expense divided by the average of total gross loans at the
beginning and end of the period.
(5)
NPL ratio is calculated as a ratio of the amount of loans classified as “substandard”, “doubtful” or “loss” according to Bank
Indonesia guidelines divided by total gross loans.
(6)
Coverage ratio is calculated as a ratio of allowance for impairment losses divided by the amount of loans classified as
“substandard”, “doubtful” or “loss” according to Bank Indonesia guidelines.
(7)
Equity/assets ratio is calculated as total equity divided by total assets.
Selected Financial Information for SMMA
Nine Months Ended
September 30,
Year Ended December 31,
Income statement:
Total operating income . .
Total operating expenses .
Income before tax . . . . .
Net income . . . . . . . . .
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
2008
2009
Rp.
Rp.
.
.
.
.
77.0
2.8
74.2
74.0
8.6
7.7
0.9
0.9
Financial Position:
Total assets . . . . . . . . . . . . . . . .
Total liabilities . . . . . . . . . . . . . .
Total equity . . . . . . . . . . . . . . . .
1,452.1
19.1
1,433.0
1,645.3
15.7
1,629.6
2010
2010
2010
Rp.
US$
Rp.
(Rp. in billions, US$ in millions)
10.4
12.4
(2.1)
(2.0)
1,657.1
14.1
1,643.0
1.2
1.4
(0.2)
(0.2)
187.8
1.6
186.2
7.4
9.2
(1.8)
(1.8)
1,652.3
14.6
1,637.7
2011
2011
Rp.
US$
783.9
12.4
771.5
771.5
88.8
1.4
87.4
87.4
2,425.6
17.1
2,408.5
274.9
1.9
273.0
Selected Financial Information and Other Data for Key Subsidiaries
Sinarmas MSIG Life
Nine Months Ended
September 30,
Year Ended December 31,
2008
Rp.
Income Statement:
Premium income. . . . . . . . .
Total premium income — net .
Investment income . . . . . . .
Claims and benefits expenses .
General and administrative
expenses . . . . . . . . . . . .
Net income . . . . . . . . . . . .
.
.
.
.
.
.
.
.
.
.
.
.
(1)
2010
2010
2010
2011
Rp.
Rp.
US$
Rp.
Rp.
(Rp. in billions, US$ in millions, except percentages)
2011
US$
.
.
.
.
5,107.4
5,123.9
869.3
(4,959.1)
7,109.6
7,115.9
1,075.9
(6,754.2)
9,289.6
9,282.9
1,392.1
(7,137.2)
1,052.9
1,052.1
157.8
(808.9)
6,392.1
6,384.1
921.3
(4,990.1)
9,805.9
9,801.4
1,391.6
(7,917.4)
1,111.4
1,110.9
157.7
(897.4)
. . . .
. . . .
(99.9)
164.0
(100.0)
232.4
(120.5)
542.5
(13.7)
61.5
(81.8)
219.3
(95.1)
998.8
(10.8)
113.2
Financial Position:
Investments . . . . . . . . . . . . . . . .
Segregated funds net assets of unit
link . . . . . . . . . . . . . . . . . . .
Segregated funds net assets of
Sharia . . . . . . . . . . . . . . . . . .
Cash and cash equivalents . . . . . . .
Total assets . . . . . . . . . . . . . . . .
Liability for future policy benefits . .
Segregated funds contracts liabilities
of unit link. . . . . . . . . . . . . . .
Segregated funds contracts liabilities
of Sharia . . . . . . . . . . . . . . . .
Total liabilities to policyholders . . .
Total shareholders’ equity — net . . .
Other Financial and Operating
Investment yield(1) . . . . . . .
Return on Average Assets(2) . .
Return on Average Equity(3). .
Solvency ratio(4) . . . . . . . . .
2009
5,835.5
4,190.5
3,758.1
425.9
3,760.6
15,059.8
1,706.9
513.8
3,464.6
7,434.8
842.7
6,211.2
5,386.1
610.5
21.8
151.6
6,650.6
5,119.5
36.7
17.5
7,840.8
3,372.9
78.3
34.4
11,446.0
2,481.3
8.9
3.9
1,297.3
281.2
71.4
18.0
10,167.0
2,576.3
99.5
33.9
20,766.1
6,569.5
11.3
3.8
2,353.6
744.6
522.2
3,365.8
7,054.7
749.6
6,122.7
5.103.1
578.4
10.6
5,718.1
677.9
15.5
6,812.1
913.5
33.3
9,688.4
1,504.8
3.8
1,098.1
170.6
28.6
8,820.1
1,122.3
49.0
11,819.9
8,676.0
5.5
1,339.7
983.3
Data (%):
. . . .
14.8
. . . .
2.7
. . . .
27.5
. . . .
194.0
15.3
3.2
21.3
302.3
14.8
5.6
44.9
469.0
14.8
5.6
44.9
469.0
13.9
3.2
28.7
346.4
11.7
8.3
26.2
1,002.8
11.7
8.3
26.2
1,002.8
Investment yield is defined as net investment income divided by average investments at the beginning and end of the period
(including unit link assets).
(2)
Return on Average Assets is defined as net income for the relevant period (annualized) divided by average total assets at the
beginning and end of the period.
(3)
Return on Average Equity is defined as net income for the relevant period (annualized) divided by average total equity at the
beginning and end of the period.
(4)
Solvency ratio is calculated as the ratio of “Total Solvency Margin” to “Total Minimum Solvency Margin”. The Group defines
“Total Solvency Margin” as the amount of admitted assets in excess of liabilities measured in accordance with Ministry of Finance
regulations and “Total Minimum Solvency Margin” as the minimum required margin of solvency calculated in accordance with
Ministry of Finance regulations.
Asuransi Sinar Mas
Nine Months Ended
September 30,
Year Ended December 31,
2008
Rp.
2009
2010
2010
2010
2011
2011
Rp.
Rp.
US$
Rp.
Rp.
(Rp. in billions, US$ in millions, except percentages)
US$
Income Statement:
Gross premiums . . . . . . . . .
Premiums earned — Net . . . .
Investment income — Net . . .
Total Claim Expenses — Net .
Commissions Expense — Net
Operating expenses . . . . . . .
Income from Operations . . . .
Net income . . . . . . . . . . . .
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
3,229.3
823.4
52.5
(482.8)
(175.6)
(134.0)
81.6
76.5
2,872.7
1,072.2
106.9
(621.3)
(259.4)
(155.5)
141.6
143.0
3,259.0
1,341.3
264.5
(823.7)
(312.0)
(174.5)
293.0
298.5
369.4
152.0
30.0
(93.4)
(35.4)
(19.8)
33.2
33.8
2,445.0
992.4
186.2
(588.6)
(237.8)
(127.4)
222.8
222.0
2,988.2
1,310.3
318.7
(789.7)
(283.5)
(161.7)
393.4
367.4
338.7
148.5
36.1
(89.5)
(32.1)
(18.3)
44.5
41.6
Financial Position:
Total investments . . . . . .
Premium receivables . . . .
Total assets . . . . . . . . . .
Unearned premiums . . . . .
Deferred premium income .
Total liabilities . . . . . . . .
Total stockholders’ equity .
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
1,155.4
303.9
1,727.5
302.3
455.9
1,127.6
600.0
1,515.9
334.6
2,118.8
340.3
561.6
1,336.7
782.1
2,224.7
332.1
2,766.5
459.3
770.7
1,600.5
1,165.0
252.1
37.6
313.6
52.1
87.4
181.4
132.0
2,081.6
277.3
2,596.6
409.7
660.1
1,578.9
1,017.7
2,622.3
376.3
3,350.8
594.1
722.4
2,010.1
1,338.8
297.2
42.6
379.8
67.3
81.9
227.8
151.7
Data (%):
58.6
. . . .
. . . .
37.6
. . . .
96.2
. . . .
4.9
. . . .
5.0
. . . .
12.9
. . . .
231.7
57.9
38.7
96.6
8.0
7.4
20.7
260.7
61.4
36.3
97.7
14.1
12.2
30.6
337.8
61.4
36.3
97.7
14.1
12.2
30.6
337.8
59.3
36.8
96.1
13.8
12.6
32.9
309.9
60.3
34.0
94.2
17.5
16.0
39.1
304.2
60.3
34.0
94.2
17.5
16.0
39.1
304.2
.
.
.
.
.
.
.
.
.
.
.
.
.
.
Other Financial and Operating
Loss ratio(1). . . . . . . . . . . .
Expense ratio(2) . . . . . . . . .
Combined Ratio(3) . . . . . . . .
Investment yield(4) . . . . . . .
Return on Average Assets(5) . .
Return on Average Equity(6). .
Solvency ratio(7) . . . . . . . .
(1)
Loss ratio is calculated as loss incurred net of reinsurance recovered divided by net premiums earned.
(2)
Expense ratio is calculated as the sum of net commission and general and administrative expenses divided by net premiums
earned.
(3)
Combined ratio is calculated as the sum of the loss and the expense ratio. A combined ratio under 100% generally indicates an
underwriting profit. A combined ratio above 100% generally indicates an underwriting loss.
(4)
Investment yield is calculated as net investment income for the relevant period (annualized) divided by average investments at the
beginning and end of the period (including unit link assets).
(5)
Return on Average Assets is calculated as net income for the relevant period (annualized) divided by average total assets at the
beginning and end of the period.
(6)
Return on Average Equity is calculated as net income for the relevant period (annualized) divided by average total equity at the
beginning and end of the period.
(7)
Solvency ratio is calculated as the ratio of “Total Solvency Margin” to “Total Minimum Solvency Margin”. The Group defines
“Total Solvency Margin” as the amount of admitted assets in excess of liabilities measured in accordance with Ministry of Finance
regulations and “Total Minimum Solvency Margin” as the minimum required margin of solvency calculated in accordance with
Ministry of Finance regulations.
Bank Sinarmas
Nine Months Ended
September 30,
Year Ended December 31,
2008
Rp.
Income Statement:
Interest revenues — net . . . . . .
Total other operating revenues —
net . . . . . . . . . . . . . . . . . .
Total other operating expenses . .
Impairment losses in financial
assets . . . . . . . . . . . . . . . .
Provision for possible losses on
non-earning assets . . . . . . . .
Income from operations . . . . . .
Net income . . . . . . . . . . . . . .
Financial Position:
Total assets . . . .
Net loans . . . . .
Total deposits . .
Total equity . . . .
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
Other Financial and Operating
Net interest margin(1) . . . . . .
Non-interest income ratio(2) . .
Cost to income ratio(3) . . . . .
Return on Average Assets(4) . .
Return on Average Equity(5). .
Charge-off ratio(6) . . . . . . . .
NPL ratio(7) . . . . . . . . . . . .
Coverage ratio(8) . . . . . . . . .
Gross loan-to-deposit ratio(9) .
Tier 1 ratio(10) . . . . . . . . . .
CAR(11) . . . . . . . . . . . . . .
2009
2010
2010
2010
2011
Rp.
Rp.
US$
Rp.
Rp.
(Rp. in billions, US$ in millions, except percentages)
2011
US$
. .
175.3
312.0
418.5
47.4
323.5
369.7
41.9
. .
. .
49.6
205.2
67.7
308.9
81.0
358.5
9.2
40.6
51.1
278.0
63.1
331.1
7.1
37.5
. .
13.1
60.5
48.1
5.5
49.9
19.2
2.2
. .
. .
. .
—
19.6
12.9
—
70.8
48.8
—
140.9
101.8
—
16.0
11.5
—
96.5
76.8
0.2
101.7
73.4
—
11.5
8.3
6,064.6
4,228.8
5,275.2
417.7
8,036.0
5,323.0
6,832.4
571.4
11,232.2
6,934.2
9,819.2
911.5
1,273.1
785.9
1,112.9
103.3
10,073.6
6,062.6
9,034.2
651.7
15,668.1
9,066.5
13,831.0
1,256.8
1,775.8
1,027.6
1,567.6
142.4
Data (%):
3.4
. . . .
. . . .
22.0
. . . .
102.1
. . . .
0.2
. . . .
3.7
. . . .
0.5
. . . .
2.0
. . . .
61.8
. . . .
81.2
. . . .
11.5
. . . .
12.7
4.8
17.8
82.7
0.7
9.9
1.2
2.2
77.3
79.0
12.8
13.8
5.3
13.6
76.2
1.1
16.8
0.8
2.0
107.7
71.5
12.1
13.2
4.3
14.6
88.7
0.7
9.0
0.3
1.0
111.7
67.0
13.4
14.2
4.3
14.6
88.7
0.7
9.0
0.3
1.0
111.7
67.0
13.4
14.2
.
.
.
.
.
.
.
.
.
.
.
.
4.9
16.2
65.0
1.1
13.7
(0.2)
1.3
87.9
73.6
13.2
14.1
4.9
16.2
65.0
1.1
13.7
(0.2)
1.3
87.9
73.6
13.2
14.1
(1)
Net interest margin is calculated as interest income less interest expense divided by average interest earning assets.
(2)
Non-interest income ratio is calculated as a ratio of total other operating revenues (net) divided by income from operations.
(3)
Cost to income ratio is calculated as a ratio of operating expenses divided by total operating income (summation of net interest
income and non-interest income).
(4)
Return on Average Assets is calculated as net income for the relevant period (annualized) divided by average total assets at the
beginning and end of the period.
(5)
Return on Average Equity is calculated as net income for the relevant period (annualized) divided by average total equity at the
beginning and end of the period.
(6)
Charge-off ratio is calculated as a ratio of current year credit loss expense divided by the average of total gross loans at the
beginning and end of the period.
(7)
NPL ratio is calculated as a ratio of the amount of loans classified as “substandard”, “doubtful” or “loss” according to Bank
Indonesia guidelines divided by total gross loans.
(8)
Coverage ratio is calculated as a ratio of allowance for impairment losses divided by the amount of loans classified as
“substandard”, “doubtful” or “loss” according to Bank Indonesia guidelines.
(9)
Gross loan-to-deposit ratio is calculated as a ratio of total gross loans divided by total deposits, defined as total amounts due to
customers.
(10) Tier 1 ratio is calculated as a ratio of total Tier 1 capital divided by risk-weighted assets.
(11) CAR is calculated as a ratio of total Tier 1 Capital and Tier 2 Capital (i.e. total core equity capital and supplementary capital)
divided by risk-weighted assets.
Sinarmas Sekuritas
Nine Months Ended
September 30,
Year Ended December 31,
2008
Rp.
Income Statement:
Brokerage commissions income .
Underwriting fee and selling fees
Investment management income .
Dividends . . . . . . . . . . . . . . .
Total revenues . . . . . . . . . . . .
Total operating expenses . . . . . .
Other income — net . . . . . . . .
Total non-operating income
(expenses) . . . . . . . . . . . . .
Profit (loss) before income tax . .
Net income . . . . . . . . . . . . . .
2010
2010
2010
2011
Rp.
Rp.
US$
Rp.
Rp.
(Rp. in billions, US$ in millions, except percentages)
2011
US$
.
.
.
.
.
.
.
23.6
67.9
34.3
5.3
101.5
92.0
0.3
26.0
4.4
26.3
2.7
233.2
58.7
0.4
30.7
28.4
45.3
5.6
265.3
75.8
0.7
3.5
3.2
5.1
0.6
30.1
8.6
0.1
22.2
27.8
31.7
5.3
142.1
56.2
1.4
33.6
5.9
51.6
8.6
85.4
60.1
1.7
3.8
0.7
5.8
1.0
9.7
6.8
0.2
. .
. .
. .
3.6
13.1
1.1
26.8
201.3
197.9
62.7
252.2
238.9
7.1
28.6
27.1
50.2
136.1
124.5
28.6
53.9
39.9
3.2
6.1
4.5
Financial Position:
Total assets . . . . . . . . . . . . . . . .
Total liabilities . . . . . . . . . . . . . .
Shareholders equity . . . . . . . . . . .
389.3
71.1
318.2
658.8
142.7
516.1
1,221.1
466.2
754.9
138.4
52.8
85.6
1,461.9
821.3
640.6
1,038.2
243.5
794.7
117.7
27.6
90.1
Data (%):
16.5
. . . .
. . . .
—
. . . .
90.6
. . . .
0.2
. . . .
0.3
76.9
12.0
25.2
37.8
47.4
76.9
13.4
28.6
25.4
37.6
76.9
13.4
28.6
25.4
37.6
66.2
12.7
39.5
15.7
28.7
35.5
17.7
70.4
4.7
6.9
35.5
17.7
70.4
4.7
6.9
Other Financial and Operating
Operating margin(1) . . . . . . .
Net interest margin(2) . . . . . .
Cost to income ratio(3) . . . . .
Return on Average Assets(4) . .
Return on Average Equity(5). .
.
.
.
.
.
.
.
2009
(1)
Operating margin is calculated as total operating income divided by total revenues for the relevant period (annualized). Total
operating income is the summation of brokerage commissions income, underwriting fee and selling fees, investment management
income and commissions from commodity exchange transactions.
(2)
Net interest margin is calculated as interest income less interest expense divided by average interest earnings assets.
(3)
Cost to income ratio is calculated as a ratio of operating expenses divided by total operating income (summation of net interest
income and non-interest income)
(4)
Return on Average Assets is calculated as net income for the relevant period (annualized) divided by average total assets at the
beginning and end of the period.
(5)
Return on Average Equity is calculated as net income for the relevant period (annualized) divided by average total equity at the
beginning and end of the period.
Nine Months Ended
September 30,
Sinar Mas Multifinance
Year Ended December 31,
(Rp. in billions, US$ in millions, except percentages)
Income Statement:
2008
2009
2010
2010
2010
2011
2011
.
.
.
.
.
.
.
.
.
.
.
.
Rp.
131.1
101.2
29.9
19.5
Rp.
159.7
121.0
38.7
27.7
Rp.
246.1
203.6
42.5
31.4
US$
27.9
23.1
4.8
3.6
Rp.
159.9
140.0
19.9
13.9
Rp.
291.7
250.2
41.5
30.5
US$
33.1
28.4
4.7
3.5
. . . .
. . . .
Lease
. . . .
. . . .
. . . .
. . . .
.
.
.
.
.
.
.
.
.
.
.
.
.
.
383.5
34.4
11.4
648.1
327.2
299.8
392.3
55.4
17.5
701.8
321.5
327.5
374.5
117.2
108.9
904.8
473.7
396.0
42.4
13.3
12.3
102.6
53.7
44.9
351.5
124.1
53.0
815.8
445.0
341.5
578.4
91.2
220.8
1,382.7
791.2
546.5
65.6
10.3
25.0
156.7
89.7
61.9
Other Financial and Operating Data (%):
3.7
Return on Average Assets(1) . . . . . .
6.7
Return on Average Equity(2). . . . . .
4.1
8.8
3.9
8.7
3.9
8.7
2.4
5.6
3.6
8.6
3.6
8.6
Total Revenues. . .
Total Expenses . . .
Income Before Tax
Net Income . . . . .
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
Financial Position:
Consumer Financing . . . .
Receivables . . . . . . . . . .
Net Investments in Finance
Factoring Receivables . . .
Total Assets. . . . . . . . . .
Loans Received . . . . . . .
Total Equity . . . . . . . . .
.
.
.
.
.
.
.
.
.
.
.
.
(1)
Return on Average Assets is calculated as net income for the relevant period (annualized) divided by average total assets at the
beginning and end of the period.
(2)
Return on Average Equity is calculated as net income for the relevant period (annualized) divided by average total equity at
the beginning and end of the period.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Overview of the Group
General Information
We are a financial services conglomerate in Indonesia, providing a broad range of life and general
insurance products, securities, banking, multifinance and other services to individual and institutional
customers through our subsidiaries and joint ventures. We believe this broad range of products and services
makes us one of the most diversified financial services groups in Indonesia. We provide products and
services in the following five principal areas of business:
•
Life insurance — Our life insurance business is conducted principally through our joint venture,
PT Asuransi Jiwa Sinarmas MSIG, formerly known as PT Asuransi Jiwa Sinarmas, in which we
have a 50% ownership interest. Sinarmas MSIG Life is the second largest life insurance provider
in Indonesia with a 12.4% market share measured by total gross premiums for the life insurance
industry in Indonesia in 2010 as published by Bapepam-LK in its Indonesia Insurance 2010
Report.
•
Non-life insurance — Our non-life insurance business is conducted primarily through our
subsidiary, PT Asuransi Sinar Mas. Asuransi Sinar Mas is the largest non-life insurance provider
in Indonesia with 11.1% market share measured by total gross premiums for the non-life
insurance industry in Indonesia in 2010 as published by Bapepam-LK in its Indonesia Insurance
2010 Report.
•
Banking — Our banking business is conducted through our subsidiary, Bank Sinarmas, which
shares are listed on the Indonesian Stock Exchange, with market capitalization of Rp.2,451.3
billion (US$277.8 million) as of December 30, 2011. Bank Sinarmas focuses on commercial and
consumer finance, including lending to SMEs and micro businesses.
•
Securities — Our securities business is conducted through our subsidiary, Sinarmas Sekuritas.
Sinarmas Sekuritas is a mid-size securities firm offering a range of financial services including
asset management, brokerage, investment banking and financial advisory services.
•
Multifinance — Our multifinance business is conducted through our subsidiaries, Sinar Mas
Multifinance, which is predominantly active in the new and used automobiles and motorcycles
financing market and factoring and AB Multifinance, which principally provides leasing and
factoring services to our Group and the Sinar Mas Group.
We also operate a number of other non-core businesses, including a share administration business
through Sinartama Gunita, a water treatment business through Wahana Tehno, automotive financing through
a joint venture, Oto Multiartha and employment services through a joint venture, JobStreet Indonesia.
For financial reporting purposes, our business segment results are presented in our consolidated
financial statements under seven main segments: (1) parent company, (2) insurance underwriting comprising
premium income and investment income, which comprises results of Sinarmas MSIG Life and Asuransi Sinar
Mas, (3) consumer financing, finance lease and factoring, which represents results of AB Multifinance and
Sinar Mas Multifinance, (4) stock brokerage, underwriting and investment management, which represents the
results of Sinarmas Sekuritas and its subsidiary, (5) banking, which represents the results of Bank Sinarmas,
(6) share administration fees, generated by Sinarmatra Gunita and (7) development, trading and other
services. Selected consolidated financial data of our Group and the relative contributions of each of our
business segments as of and for the nine months ended September 30, 2011 appear below under “—Segment
Information”.
Basis of Presentation
General
Our audited consolidated financial statements as of and for the years ended December 31, 2008, 2009
and 2010, as audited by Moore Stephens, and our unaudited interim consolidated financial statements as of
and for the nine months ended September 30, 2010 and September 30, 2011 are presented in Rupiah, our
functional currency, and have been prepared in accordance with Indonesian PSAK. Financial information
relating to our life insurance joint venture, Sinarmas MSIG Life, and our non-life subsidiary, Asuransi Sinar
Mas, have been derived from each of their financial statements as of and for the years ended December 31,
2008, 2009 and 2010, as audited by Anwar and Rekan, and each of their unaudited interim financial
statements as of and for the nine months ended September 30, 2010 and September 30, 2011. Financial
information relating to our banking subsidiary, Bank Sinarmas, has been derived from its audited financial
statements as of and for the years ended December 31,
2008, 2009 and 2010 and audited interim financial statements as of and for the nine months ended September
30, 2010 and September 30, 2011, as audited by Moore Stephens. Each of these financial statements are
presented in Rupiah, their functional currency, and have been prepared in accordance with Indonesian PSAK,
which differ in significant respects from U.S. GAAP and IFRS.
Impact of the Sale of a 50% Ownership Interest in Sinarmas MSIG Life
Prior to July 1, 2011, we effectively owned 100% of Sinarmas MSIG Life, which accounted for
75.8%, 75.5% and 76.6% of our total revenue in 2008, 2009 and 2010, respectively. In July 2011, Mitsui
Sumitomo Insurance Co. Ltd completed its acquisition of a 50% ownership interest of Sinarmas MSIG Life
for a total consideration of Rp.7.0 trillion (US$793.4 million). Because we continue to control Sinarmas
MSIG Life through a majority of the board of directors and board of commissioners of Sinarmas MSIG
Life, we continued to fully consolidate the financial statements of Sinarmas MSIG Life in our consolidated
financial statements as of and for the nine months ended September 30, 2011, but made the relevant
deduction relating to minority interest to reflect MSIG’s 50.0% ownership interest in Sinarmas MSIG Life
from July 1, 2011. As a result, our consolidated financial statements for the nine months ended September
30, 2011 are not directly comparable with our consolidated financial statements for the nine months ended
September 30, 2010 or prior periods and our full year 2011 consolidated financial statements will not be
directly comparable with our full year 2010 consolidated financial statements.
Going forward, for so long as we continue to control Sinarmas MSIG Life through a majority of the
board of directors and board of commissioners of Sinarmas MSIG Life, we will fully consolidate the future
financial statements of Sinarmas MSIG Life in our future consolidated financial statements, but make the
relevant deduction relating to minority interest to reflect MSIG’s 50.0% ownership interest. The full impact
of the reduction of our ownership in Sinarmas MSIG Life will only be recognized in our consolidated
financial statements for the financial year commencing January 1, 2012.
Pursuant to the terms of our shareholders’ agreement with MSIG, each of the Company and MSIG has
the right to appoint an equal number of individuals as members of the board of commissioners and board of
directors.
Accordingly, to the extent we cease to control Sinarmas MSIG Life through a majority of the board of
directors and board of commissioners of Sinarmas MSIG Life in the future, or we otherwise determine that
we no longer control it, we may be required to treat our 50.0% ownership interest in Sinarmas MSIG Life
as an interest in a joint venture, rather than a subsidiary, to reflect the nature of control. Accordingly, we
would be required to account for an ownership interest in Sinarmas MSIG Life on a proportionate
consolidation basis by taking 50.0%, corresponding to the percentage of equity that we own or control, of
each of the assets, liabilities, revenues and expenses of Sinarmas MSIG Life and combining these with the
assets, liabilities, revenues and expenses of the Company on a line-by-line basis after elimination of intragroup transactions. To the extent we are required to apply proportionate consolidation in respect of our
interest in Sinarmas MSIG Life, this would have a material affect on our consolidated statement of financial
position, statement of comprehensive income, income statement and cash flows and would make such future
consolidated financial statements not directly comparable with our historical consolidated financial
statements. For a description of our joint venture with MSIG, See “Material Agreements—Sinarmas MSIG
Life Joint Venture”.
Mega Life
We account for our ownership interest in Mega Life on the equity method by taking 50.0%,
corresponding to the percentage of equity that we own, of the net income of Mega Life, which is recorded
in “Equity in net income of the associates — net” in our consolidated statement of comprehensive income.
Factors Affecting Our Financial Condition and Results of Operations
Our results of operations and financial conditions have been and will continue to be affected by
additional factors and developments, some of which are outside of our control, including the following:
Profitability
The profitability of our insurance business depends principally on our ability to price and manage risk
on insurance products, our ability to attract and retain customers, our ability to manage expense and our
ability to maximize risk-adjusted investment returns. Specific drivers of our profitability include:
•
Our ability to design and distribute insurance products and services that meet market needs and
are delivered on a timely basis;
•
Our ability to price insurance products at levels that enable us to earn a margin over the costs of
providing benefits and the expenses of both acquiring customers and administering those
products. The adequacy of our product pricing is, in turn, primarily a function of:
•
Our underwriting experience;
•
The adequacy of our methodology for underwriting insurance policies and establishing
reserves for the future; and
•
The extent to which our actual expenses and investment performance meet our
assumptions;
•
Changes in our product mix, particularly for our insurance products, such as migration of
policyholders between our endowment insurance products and unit link insurance products, see
“—Changes in Product Mix”;
•
Our persistency experience, which affects our ability to recover the cost of acquiring new
business over the duration of the contracts;
•
Our ability to actively manage our investment portfolio to earn an acceptable return while
managing liquidity, credit, equity and duration risk in our asset and policy portfolios through
asset and liability management;
•
Our management of risk exposures, including exposure to catastrophic and other losses, on our
non-life products; and
•
Our ability to control expenses in order to maintain the target margins for our insurance
products.
The profitability of our banking business is affected by a number of factors which influence the
business environment in which it operates as well as factors specific to the bank. Key drivers of our
profitability include:
•
The strength of the Indonesian economy which will drive appetite for investment and consumer
spending and will influence the ability of customers to repay loans and impact the Bank’s credit
quality;
•
The level of interest rates in Indonesia, which will generally impact the Bank’s interest rate
spread;
•
The level of competition in the banking sector in Indonesia from domestic and foreign
participants, including with respect to loan and deposit pricing;
•
Our ability to price loans and manage the credit risks of our loan portfolio;
•
Our ability to develop cost effective and liquid sources of funding; and
•
Our ability to effectively manage our cost base.
Economic Conditions and Demographic Fundamentals in Indonesia
Our performance is dependent on the general economic developments, household savings rates,
demographic profiles and life and non-life insurance penetration rates, principally in Indonesia, which will
affect the demand for our products and services across business segments and the returns from our
investment activities. The overall operating environment affects the quality of our Group’s loan and
investment portfolios, and hence the amount of allowances we set aside. In addition, our expenses are
dependent on our growth and expansion plans in Indonesia, and impacted by cost and wage pressures in the
markets in which we operate.
Indonesia has been undergoing rapid economic change as it continues its recovery and development
following the severe economic shocks it suffered during the Asian financial crisis that began in mid-1997. In
recent years, Indonesia has experienced significant economic growth, with real GDP growth of 5.5%, 6.3%,
6.0%, 4.6% and 6.1% in 2006, 2007, 2008, 2009 and 2010, respectively and 6.5% in the first three quarters
of 2011 according to Bank Indonesia and the Ministry of Finance. With the exception of 2008 when inflation
was 11.11%, inflation in recent periods have been at moderate levels with consumer price index increases of
6.6%, 6.6%, 11.1%, 2.8% and 7.0% in 2006, 2007, 2008, 2009 and 2010, respectively, as
compared to the immediately prior year. On November 10, 2011, Bank Indonesia lowered the BI Rate by 50
basis points to 6.00%, shortly after it had lowered the BI Rate from 6.75 to 6.50% on October 11, 2011.
Earlier in the year, on February 4, 2011 Bank Indonesia had increased the BI Rate from 6.50% to 6.75%.
On December 15, 2011, Fitch Ratings (“Fitch”) upgraded Indonesia’s long-term foreign-currency
sovereign credit and debt ratings to BBB- from BB+, the highest level since the Asian financial crisis. Fitch
stated that the ratings upgrade reflected Indonesia’s strong and resilient economic growth, low and declining
public-debt ratios, strengthened external liquidity and a prudent overall macro policy framework. Fitch also
stated that the outlook on the rating is stable. On January 18, 2012, Moody’s Investors Services, Inc. also
upgraded Indonesia’s sovereign credit rating to Baa3 from Ba1.
Demographically, Indonesia had a population of approximately 238 million in 2010 and is the fourth
most populous country in the world, after China, India and the United States. The population is primarily
concentrated in Java (estimated at approximately 137 million in 2010), and Jakarta, the capital, was
estimated to have a population of approximately ten million in 2010. Indonesia’s population grew at a rate
of 2.0% per annum during the 1980s and 1.5% during the 1990s. The growth rate further decreased to 1.4%
per annum during the period from 2000 to 2010. Concurrent achievements in health care lowered the infant
mortality rate and extended average life expectancy. The Government estimates that, in 2010, approximately
28.9% of the population was under 15 years of age and approximately 46.0% was under 25 years of age.
Like many financial institutions worldwide, we were adversely affected by the global financial crisis
during 2008 and 2009. The economic downturn resulted in slower growth in our gross premium income,
investment income and interest income in 2008 as compared to the previous year. We also recorded
unrealized loss on decrease in fair value of securities in 2008 compared with an unrealized gain on increase
in fair value of securities in 2009.
Financial markets substantially recovered in the second half of 2009, primarily as a result of a globally
coordinated central bank intervention and a concerted stimulus package. We achieved higher gross premium
income from our insurance operations and an increase in interest income from loan growth in the
manufacturing and the transportation, warehousing and communication sectors. We also recorded a gain
from our investment in units of mutual funds and unrealized gain on increase in fair value of securities in
2009, resulting in a significant increase in our net income to Rp.700.1 billion in 2009 from Rp.263.6 billion
in 2008.
In 2010, Indonesia and the rest of Asia experienced a robust economic recovery underpinned by the
region’s strong economic fundamentals and a sharp rebound in domestic and external demand. This recovery
took place despite the lingering economic uncertainties in the United States and concerns over the levels of
sovereign debt in the peripheral Eurozone countries. We achieved higher gross premium income, broad- based
loan growth resulting in higher interest income and an increase in unrealized gain in fair value of securities
in 2010, resulting in a 74.2% increase in our net income to Rp.1,277.8 billion (US$144.8 million) in 2010
from Rp.733.7 billion in 2009.
Economic conditions remained generally favorable in Indonesia in the nine months ended September
30, 2011. However, the regional environment in Asia has been dampened by a few key events
internationally, particularly in more recent months. In Europe, the sovereign debt crisis in Greece, Italy and
other peripheral Eurozone countries that emerged in late 2009 has intensified despite concerted actions and
aid from other European Union countries, leading to fears of contagion and turmoil in financial markets.
This was exacerbated by the S&P downgrade of the long-term credit rating of the United States from
“AAA” to “AA+” with a negative outlook on August 5, 2011, which caused further loss of investor
confidence and increased volatility in financial markets. This market volatility affected the value of our
investment portfolio, but we do not believe it had a material effect on product sales or interest rates on a
consolidated level for the nine months ended September 30, 2011. See also “—Fluctuations in Market
Interest Rates and Credit Risk” below. In the nine months ended September 30, 2011, we achieved higher
gross premium income from our insurance operations, in part from new customers, and an increase in
interest income from our banking operations. However, we recorded lower gains from investments in units
of mutual funds and we also recorded a net unrealized loss on decrease in fair value of securities in the nine
months ended September 30, 2011. Our net income grew 116.7% to 1,517.2 billion (US$172.0 million) in
the nine months ended September 30, 2011, from Rp.700.2 billion in the nine months ended September 30,
2010.
Economic and market conditions in Indonesia and globally have continued to remain challenging
through the fourth quarter of 2011. As a result, our outlook with respect to our future consolidated financial
results and the financial results of our principal subsidiaries remains uncertain, and the financial information
for the Group and its subsidiaries for the nine months ended September 30, 2011 may not necessarily be
indicative of, and may differ materially from, actual results for the full year ended December 31, 2011.
Given the recent market volatility and global economic conditions and resulting pressure on our customers
and business and other factors, there may be an adverse impact on our net income as a result of a decline in
net income of certain of our subsidiaries, including insurance premium income of Sinarmas MSIG Life and
investment income of Sinarmas Sekuritas.
Changes in Product Mix
The pricing and profit margins of our products vary by type of product. A change in our product mix
will expose the company to fluctuations in gross written premium income and investment income in future
periods.
With respect to life insurance products, Sinarmas MSIG Life’s two principal products have been its
PowerSave endowment product and its Stable Link unit link product, which together accounted for more
than 95% of total gross premiums for each of the years ended December 31, 2008, 2009 and 2010 and the
nine months ended September 30, 2011. Shifts in the proportion between the two products have affected
Sinarmas MSIG Life’s results of operations over the same periods.
Profitability on Sinarmas MSIG Life’s products depends in significant part on the returns set for each
product, such as the guaranteed return on endowment products and the target investment returns on unit link
products and additional bonus above the target investment returns in the case of certain contracts over one
year. Endowment products have historically provided higher profit margins than our unit link products as,
unlike with endowment policies, under the terms of unit link policies the Company may be required to share
part of the profit above the targeted return with policyholders. Sinarmas MSIG Life adjusts the guaranteed
return on its PowerSave product and the targeted return on its Stable Link product to encourage existing and
new customers to invest or migrate their existing policies among the products. The investment terms of
Sinarmas MSIG Life’s products are for periods of between three to 36 months, and target investment returns
are adjusted by Sinarmas MSIG Life periodically.
Changes in our life insurance product mix in 2008 through 2010 has been driven in significant part by
capital considerations, as unit link products entail lower capital requirements than endowment products.
From 2008 through early 2011, Sinarmas MSIG Life encouraged existing policyholders in endowment
products, such as its Power Save products, to reinvest into unit link policies, such as its Stable Link
products, by offering more attractive potential investment returns on these products, which has been the
driver of the decline in endowment and increase in unit link policies in the same periods. This strategy was
adopted by the company to enhance capital efficiency of the business, given the lower capital requirement
associated with unit link policies. Due to the higher solvency ratios following completion of the MSIG share
subscription in Sinarmas MSIG Life, Sinarmas MSIG Life has been increasing its sales of its endowment
products during the second half of 2011.
Changes in our life insurance product mix has recently also been driven in part by managing
competition between distribution channels. Beginning in November 2011, Sinarmas MSIG Life has begun to
focus sales of endowment products through bancassurance and sales of unit link products through its agency
force to avoid cannibalization between its agency force sales and bancassurance sales.
In the nine months ended September 30, 2011, approximately 47.1% of our life insurance premium
income was attributable to endowment products, compared to 6.1% in 2010. In addition, most of the policies
sold by Sinarmas MSIG Life have historically been single premium products. Following the investment by
MSIG in Sinarmas MSIG Life, we expect that Sinarmas MSIG Life will expand its product mix, with an
increasing proportion of regular premium and traditional products.
For non-life products, profitability depends on adjustments between products which are due in
significant part on amounts of insurance risk it and amounts ceded to reinsurers for products. Asuransi Sinar
Mas cedes more of certain product premium income to reinsurers, depending upon, among other factors,
price competition, profitability, claims experience and availability of reinsurance to manage its risks and
market risks. See “—Profitability”, “—Claims Experience”, “—State of the Reinsurance Market”, “—
Fluctuations in Market Interest Rates and Credit Risk” and “—Equity Market Risk”. Asuransi Sinar Mas has
typically retained insurance risk on its health and motor vehicle policies and ceded proportionately more of
its fire and property, marine hull and marine cargo insurance risks.
Fluctuations in Market Interest Rates and Credit Risk
The results of our insurance and banking operations depend, in part, on our level of net interest
income and our effective management of the impact of changing interest rates and varying asset and liability
maturities.
The BI Rate has historically experienced volatility. The following table shows the BI Rate as of the
dates indicated:
As of
2008.
2009.
2010.
2011.
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March 31
June 30
September 30
December 31
8.00
7.75
6.50
6.75
8.50
7.00
6.50
6.75
9.25
6.50
6.50
6.75
9.25
6.50
6.50
6.00
The results of our insurance business are affected by fluctuations in market interest rates as a
substantial proportion of our assets are held in fixed income securities. Changes in interest rates affect the
market value and the investment yield of our investment portfolio backing shareholders’ equity and
policyholder funds. Our holdings of debt securities also expose us to corporate, sovereign and other credit
risk. We and our subsidiaries invest in a significant amount of Indonesian Government and corporate bonds,
primarily in the financial and banking sectors, through both the direct holdings and the mutual funds our life
and non-life insurance subsidiaries invest their capital and the premiums they receive.
Interest rate volatility impacts our life insurance and investment contracts that carry a guaranteed
policyholder return, such as Sinarmas MSIG Life’s endowment products. These contracts carry the risk that
the interest income from financial assets backing the liabilities is insufficient to fund the guaranteed return
to our policyholders. A large proportion of our guaranteed life insurance obligations have a shorter duration
than that of our interest-bearing assets. Surrenders and withdrawals of existing life insurance policies may
increase as policyholders seek to buy products with perceived higher return. These surrenders and
withdrawals may result in cash payments to policyholders required the sale of invested assets at a time when
the prices of those assets are adversely affected by the increase in market interest rates, potentially resulting
in realized investment losses. These cash payments would result in a decrease in total invested assets and a
decrease in net income. Declining yields, however, would reduce the investment income on assets backing
shareholders’ equity.
For unit link products sold by Sinarmas MSIG Life, assets are managed on a fair value basis, with
fixed income investments valued using an amortized acquisition price method so long as the debt securities
are held until maturity and equity investments valued based on a historical share price method. As a result,
returns could remain relatively stable despite volatility in interest rates, equity markets and credit exposure.
However, because the net asset value in which we invest the insurance premiums may not reflect the
fair market value of such investments for any given time, and may not reflect a decrease in value should
there be a sudden drop in underlying asset prices due to a rise in interest rates, this may in turn result in
Sinarmas MSIG Life’s overpaying policyholders due to such valuation mismatch. Net asset value may also
not reflect an increase in value should there by a sudden rise in underlying asset prices. This may also result
in inadequate reserves in the case of significant surrenders in response to any such declining asset prices as
the fair value of units of mutual funds upon redemption may not necessarily reflect their fair market value in
the case of surrenders of policies prior to the maturity of the underlying fixed income holdings. This may also
expose us to reputational risk as a result of allegations of mis-selling for claims by our unit link policyholders
who receive less returns than anticipated based on the expected net asset value. Sinarmas
MSIG Life may, at its discretion, apply a surrender charge of up to 20% in the event of surrenders, which
mitigates this exposure.
The results of our banking operations are dependent to a large extent on net interest income and its
results are materially affected by factors affecting net interest margins, particularly lending and deposits rates
in Indonesia. Changes in market interest rates, changes in relationships between short-term and long-term
market interest rates or changes in the relationships between different interest rate indices may affect the
interest rate charged on interest-earning assets differently from the interest rate paid on interest-bearing
liabilities.
Our yields and costs from our banking and non-bank lending operations are functions of our lending
and deposit rates, interbank rates, yields on Government and other debt securities, and costs of term debts
and other borrowings, which are generally linked to the interest rate environment.
In addition, lending and deposit rates are significantly influenced by competition in the markets in
which we operate. Our loans are generally priced either on a fixed rate or floating rate basis. Loans priced at
a floating rate refer to those priced at reference lending rates plus or minus a spread, depending on the type
and preference of the borrower. Reference lending rates may be benchmarked with external reference rates
or our own established reference rate (e.g. cost of funds, board rate and prime rate).
Fluctuations in market interest rates or deterioration in credit quality may also affect the market value
of other financial assets, such as time deposits, placement with banks and debt securities. We may be
required to record losses that would negatively impact our financial results due to the decline in prices. In
addition, market volatility can discourage investor confidence in the capital markets and a significant
number of clients may choose to liquidate their investment positions and refrain from investing, revenues
from our insurance, brokerage and asset management businesses would be adversely affected. In addition,
short-term investments, including debt securities, units of mutual funds, shares and warrants and segregated
fund net assets comprising units of mutual funds and publicly traded shares are recorded at fair value, and
subsequent changes in fair value are recognized directly in the consolidated statement of income.
Accordingly, changes in value of our investments as a result of volatility in interest rates or deterioration of
credit quality could result in significant unrealized losses or sharp declines in realized returns, which would
have a material adverse effect on our results of operations and financial condition.
Equity Market Risk
Fluctuations in equity markets may affect our investment returns and sales of many of our unit link
and life insurance products as well as the market value of equity and equity-linked products held by our
Group. Fluctuating equity market prices could affect the value of our financial assets, and we may be
required to record realized or unrealized losses that would negatively impact our financial results due to the
decline in equity prices. In addition, volatile equity prices can discourage investor confidence in the capital
markets and a significant number of customers may choose to liquidate their investment positions and
refrain from investing in equities until equity price fluctuations ease.
Insurance. Fluctuations in equity markets affect the investment returns and sales of many of our
investment-linked insurance products. Our life and non-life insurance businesses have significant exposure to
equity markets, with equity securities invested by our non-life business representing 33.0% of its total
investments as of September 30, 2011 and equity securities invested by our life insurance business
representing 5.7% of its total investments and 43.3% of its investments in units of mutual funds,
respectively, as of September 30, 2011. Sales of investment-linked life insurance products typically decrease
in periods of protracted and steep declines in equity markets and increase in periods of rising equity
markets. Policy loans, surrenders and withdrawals may increase at times of declining equity markets. In
addition, lower investment returns for our unit link products would reduce the income the company earns
from unit link policies. We expect that RDPT funds through which our life insurance business, and to a
lesser extent, our non-life insurance business, invests premiums may not be available as an investment
vehicle for our insurance businesses as a result of future changes to Ministry of Finance regulations. As a
result, the Company expects direct equity investments will comprise a greater percentage of investments of
Sinarmas MSIG Life and Asuransi Sinar Mas.
Other businesses. Sinarmas Sekuritas engages in the trading of equity securities, both on a proprietary
basis and for its clients. Accordingly, it could incur substantial losses from its equity investments as a result
of changes in market condition such as sharp declines in market values of equity securities (and the failure
of issuers and counterparties to perform their obligations can result in illiquid markets). Lower investment
returns on equity holdings would also reduce the asset management and other fees earned by Sinarmas
Sekuritas and its subsidiary.
Investment in RDPT Funds
A substantial portion of the assets of our insurance subsidiaries are in RDPT funds. Under BapepamLK regulations, RDPT funds are not required to mark-to-market their investments. They are permitted to
determine the fair value of their fixed income investments using an amortized acquisition price method so
long as the debt securities are held until maturity. For equity investments, RDPT funds are permitted to use
any valuation method so long as such method is agreed with the fund participants in advance in the
governing collective investment contract and such method is approved by the Ministry of Finance. The
equity RDPT funds and mixed debt and equity RDPT funds in which Sinarmas MSIG Life invests determine
the fair value of their equity investments using a historical share price method and the equity RDPT funds in
which Asuransi Sinar Mas invests use a discounted cash flow method. The fixed income RDPT funds and
mixed debt and equity RDPT funds value their fixed income holdings by amortizing the acquisition price of
the debt securities and the fixed income RDPT funds in which Asuransi Sinar Mas invest determine fair
value by reference to the bond reference price set by KSEI.
As a result, the net asset value of the RDPT funds in which Sinarmas MSIG Life and Asuransi Sinar
Mas invest insurance premiums may not reflect the fair market value of such investments at any given time,
and may not reflect a decrease in value should there be a sudden drop in underlying asset prices. To the
extent that there is a time lag or timing difference between when Sinarmas MSIG Life pays out on a unit
link insurance product based on the then applicable net asset value of the related segregated asset
investments in RDPT funds, and the re-adjustment of the net asset value of the RDPT funds to give effect to
the change in prices of the underlying investments held within such RDPT funds, this may result in
Sinarmas MSIG Life’s overpaying or underpaying unit link policyholders due to such valuation mismatch.
Conversely, an increase in prices of the underlying investments held within such RDPT funds may not be
realized when units of RDPT funds are redeemed.
Moreover, we expect that RDPT funds through which our life insurance business, and to a lesser extent,
our non-life insurance business, invest premiums may not be available as an investment vehicle for our
insurance businesses as a result of future changes to Ministry of Finance regulations. This would require us
to phase out the use of RDPT funds and invest investment assets either directly or through other vehicles that
would require us to mark-to-market our investments. We may not be able to find comparable investments or
investment vehicles which provide similar flexibility, or returns. We may also experience greater fluctuations
in the value of our investment portfolio following the phase-out of RDPT funds as a result of mark-to-market
accounting. We may also be subject to a higher tax rate on interest received if we invest in bonds directly.
Any of the above may have a significant impact on our results of operations. See also “Risk Factors—
Risks Relating to Our Insurance Businesses—The premiums of our life insurance business and to a lesser
extent, of our non-life business, are substantially invested in RDPT funds which do not mark-to- market their
underlying investments and whose net asset values may not reflect the fair market value of underlying
investments at any given time, which may result in us overpaying policyholders and having inadequate
reserves in a sudden decline of asset prices and expose us to risks of mis-selling, and require us to find
alternative investments which may not provide similar returns or flexibility if such RDPT funds are no longer
available.”.
Claims Experience
The reported financial results of our life and non-life insurance businesses are affected by our claims
experience, which may vary from the assumptions we made when we designed and priced our insurance
products and when we calculate our insurance contract liabilities. Claims experience varies over time and
from one type of product to another, and may be impacted by specific events and changes in macroeconomic
conditions, population demographics, mortality, morbidity and other factors. Our claims experience is also
affected by surrenders, withdrawals and redemptions. Claims experience may also be affected by
catastrophic events, such as earthquakes, which can result in a sharp increase in claims costs.
State of the Reinsurance Market
Our life and non-life businesses reinsure a proportion of the risk they underwrite to reduce their risk
exposure, to protect their capital resources and maintain stability in their operations. The proportion of risks
they reinsure varies by product line. The reinsurance market is cyclical, with periodic fluctuations in
underwriting capacity in the market affecting the price at which reinsurance can be obtained. Underwriting
capacity and rates in the reinsurance market, which are determined largely by underwriting conditions in the
international market, may not necessarily move in tandem with those in the domestic Indonesian direct
market. Scarcity of underwriting capacity in the reinsurance market leading to increases in reinsurance rates
could raise the cost of reinsurance to Asuransi Sinar Mas and potentially decrease its underwriting profit.
Asuransi Sinar Mas also engages in reinsurance to a limited extent through its participation in the Asia
Catastrophe Pool and with related parties and may itself be affected by factors affecting the reinsurance
market generally. See “Related Party Transactions—Present and Ongoing Related Party Transactions—
Premium and Reinsurance Receivables”.
Regulatory Environment
We expect that our financial condition and operating results may be significantly affected by regulatory
trends in both the banking and insurance industries and the regulatory oversight of the financial services
sector, including banking, non-bank lending, insurance, securities and others. These regulators have broad
authority over our business, including our capital and
solvency requirements, where we are authorized to operate, the fees and commissions that we charge on
certain products, such as bancassurance, our ability to enter into certain new lines of business, expand our
operations, offer new products, enter into distribution arrangements and declare dividends. Our efforts to
comply with changes in regulations may lead to increased operating and administrative expenses, or reduced
operating revenue, as well as higher capital costs. In addition, pursuant to Indonesian laws, regulations and
rules, we are restricted to a specified range of investment activities. These restrictions may limit our ability
to diversify investment risks and improve returns on our investment portfolio, thereby affecting our results
of operations as well as liquidity, capital adequacy and solvency positions.
Competition
We face competition in all of our business lines. We compete on the basis of a number of factors,
including price, products and services, innovation, transaction execution capability, reputation, perceived
financial strength, experience and knowledge of our staff, employee and agency compensation and
geographic scope. Competition may negatively affect our business, results of operations and future business
prospects by reducing our market share, decreasing our margins and spreads, increasing our policy
acquisition costs and operating expenses, and reducing the growth of our customer base. See “Risk
Factors—Risks Relating to Our Overall Business—We operate in highly competitive markets, and we may
be unable to compete successfully.”.
Foreign Exchange Rates
We face foreign exchange risk arising from the conversion of foreign currencies from our operations,
principally our insurance and banking businesses, to our reporting currency, the Rupiah. Our exposure to
foreign currency risk is mitigated as assets and liabilities in the foreign currency are typically matched. A
portion of insurance premiums and bank deposits are received U.S. dollars. We typically invest in assets
denominated in U.S. dollars to match our U.S. dollar insurance and banking liabilities. To the extent that we
are unable to adequately match our investment assets in the same currency, we may be required to exchange
Rupiah to cover any net open foreign currency positions. If the Rupiah depreciates significantly at any time
when we have a significant net open position in foreign currencies, such depreciation could cause us to suffer
losses.
Critical Accounting Policies
The following accounting policies are those that we believe are or will be the most critical to a full
understanding and evaluation of the reported and future consolidated financial results of the Company, as
well as of Sinarmas MSIG Life, Asuransi Sinar Mas and Bank Sinarmas because they involve estimates of
matters that are inherently uncertain.
SMMA
As SMMA is principally a holding company and almost all of our operations and businesses are
conducted through our subsidiaries, our critical accounting policies are largely determined with respect to
each of our principal operating subsidiaries. However, a number of these policies apply across all segments,
including determination of fair value, financial assets at fair value through profit or loss, held to maturity
assets, available for sale financial assets, allowance for impairment of financial instruments and nonfinancial assets, as described below.
Determination of Fair Value
The fair value of financial instruments traded in active markets at the statements of financial position
date is based on their quoted market price or dealer price quotations (bid price for long positions and ask
price for short positions), without any deduction for transaction costs. This includes debt securities held for
trading purposes, and equity securities traded on a public exchange.
For all units of mutual funds, including units of mutual funds recorded under segregated funds net
assets − unit link, fair value is determined based on the net asset value of the fund, rather then the quoted
market prices of the securities held by the mutual fund. See “Risk Factors—Risks Relating to Our Insurance
Businesses—The premiums of our life insurance business and to a lesser extent, of our non-life business, are
substantially invested in RDPT funds which do not mark-to-market their underlying investments and whose
net asset values may not reflect the fair market value of underlying investments at any given time, which may
result in us overpaying policyholders and having inadequate reserves in a sudden decline of asset prices and
expose us to risks of mis-selling, and require us to find alternative investments which may not provide similar
returns or flexibility if such RDPT funds are no longer available”.
Financial Assets Not Quoted in Active Market
Effective January 1, 2010, we classify financial assets by evaluating, among others, whether the asset is
quoted or not in an active market. Included in the evaluation on whether a financial asset is quoted in an
active market is the determination on whether quoted prices are readily and regularly available, and whether
those prices represent actual and regularly occurring market transactions on an arm’s length basis.
For all other financial instruments not listed in an active market, except investment in unquoted equity
securities, the fair value is determined by using appropriate valuation techniques, including net present
value, comparison to similar instruments for which market observable prices exist, options pricing models
and other relevant valuation models. In the absence of a reliable basis for determining fair value,
investments in unquoted equity securities are carried at cost net of impairment.
Financial Assets at Fair Value Through Profit or Loss
Financial assets at fair value through profit or loss include financial assets held for trading and
financial assets designated upon initial recognition at fair value through profit and loss. Financial assets are
classified as held for trading if they are acquired for the purpose of selling in the near term. Derivatives are
also classified as held for trading unless they are designated as effective hedging instruments. Financial
assets may be designated at initial recognition at fair value through profit and loss if the following criteria
are met:
•
the designation eliminates or significantly reduces the inconsistent treatment that would otherwise
arise from measuring the financial assets or recognizing gains or losses on them on a different
basis; or
•
the assets are part of a group of financial assets, financial liabilities or both which are managed
and their performance evaluated on a fair value basis, in accordance with documented risk
management or investment strategy; or
•
the financial instrument contains an embedded derivative, unless the embedded derivative does
not significantly modify the cash flows or it is clear, with little or no analysis, that it would not
be separately recorded.
Changes in fair value are recognized directly in the consolidated statements of comprehensive income.
This category includes:
•
short-term investments-securities, which includes bonds, units of mutual funds, shares and
warrants which are traded on the Indonesia Stock Exchange;
•
segregated funds net assets − unit link, including units of mutual fund and shares that are traded
on the Indonesia Stock Exchange; and
•
segregated funds net assets − Sharia, including units of mutual funds.
Loans and Receivables
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are
not quoted in active market. These assets are not entered into with the intention of immediate or short-term
resale. This category includes cash, demand deposits with Bank Indonesia and other banks, placements with
other banks, securities in the form of bills receivable, securities purchased under agreements to resell, loans,
interest income to be received as well as other assets in the form of security deposits, bills relating to ATM
and money transfers and others.
Loans and receivables are initially recognized at fair value plus attributable transaction costs, and are
subsequently measured at amortized cost using the effective interest rate method, less allowance for
impairment. Amortized cost is calculated by taking into account any discount or premium on acquisition and
fees and costs that are an integral part of the effective interest rate. The amortization is included as part of
interest income in the consolidated statements of financial position. The losses arising from impairment are
recognized in the consolidated statements of comprehensive income.
Held to Maturity Assets
Held to maturity investments are quoted non-derivative financial assets with fixed or determinable
payments and fixed maturities for which we have the positive intention and ability to hold to maturity and
may be sold in response to liquidity requirements or changes in market conditions. This category includes
short-term investments-securities (Bank Indonesia Intervention, credit linked note, Republic of Indonesia
loans, bonds, export bill receivables), segregated funds net assets − unit link (bonds), and segregated funds
net assets − Sharia (Sharia bonds).
When we sell or reclassify other than an insignificant amount of held to maturity investments before
maturity, the entire category would be tainted and reclassified as available for sale financial assets.
Held to maturity assets are initially recognized at fair value plus attributable transaction costs, and are
subsequently measured at amortized cost using the effective interest method, less impairment in value.
Amortized cost is calculated by taking into account any discount or premium on acquisition and fees that are
an integral part of the effective interest rate. The amortization is included as part of interest income in the
consolidated statement of income. Gains and losses are recognized in the consolidated statement of income
when the held to maturity investments are derecognized and impaired, as well as through the amortization
process using the effective interest method.
Available for Sale Financial Assets
The available for sale category of financial assets is used where the relevant investments are not
managed on a fair value basis, or which are designated as such. They are purchased and held indefinitely
and may be sold in response to liquidity requirements or changes in market conditions. This category
includes short-term investment in bonds, Republic of Indonesia loans, shares that are traded on Indonesia
Stock Exchange, and certain investments in shares.
Available for sale assets are initially recognized at fair value plus attributable transaction costs and
subsequently measured at fair value. The effective yield component of available for sale debt securities, as
well as the impact of translation on foreign currency-denominated available for sale debt securities, is
reported in the consolidated statement of income. The unrealized gains and losses arising from the fair
valuation of available for sale financial assets are excluded from the consolidated statement of income and
are reported as net unrealized gains and losses on available for sale financial assets in the equity section of
the consolidated balance sheet and in the consolidated statement of changes in equity.
In the absence of a reliable basis for determining the fair value, certain investments in shares of stock
are carried at cost.
Allowance for Impairment of Financial Instruments
Allowance for impairment losses of financial instruments is maintained at a level considered adequate
to provide for potentially uncollectible receivables. Effective January 1, 2010, we assess specifically at each
balance sheet date whether there is objective evidence that a financial asset is impaired (uncollectible). The
level of allowance is based on past collection experience and other factors that may affect collectability such
as the probability of insolvency or significant financial difficulties of the debtor or significant delay in
payments. This accounting policy applies to our life and non-life insurance subsidiaries, and our banking,
multifinance and securities subsidiaries.
When there is objective evidence of impairment, the amount and timing of collection is estimated
based on historical loss experience. Provisions are made for accounts specifically identified to be impaired.
Accounts are written off when management believes that the financial asset cannot be collected or realized
after exhausting all efforts and courses of action. An evaluation of the financial instrument, designed to
identify potential charges to the allowance, is performed on a continuous basis throughout the year. The
amount and timing of recorded provision for impairment losses for any period would therefore differ based
on the judgments or estimates made.
For further information, see Note 2 to our consolidated financial statements.
Impairment of Non-Financial Assets
An assessment by management of non-financial asset value is made at each statement of financial
position date to determine whether there is any indication of impairment of any asset and possible writedown to its recoverable amount whenever events or changes in circumstances indicate that the asset value is
impaired. An impairment loss is recognized only if the carrying amount of an asset exceeds its recoverable
amount. An asset’s recoverable amount is computed as the higher of the asset’s value in use and its net
selling price. On the other hand, a reversal of an impairment loss is recognized whenever there is an
indication that the asset is not impaired anymore. The amount of impairment loss, or reversal of impairment
loss, is charged to or credited in, as the case may be, the current year’s operations. This accounting policy
applies to our life and non-life insurance subsidiaries, and our banking, multifinance and securities
subsidiaries. However, allowance for impairment losses of non-financial assets are owned by subsidiaries
engaged in banking and multifinance in the form of nonproductive assets, consisting of foreclosed
properties, abandoned properties, the administrative accounts and suspense accounts and is determined in
accordance with Bank Indonesia requirements.
Sinarmas MSIG Life
Segregated Funds Net Assets and Segregated Funds Contract Liabilities — Unit Link: Treatment Under
Current Accounting Standards
Unit link is an investment and self-protection insurance product of Sinarmas MSIG Life, wherein the
policyholders have the opportunity to manage their funds together with other investors to maximize the
benefit from the amount invested. Sinarmas MSIG Life issues a contract where the amount of benefit is
directly linked to the market value of the investments held in the unit link holders’ fund. Although the
underlying investments are registered in the name of Sinarmas MSIG Life and the unit link holders have no
direct access to the specific assets, the contractual arrangements are such that the unit link holders bear the
risks and rewards of the funds investment performance. For more detailed information on Sinarmas MSIG
Life’s unit link insurance products, see “Business—Life Insurance—Sinarmas MSIG Life—Products”.
Funds received from unit link holders are recognized as “premium” in the statement of income.
“Surrender or redemption” on unit link products are recognized in the statement of income as expenses
under claims and benefits while changes in the “segregated funds contracts liabilities of unit link” are also
recognized as expenses in the statement of income.
Unit link holders’ funds are invested in time deposits, bonds, mutual funds and shares. Such
investments are stated at fair value, except for time deposits which are stated at nominal value and for
certain bonds held to maturity which are stated at amortized cost using the effective interest method less
impairment. Fair value of units of mutual funds is based on the net asset value of the fund, rather then the
quoted market prices of the securities held by the mutual fund. The value of segregated funds is recorded as
assets in our consolidated statement of financial position. Payable to unit link holders is recorded as a
liability in our consolidated statement of financial position and will be increased or decreased in accordance
with the placement or withdrawal of unit link holders’ funds and the current net asset value of the related
investment.
Income from unit link transactions generated by Sinarmas MSIG Life is presented in its financial
statements as “Investment income” and in the Company’s consolidated statements of income as “Other
income”.
Segregated Funds Net Assets and Segregated Funds Contract Liabilities — Unit Link: Treatment under
PSAK 62 effective January 1, 2012.
Effective January 1, 2012, PSAK 62 “Insurance Contracts” will apply. As part of the first-time adoption
of PSAK 62, Sinarmas MSIG Life will be required to conduct a product classification review to assess
whether an insurance contract contains significant insurance risk, and whether the contract contains
embedded derivatives, deposit components or discretionary participation features. If a contract is assessed as
an insurance contract, funds received from policyholders will be recognized as premium income. If the
contract does not transfer significant insurance risk, it will be accounted for as an investment contract under
PSAK 55, and the receipt of funds relating to financial assets or financial liabilities will result in the
creation of a liability for the value of the remittance rather than a credit to the statement of income.
Investment management fees collected from the servicing of investment contracts are recognized as revenue
over the period in which the services are performed.
For more detailed information see “—Recent Accounting Pronouncements” below.
Reserves
Sinarmas MSIG Life maintains reserves to provide for its future benefit obligations under its insurance
policies, and maintains its reserves in accordance with reserve requirements set forth by the Ministry of
Finance. The principal types of reserves it maintains are reserves for liability for future policy benefits, which
is recorded in our consolidated balance sheet as a liability under “Liability for Future Policy Benefits”, and
estimated claims liability and unearned premiums, which are recorded in our consolidated balance sheet as a
liability under “Unearned Premiums and Estimation of Own Retention Claims”.
Liability for future policy benefits. Reserves for liability for future policy benefits represent the amount
set aside to provide the benefits promised to policyholders under the terms of Sinarmas MSIG Life’s
insurance policies in force, which are actuarially determined in-house. Sinarmas MSIG Life calculates
liability for future policy benefit expenses using actuarial calculations of its chief actuary which are based
on certain assumptions regarding mortality, actuarial interest and method of reserve computation depending
on the type of product. Sinarmas MSIG Life reviews its estimates for future policy benefit obligations
monthly, and in accordance with Ministry of Finance regulations, engages an independent actuary to review
its reserves every three years.
Estimated claims liability. Sinarmas MSIG Life maintains reserves for estimated claims liability with
respect to its term life and health and accident insurance policies, which represent amounts set aside to
provide the outstanding and incurred claims, both reported and unreported, arising from such insurance
policies in force during the accounting period and which are calculated in accordance with guidelines set by
the Ministry of Finance.
Unearned premiums. Sinarmas MSIG Life maintains unearned premium reserves, representing the
portion of net premium relating to unexpired periods of coverage beyond the current period. Unearned
premium reserves are calculated on a proportionate basis over the term of the related policy coverage in
accordance with guidelines set by the Ministry of Finance, which require at a minimum unearned premium
reserves of 40% of its net premiums for policies with a term of one year or less.
For more information on Sinarmas MSIG Life’s reserves, see Note 28 to our consolidated financial
statements and Note 14 to Sinarmas MSIG Life’s financial statements as of September 30, 2011 and 2010
and December 31, 2010 and for the nine month periods ended September 30, 2011 and 2010.
Asuransi Sinar Mas
Reserves and Deferred Premium Income
Asuransi Sinar Mas maintains reserves to provide for the payment of claims arising from its insurance
policies in accordance with reserve requirements set forth by the Ministry of Finance. The principal types of
reserves it maintains are reserves for estimated own retention claims and unearned premiums, which are
recorded in our consolidated balance sheet as a liability under “Unearned Premiums and Estimation of Own
Retention Claims”.
Estimated own retention claims. Asuransi Sinar Mas maintains loss reserves for estimated claims
liability, including for claims in process as of the balance sheet date and claims incurred but not reported
(“IBNR”). Asuransi Sinar Mas establishes its loss reserves for IBNR on its products based on assumptions
that are formulated with reference to historical loss experience and adjusting for future trends. Reserves for
IBNR are computed using an average 5-year historical loss ratio. Actual cost of loss and lost adjustment
expenses experience may deviate from these assumptions. See “Risk Factors—Risks Relating to Our
Insurance Businesses—Pricing and setting reserves for our life insurance and non-life insurance products are
based on assumptions and estimates as to future claims liabilities, and differences in actual experience from
the assumptions used in pricing and setting reserves for our insurance products may materially adversely
affect our business, financial condition, results of operations and prospects”. Asuransi Sinar Mas reviews its
estimated own retention claims monthly and its IBNR claims quarterly and revises these reserves as
additional information becomes available and actual claims are reported. The increase or decrease in
estimated own retention claims represents the difference between the estimated own retention claims balance
for the current and prior year, which is recorded in the consolidated statements of income under “Insurance
Underwriting Expenses”.
Unearned premiums. Asuransi Sinar Mas maintains unearned premium reserves, representing the
portion of the premium from each policy which has not been recognized as revenue since the period covered
extends beyond the end of the current period of the accounting year. Unearned premium reserves are
calculated on a proportionate basis over the first year of the term of the related policy coverage in
accordance with guidelines set by the Ministry of Finance, which require unearned premium reserves of
40.0% of net own retention premiums on an aggregate basis for policies with a term of more than one month
and 10.0% of net own retention premiums on an aggregate basis for policies with a term of less than one
month. The increase or decrease in unearned premiums represents the difference between the unearned
premiums balance for the current and prior year, which is recorded in the consolidated statements of income
under “Insurance Underwriting Income”.
Deferred premium income. For insurance policies with coverage periods of more than one year, Asuransi
Sinar Mas records the portion of premium received at issuance that relates to periods other than the current
accounting year as deferred premium in its stand-alone financial statements. This is recorded as a liability
under “Premiums Received in Advance” in our consolidated balance sheet. In subsequent accounting periods,
deferred premium amounts corresponding to coverage periods in such accounting years are
reclassified and recognized as gross premium income, and reflected in our consolidated statements of
comprehensive income as insurance underwriting income for such periods.
For more information on Asuransi Sinar Mas’ reserves, see Note 29 to our consolidated financial
statements and Notes 13 and 14 to Asuransi Sinar Mas’ consolidated financial statements as of September
30, 2011 and 2010 and December 31, 2010 and for the nine month periods ended September 30, 2011 and
2010.
Recognition of Underwriting Income and Expenses
Underwriting Income. Premiums on insurance and reinsurance contracts are recognized as revenue over the
policy contract period in proportion to the insurance coverage provided. Premiums from co-insurance are
recognized as income based on the subsidiary’s proportionate share in the premium. Premium due to the
reinsurance company is recognized as reinsurance premium during the period of reinsurance contract in
proportion to the insurance coverage received. Unearned premiums for life and non-life insurance products
are calculated in aggregate using a certain percentage in accordance with applicable regulations. As
discussed above under “—Reserves and Deferred Premium Income”, the increase or decrease in unearned
premiums represents the difference between the balances of unearned premiums in the current year and the
prior year, and is charged to or credited in the consolidated income statement of the current year.
For insurance policies with coverage periods of more than one year, Asuransi Sinar Mas records the
portion of premium received at issuance that relates to periods other than the current accounting year as
deferred premium in its stand-alone financial statements or “Premiums Received in Advance” in our
consolidated balance sheet. In subsequent accounting periods, deferred premium amounts corresponding to
coverage periods in such accounting years are reclassified and recognized as gross premium income, and
reflected in our consolidated statements of comprehensive income as insurance underwriting income for such
periods.
Part of the total accepted risk is reinsured by other insurance and reinsurance companies. The amount of
premium paid or part of premium for prospective reinsurance transactions is recognized as reinsurance
premiums within the reinsurance contract period, in proportion to the insurance coverage provided. Payments
or obligations for retrospective reinsurance transactions are recognized as a reinsurance receivable in an
amount equivalent to the recorded liability in connection with the reinsurance contract.
Underwriting Expenses. Claims and benefits consist of settled claims, claims in process, including claims
incurred but not yet reported, and claims settlement expenses. Claims are recognized as expense when the
obligation to settle the claims are incurred. Parts of claims recovered from reinsurers are recorded and
recognized as deduction from claims expenses in the same period when claims expenses are recognized.
Subrogation rights are recognized as deduction from claims expenses when realized.
As discussed above under “—Reserves and Deferred Premium Income”, the changes in estimated own
retention claims are recognized in the consolidated income statement at the time of change. The increase or
decrease in estimated own retention claims represents the difference between the estimated own retention
claims for the current year and the prior year. Commissions due to insurance brokers, agents and other
insurance companies in connection with the insurance coverage are recorded as commission expense,
whereas commissions obtained from reinsurance transactions are recorded as a deduction from commission
expense, and are recognized in the consolidated statement of income when incurred. If commission income is
more than the total commission expense, the difference is presented as commission income in the
consolidated income statement of the current year.
Bank Sinarmas
Allowance for impairment losses and estimated losses on commitments and contingencies
Quality assessment and the determination of allowances for impairment losses are carried out on
productive assets and nonproductive assets. Productive assets consist of demand deposits with other banks,
placements with other banks, securities, securities purchased under agreements to resell, loans, acceptance
receivables, commitments and contingencies reflected in the administrative accounts who have credit risk
and productive Sharia assets in accordance with Bank Indonesia regulations. Non-productive assets comprise
non-financial assets consisting of repossessed (foreclosed assets) and fixed assets that are not used in
operation, inter-office accounts and suspense accounts in accordance with Bank Indonesia regulations.
Starting January 1, 2010, the Company has applied PSAK 50 for the accounting for impairment.
Implementation of the Transitional Provisions of Bank Indonesia for the Impairment Collective of Loans On
December 8, 2009, Bank Indonesia issued a Circular Letter, 11/33/DPNP, which regulates the estimation of
collective impairment of loans with limited experience of specific losses. For banks that do not have
sufficient historical loss data to determine the amount of impairment on loans on a collective basis in
accordance with the requirements under PSAK 55 (Revised 2006) and PAPI (2008), the formation of
allowance for impairment losses to use are the applicable Bank Indonesia provisions concerning “Asset
Quality Rating for Commercial Banks”.
Prior to January 1, 2010, determining the quality of assets and allowance for impairment losses was
based on Bank Indonesia Regulation, 7/2/PBI/2005 dated January 20, 2005 and Circular Letter of Bank
Indonesia, 7/3/DPNP dated 31 January 2005 on “Asset Quality Rating for Commercial Banks”, and Bank
Indonesia Regulation No. 11/2/PBI/2009, dated January 29, 2009. The company still refers to these rules for
calculating allowance for impairment losses after January 1, 2010 according to the application of the
transitional provisions outlined above.
Allowance for impairment losses on productive assets
Allowance for impairment losses on productive assets is based on review of the quality of productive
assets, commitments and contingencies in accordance with Bank Indonesia regulation, which classifies these
productive assets into five categories, with the percentage of allowance for impairment losses as follows:
Classification
Percentage of Allowance for Impairment Losses
Current Minimum
1%
Special mention Minimum
5%
Substandard Minimum
15%
Doubtful Minimum
50%
Loss
100%
Percentages are applied to the outstanding balances of the productive assets, less the collateral value in
accordance with Bank Indonesia regulations, except for earning assets and commitments and contingencies
classified as current where the rates are applied directly to the outstanding balance of earning assets and
commitments and contingencies. Bank Indonesia Certificates (SBI), placements with Bank Indonesia (BI
Intervention) and Government bonds are not subject to allowance for impairment losses.
Estimated losses on commitment and contingencies (except acceptances) are presented under
“Estimated losses on commitment and contingencies” in the consolidated financial statements.
Productive assets are written-off against allowance for impairment losses of productive assets when
management believes that productive assets should be written-off where the debtor is unable to pay and for
where recovery is difficult. Recoveries of productive assets that have been written off are recorded as an
addition to “allowance for impairment losses of productive asset” account when received. If the amount
received is more than the principal amount, the excess is recognized as interest income.
Allowance for impairment losses on non-productive assets
Allowance for impairment losses on non-productive assets is determined in accordance with Bank
Indonesia regulation regarding “Assessment of Quality Asset of Commercial Banks”.
We establish an allowance for impairment losses of non-productive assets based on the evaluation of
the quality of each non-productive asset in accordance with the provisions of Bank Indonesia, which
classifies the non-productive assets into four categories based on the length the asset is owned by us, with
the amount percentage of allowance for impairment losses as follows:
Category
Percentage of Allowance for Impairment Losses
Current Minimum
1%
Substandard Minimum
15%
Doubtful Minimum
50%
Loss
100%
Interest income and expenses
Prior to January 1, 2010
Prior to January 1, 2010, interest income and expense was recognized on an accrual basis. Interest
income on loans or other earning assets that were classified as non-performing were recognized only to the
extent that the interest was received in cash. Cash receipts from loans that were classified as doubtful or loss
were first applied to the loan principal. The excess of cash receipts over the loan principal was recognized
as interest income in the statement of comprehensive income. Interest receivable on non-performing assets
was recorded in contingent receivables in the commitment and contingency statement in the notes to the
consolidated financial statements.
After January 1, 2010
Interest income and expense for all interest-bearing financial instruments are currently recognized within
“interest income” and “interest expense” in the consolidated statement of income using the effective interest
method. The effective interest method is a method of calculating the amortized cost of a financial asset or a
financial liability and of allocating the interest income or interest expense over the relevant period. The
effective interest rate is the rate that exactly discounts estimated future cash payments or receipts
through the expected life of the financial instrument or, when appropriate, a shorter period, to the net
carrying amount of the financial asset or financial liability.
When calculating the effective interest rate, we estimate future cash flows based on the contractual
terms of the financial instrument; however, we do not consider future credit losses. The calculation includes
all fees, commissions and other fees received between parties to the contract that are an integral part of the
effective interest rate, transaction costs and all other premiums or discounts.
Once a financial asset has been written down as a result of an impairment loss, interest income is
recognized on the unimpaired portion of the asset using the same rate of interest that was used to discount
the future cash flows for the purpose of measuring the impairment loss.
Recent Accounting Pronouncements
There are various new or revised financial reporting standards and interpretations that became effective
from January 1, 2011 or will become effective from January 1, 2012. See Note 64 to our consolidated
financial statements for further details. We are still evaluating the effects of these revised reporting standards
and interpretations. For those pronouncements effective from January 1, 2012, we do not expect the
application of these standards and interpretations, except PSAK 62, to have any material impact on our
consolidated financial statements.
Pronouncements effective from January 1, 2012 include the adoption of PSAK 60 and PSAK 62.
PSAK 60, “Financial Instruments: Disclosures” requires expanded disclosure that enables readers to
evaluate the significance of the Company and its subsidiaries’ financial instruments and the nature and
extent of risks arising from those financial instruments. Adoption of this standard effective January 1, 2012
will result in the inclusion of additional disclosures in the Company’s consolidated financial statements such
as market risk sensitivity analysis, contractual maturity of financial liabilities, credit quality of financial
assets that are neither past due nor impaired and ageing analysis of financial assets that are past due but not
impaired.
PSAK 62 will require Sinarmas MSIG Life to conduct a product classification review to assess
whether an insurance contract contains significant insurance risk, and whether the contract contains
embedded derivatives, deposit components or discretionary participation features. Insurance risk is
significant if, and only if, an insured event could cause an insurer to pay significant additional benefits in
excess of those that would be payable if no insured event occurred, except in circumstances where there is
no commercial substance (i.e., have no discernible effect on the economics of the transaction). If significant
additional benefits would be payable in circumstances where there is commercial substance, the condition
may be met even if the insured event is extremely unlikely or even if the expected present value of
contingent cash flows is a small proportion of the expected present value of the remaining contractual cash
flows.
If a contract is assessed as an insurance contract, funds received from policyholders will be recognized
as premium income, as currently recorded. If the contract does not transfer significant insurance risk, it will
be accounted for as an investment contract under PSAK 55 if it meets the definition of financial instrument,
unless it contains a discretionary participation feature. If the contract is treated as an investment contract,
then the receipt of funds relating to financial assets or financial liabilities will result in the creation of a
liability for the value of the remittance rather than a credit to the statement of income. Investment
management fees collected from the servicing of investment contracts are recognized as revenue over the
period in which the services are performed.
PSAK 62 requires extensive disclosures to allow the users of the financial statements to understand the
measurement bases adopted, the materiality of the reported amounts arising from insurance contracts and the
factors that affect the uncertainty of amount and timing of the cash flows arising from insurance and
reinsurance contracts. This includes information that will assist in the understanding of the amounts arising
from insurance contracts, including assumptions that have a significant effect on measurement of assets,
liabilities, income and expense, the effect of changes in assumptions and reconciliations of changes in
insurance liabilities, reinsurance assets and if any, related deferred acquisition costs. It also requires disclosure
that will assist in the evaluation of the nature and extent of risks arising from insurance contracts, including
information about sensitivity to insurance risk, concentrations of insurance risk and actual claims compared
with previous estimates, as well as information about credit risk, liquidity risk and market risk
that PSAK 60 would require if the insurance contracts were within the scope of PSAK 60.
Adoption of PSAK 62 may result in the recharacterization of some of Sinarmas MSIG Life’s policies
from insurance contracts to investment contracts. This in turn could have a material effect on premium
income recorded in Sinarmas MSIG Life’s financial statements, which would have a significant effect on
SMMA’s consolidated revenues. In addition, PSAK 62 will require inclusion of enhanced disclosure on the
insurance contracts in Sinarmas MSIG Life’s financial statements, as described above. See “Risk Factors—
Risks Relating to Our Overall Business—New Indonesian accounting pronouncements may significantly
affect our financial statements for the year ending December 31, 2012 and future years, and may materially
and adversely affect our reported net profits and shareholders’ equity, among other things”.
As of the date of this document, the timing of the impact of PSAK 60 and PSAK 62 on the Company
remains uncertain as implementation of these standards depend significantly on whether and when the
Ministry of Finance will issue guidance relating to how the standards are to be applied to insurance
companies.
For more detailed information, see Note 33 to Sinarmas MSIG Life’s financial statements as of
September 30, 2011 and 2010 and December 31, 2010 and for the nine month periods ended September 30,
2011 and 2010 and Note 34 to Asuransi Sinar Mas’ consolidated financial statements as of September 30,
2011 and 2010 and December 31, 2010 and for the nine month periods ended September 30, 2011 and 2010.
For other pronouncements effective from January 1, 2012, we do not expect the application of these
standards to have a material impact on our consolidated financial statements.
Principal Income Statement Components — Consolidated Financial Statements of SMMA
Our operating income and expense is derived from the following key business segments:
•
life insurance;
•
non-life insurance;
•
banking;
•
securities;
•
multifinance;
•
sales and investment income from the Company; and
•
income and expenses generated from other non-core businesses.
Operating Income
Our principal sources of operating income include insurance underwriting income, gain from
investments in units of mutual funds, interest income, gain on foreign exchange — net, gain on sale of
short-term investments, unrealized gain on increase in fair value of securities, consumer financing income,
administration fee and commissions, stock brokerage and underwriting income and other operating income.
Insurance Underwriting Income
Insurance underwriting income comprises gross premiums from unit link, endowment and other
insurance products from our life and non-life insurance business, net of reinsurance premiums and change in
unearned premiums.
Interest Income
Our principal interest-earning assets consist of loans, securities and time deposits, and to a lesser
extent, placements with other banks, securities purchased under agreements to resell and mortgage
receivables. Interest income is determined by:
•
the amount of interest-earning assets;
•
the interest rate of such interest-earning assets; and
•
the general level of market interest rates.
Interest income is generated principally from loans extended by our banking subsidiary and securities
and other instruments, including time deposits and bonds held by our banking, life and non-life insurance
and securities businesses, and also includes bond amortization on bonds held to maturity.
Gain from Investments in Units of Mutual Funds
Gain from investments in units of mutual funds comprises the net realized gain or loss on investments
in units of mutual funds and net unrealized gain or loss on the investments in units of mutual funds held
principally by our life and non-life insurance companies, our securities subsidiary, our banking subsidiary
and the Company. Gain from investments in units of mutual funds includes both units held as investments
and units held as segregated assets in respect of unit link products sold by Sinarmas MSIG Life.
Gain on Sale of Short-Term Investments — Net
Gain on sale of short-term investments — net reflects the sale of short-term investments, including
equity shares and bonds principally held by our life and non-life insurance subsidiaries, and, to a lesser
extent, our banking and securities subsidiaries. Gain on sale of short-term investments — net excludes any
gains or losses realized on the sale of units of mutual funds, which is recorded in the line item “Gain on
sale of mutual funds”, but includes gains or losses realized on the sale of securities held as investments and
as segregated assets in respect of unit link products sold by Sinarmas MSIG Life.
Administration Fee and Commissions
Administration fee and commissions comprise primarily fees and commissions generated by our
multifinance and banking subsidiaries.
Consumer Financing Income
Consumer financing income principally relates to consumer loans made by our multifinance
subsidiaries.
Sales
Sales consists of sale of foreign currency by Simas Money Changer and sale of other goods by the
Company, such as office supplies and mobile phone vouchers, which sales are undertaken for tax planning
purposes, and certain other non-core trading and services subsidiaries.
Investment Management Income
Investment management income comprises income generated by Sinarmas Sekuritas and its
subsidiaries in respect of AUM.
Stock Brokerage and Underwriting Income
Stock brokerage and underwriting income consists principally of fee income that Sinarmas Sekuritas
charges customers from its securities trading activities and from underwriting activities that it undertakes.
Unrealized Gain on Increase in Fair Value of Securities
Unrealized gain on increase in fair value of securities reflects the unrealized gain on increases in the
fair value of securities, excluding units of mutual funds, net of unrealized losses, held by our life and nonlife insurance, banking and securities businesses. Unrealized gain on increase in fair value of securities
excludes any unrealized gain attributable to units of mutual funds, which is recorded in the line item “Gain
on sale of mutual funds”, but includes unrealized gain on other securities held as investments and held as
segregated funds for unit link policyholders. Unrealized loss on decrease in fair value of securities, net of
unrealized gains, is recorded as an operating expense item.
Gain on Foreign Exchange — Net
Gain on foreign exchange — net comprises realized and unrealized gross foreign exchange gains net
of realized and unrealized gross foreign exchange losses, primarily in relation to adjustments to monetary
assets and liabilities denominated in foreign currencies on each balance sheet date by the Company and our
subsidiaries. Net loss on foreign exchange is recorded as an operating expense item “Loss on Foreign
Exchange — Net”.
Other Income
We also derive operating income from various other activities such as sales income from the sale of
foreign currencies, factoring income, equity in the net income of associated companies — net, finance lease
income, gain on sale of investment, dividend income, investment income of subsidiaries and others.
Operating Expenses
Our operating expenses comprise principally insurance underwriting expenses, interest expense,
salaries and employee benefits, general and administrative expenses, depreciation and amortization, loss on
foreign exchange — net, cost of goods sold and other operating expenses.
Insurance Underwriting Expenses
Insurance underwriting expenses comprise cash items of gross claims payable under life and non-life
insurance policies issued by our insurance subsidiaries, net of reinsurance claims, net commissions and other
insurance underwriting expenses and non-cash items of change in liability for future policy benefits, changes
in estimated and retention claims and changes in segregated fund contract liabilities — unit link.
Interest Expense
Our principal interest-bearing liabilities consist of time deposits, loans received, savings deposits,
current accounts, deposits and deposits from other banks. Interest expense is principally incurred by our
banking subsidiary through its funding sources, principally customer deposits and accounts, as well as our
multifinance and securities subsidiaries.
Salaries and Employee Benefits
Salaries and employee benefits comprise salaries and other costs and directors’ emoluments.
General and Administrative Expenses
General and administrative expenses comprise principally general expenses such as electricity, water
and telephone expenses, marketing and advertising expenses, rental, office supplies, administration expenses,
professional fees and defined-benefit post employment expense — net.
Unrealized Loss on Decrease in Fair Value of Securities
Unrealized loss on decrease in fair value of securities reflects the unrealized loss on decreases in the
fair value of securities, excluding units of mutual funds, net of realized gains, held by our life and non-life
insurance, banking and securities subsidiaries and joint ventures. For years where there is a net unrealized
gain on increase in fair value of securities, it is recorded as an operating income item, as described above.
Cost of Goods Sold
Cost of goods sold principally relates to the sales of foreign currency by PT Simas Money Changer
and sales of office supplies and mobile phone vouchers by the Company.
Depreciation and Amortization
Depreciation and amortization comprise principally depreciation and amortization expenses relating to
our investment properties, our property and equipment, property under build, operate and transfer agreements
and assets for lease.
Provision for Possible Losses on Earning Assets and Non-Earning Assets
Provision for possible losses on earning assets and non-earning assets comprises allowances for
impairment on losses on productive and non-productive assets of Bank Sinarmas. Prior to January 1, 2010,
minimum levels of loss allowances maintained by the Bank are based on classifications of non-productive
assets and allowances for impairment losses on non-productive assets based on Bank Indonesia regulations.
Beginning January 1, 2011, the Bank no longer applies the Bank Indonesia transitional provisions for
collective impairment of loans and uses an “incurred loss” methodology for collective asset impairments.
See “—Critical Accounting Policies—Bank Sinarmas”.
Loss on Foreign Exchange — Net
Loss on foreign exchange — net comprises realized and unrealized gross foreign exchange losses net of
realized and unrealized gross foreign exchange gains, primarily in relation to adjustments to monetary assets
and liabilities denominated in foreign currencies on each balance sheet date by the Company and our
subsidiaries and joint ventures. Net gain on foreign exchange is recorded as an operating income item “Gain
on foreign exchange — net”.
Other Expenses
We also incur operating expenses in respect of provision for doubtful accounts, investment
management expenses, stock brokerage and underwriting expenses, other financial charges, Mudharabah for
participants and other operating expenses.
Comprehensive Income Attributable to Equity Holders of Parent and Non-controlling Interests
Non-controlling interest represents the non-controlling stockholders’ proportionate share in the net
income and equity of the subsidiaries which are not wholly-owned, which is presented based on the
percentage of ownership of the non-controlling stockholders in the subsidiaries. Total comprehensive income
is attributed to non-controlling interests even if this results in the non-controlling interests having a deficit
balance. For 2008, 2009 and 2010, this principally represented minority interests in Bank Sinarmas. For the
nine months ended September 30, 2011, non-controlling interests also include MSIG’s 50% ownership
interest in Sinarmas MSIG Life.
Consolidated Results of Operations of SMMA
We currently conduct almost all of our operations through our subsidiaries. As a result, substantially all
of our operating revenues, operating costs and net income are attributable to the operations of our
subsidiaries and joint ventures.
The following table provides a breakdown of our principal consolidated income statement components,
including each principal component as a percentage of our total operating income, for the periods indicated.
You should read this table together with our consolidated financial statements, including the notes thereto.
Year Ended December 31,
2008
Rp.
Operating Income:
Insurance underwriting income . .
Interest income. . . . . . . . . .
Gain from investments in units of
mutual funds . . . . . . . . .
Gain on sale of short-term
investments — net . . . . . .
Administration fee and
commissions . . . . . . . . .
Consumer financing income . . .
Sales . . . . . . . . . . . . . .
Investment management income .
Stock brokerage and underwriting
income . . . . . . . . . . . .
Factoring income . . . . . . . . .
Finance lease income . . . . . . .
Equity in net income of the
associated companies — net . .
Shares administration fee . . . . .
Unrealized gain on increase in fair
value of securities . . . . . . .
Gain on sale of investment . . . .
Gain on foreign exchange — net .
Other income . . . . . . . . . .
. 5,964.7
.
625.4
2009
Nine Months Ended September 30,
2010
%
Rp.
74.2
7.8
8,210.7
864.5
73.9
7.8
2010
2011
%
Rp.
US$
%
Rp.
%
(Rp. in billions, US$ in millions, except percentages)
10,648.8 1,206.9
1,052.4
119.3
75.8
7.5
7,397.9
739.2
76.2
7.6
Rp.
US$
11,118.3 1,260.2
1,106.3
125.4
%
76.2
7.6
.
722.0
9.0
1,195.9
10.8
1,247.1
141.3
8.9
951.7
9.8
912.0
103.4
6.3
.
53.2
0.7
51.6
0.5
313.6
35.5
2.2
128.4
1.3
732.6
83.0
5.0
.
.
.
.
100.1
84.1
37.3
34.3
1.2
1.0
0.5
0.4
108.8
120.0
154.5
26.3
1.0
1.1
1.4
0.2
83.4
169.8
47.2
45.3
9.5
19.3
5.4
5.1
0.6
1.2
0.3
0.3
107.2
87.0
20.2
31.7
1.1
0.9
0.2
0.3
169.1
165.1
85.1
51.6
19.2
18.7
9.6
5.8
1.2
1.1
0.6
0.4
.
.
.
91.7
28.9
12.9
1.1
0.4
0.2
31.6
46.0
23.4
0.3
0.4
0.2
60.3
29.3
27.8
6.8
3.3
3.2
0.4
0.2
0.2
51.1
12.6
17.5
0.5
0.1
0.2
39.7
34.3
18.5
4.5
3.9
2.1
0.3
0.2
0.1
.
.
—
3.3
—
—
41.9
2.0
0.3
—
28.4
3.2
3.2
0.4
0.2
—
23.1
2.3
0.2
—
5.3
2.0
0.6
0.2
—
—
.
.
.
.
—
—
223.2
54.3
—
—
2.8
0.7
189.9
—
—
49.4
1.7
—
—
0.4
184.9
12.7
—
95.5
21.0
1.4
—
10.8
1.3
0.1
—
0.7
54.2
12.7
—
77.7
0.6
0.1
—
0.9
—
—
—
145.0
—
—
—
16.4
—
—
—
1.0
Total Operating Income. . . . . . . 8,035.4
100.0
11,116.5
100.0
14,049.7 1,592.4
100.0
9,714.5
100.0
14,584.9 1,653.0
100.0
79.4
5.6
2.8
8,758.8
496.7
250.7
78.8
4.5
2.3
11,136.2 1,262.2
537.8
61.0
335.8
38.1
79.3
3.8
2.4
7,823.7
380.1
257.2
80.5
3.9
2.6
11,189.8 1,268.2
636.6
72.1
382.6
43.4
76.7
4.4
2.6
Operating Expenses:
Insurance underwriting expenses .
Interest expense . . . . . . . . .
Salaries and employee benefits . .
General and administrative
expenses . . . . . . . . . . .
Unrealized loss on decrease in fair
value of securities . . . . . . .
Cost of goods sold . . . . . . . .
Depreciation and amortization . .
Provisions for possible losses on
earning and non-earning assets .
Loss on foreign exchange — net .
Provision of doubtful accounts . .
Investment management expenses .
Stock brokerage and underwriting
expenses . . . . . . . . . . .
Other financial charges . . . . . .
Mudharabah for participants . . .
Equity in net loss of the associated
companies — net . . . . . . .
Other expenses . . . . . . . . . .
. 6,381.3
.
450.4
.
221.0
.
239.3
3.0
262.2
2.4
327.1
37.1
2.3
221.9
2.3
297.1
33.7
2.0
.
.
.
175.9
37.1
59.8
2.2
0.5
0.7
—
154.1
72.2
—
1.4
0.6
—
47.2
78.8
—
5.3
8.9
—
0.3
0.6
—
20.3
56.0
—
0.2
0.6
146.5
85.1
81.9
16.6
9.6
9.3
1.0
0.6
0.6
.
.
.
.
10.6
—
10.0
6.8
0.1
—
0.1
0.1
64.5
193.5
8.6
3.7
0.6
1.7
0.1
—
44.9
53.3
16.6
8.2
5.1
6.0
1.9
0.9
0.3
0.4
0.1
0.1
50.3
57.9
10.9
5.2
0.5
0.6
0.1
0.1
20.1
12.6
12.0
11.5
2.3
1.4
1.4
1.3
0.1
0.1
0.1
0.1
.
.
.
37.2
2.0
0.3
0.5
—
—
2.5
1.5
0.3
—
—
—
10.7
3.5
0.2
1.2
0.4
—
0.1
—
—
7.2
0.7
(0.2)
0.1
—
—
2.6
0.7
—
0.3
0.1
—
—
—
—
.
.
5.7
48.8
0.1
0.6
—
67.6
—
0.6
—
81.8
—
9.3
—
0.6
—
57.6
—
0.6
—
98.8
—
11.2
—
0.7
Total Operating Expenses . . . . . . 7,686.2
95.7
10,336.9
93.0
12,682.1 1,437.3
90.3
8,948.8
92.1
12,977.9 1,470.9
89.0
4.3
779.6
7.0
9.7
765.7
7.9
Income Before Tax . . . . . . . .
349.2
1,367.6
155.0
1,607.0
182.1
11.0
Year Ended December 31,
2008
2009
Nine Months Ended September 30,
2010
2010
2011
Rp.
%
Rp.
Tax Expense (Benefit):
Current . . . . . . . . . . . . . .
Deferred . . . . . . . . . . . . . .
34.6
23.7
0.4
0.3
48.1
(2.2)
0.4
—
68.0
21.8
7.7
2.5
0.5
0.2
47.2
18.3
0.5
0.2
83.0
6.8
9.4
0.7
0.6
—
Total. . . . . . . . . . . . . . . .
58.3
0.7
45.9
0.4
89.8
10.2
0.7
65.5
0.7
89.8
10.1
0.6
Net Income . . . . . . . . . . . .
290.9
3.6
733.7
6.6
1,277.8
144.8
9.0
700.2
7.2
1,517.2
172.0
10.4
(81.4)
—
47.2
—
135.7
15.4
—
6.0
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(2.7)
(0.3)
—
(2.7)
—
—
—
—
—
—
1.0
—
(0.6)
(0.1)
—
(0.6)
—
38.5
4.4
—
(215.2)
(24.4)
—
Other Comprehensive Income
(Expense):
Unrealized gain (loss) on change in
fair value of available for sale
securities of subsidiaries . . . . .
Translation adjustment of a
subsidiary . . . . . . . . . . . .
Realized loss on dilution of
ownership interest in
subsidiaries . . . . . . . . . . .
Gain (loss) on change in ownership
interest in subsidiaries and
associates . . . . . . . . . . . .
%
Rp.
US$
%
Rp.
%
(Rp. in billions, US$ in millions, except percentages)
Rp.
(253.7)
US$
%
(28.8)
—
Total Comprehensive Income
(Loss) . . . . . . . . . . . . .
(81.4)
—
48.2
—
132.4
15.0
—
2.7
—
Total Comprehensive Income . . .
209.5
—
781.9
—
1,410.2
159.8
—
702.9
—
1,302.0
147.6
—
Income attributable to:
Equity holders of the Parent
Company . . . . . . . . . . . .
Non-controlling interests . . . . . .
263.6
27.3
—
—
700.1
33.6
—
—
1,277.8
—
144.8
—
—
—
700.2
(0.0)
—
—
1,382.5
134.7
156.7
15.3
—
—
290.9
—
733.7
—
1,277.8
144.8
—
700.2
—
1,517.2
172.0
—
Comprehensive income attributable to:
Equity holders of the Parent
Company . . . . . . . . . . . . 182.6
Non-controlling interests . . . . . .
26.9
—
—
747.8
34.1
—
—
1,445.2
(35.0)
163.8
(4.0)
—
—
702.9
(0.0)
—
—
3,963.7 449.2
(2,661.7) (301.6)
—
—
209.5
—
781.9
—
1,410.2
159.8
—
702.9
—
1,302.0
147.6
—
Operating Income
Insurance Underwriting Income
The following table sets forth our insurance underwriting income for the periods indicated.
Nine Months Ended
September 30,
Year Ended December 31,
2008
2009
Rp.
Rp.
. . . . . . . .
. . . . . . . .
elimination .
. . . . . . . .
5,107.4
17.4
5,124.8
3,229.3
7,109.6
22.6
7,132.2
2,872.7
9,289.6
24.6
9,314.2
3,258.9
1,052.9
2.8
1,055.7
369.4
Total gross premiums . . . . . . . . . .
8,354.1
10,004.9
12,573.1
1,425.1
Gross premiums:
Total life insurance . . . .
Elimination . . . . . . . . .
Total life insurance after
Non-life insurance . . . . .
2010
2010
2010
2011
2011
Rp.
US$
6,392.0
21.4
6,413.4
2,445.0
9,805.9
6.6
9,812.5
2,988.2
1,111.4
0.8
1,112.2
338.7
8,858.4
12,800.7
1,450.9
Rp.
US$
Rp.
(Rp. in billions, US$ in millions)
Reinsurance premiums:
Life insurance . . . . . . . . . . . . . . . .
Non-life insurance . . . . . . . . . . . . .
(7.6)
(2,297.8)
(8.0)
1,762.5
(6.2)
(1,798.7)
(0.7)
(203.8)
(6.0)
(1,383.2)
(5.8)
(1,541.9)
(0.6)
(174.8)
Total reinsurance premiums . . . . . .
(2,305.4)
(1,770.5)
(1,804.9)
(204.5)
(1,389.2)
(1,547.7)
(175.4)
Nine Months Ended
September 30,
Year Ended December 31,
2008
2009
Rp.
Rp.
2010
2010
2010
Rp.
US$
Rp.
(Rp. in billions, US$ in millions)
2011
2011
Rp.
US$
Increase on unearned premiums:
Life insurance . . . . . . . . . . . . . . .
Non-life insurance . . . . . . . . . . . . .
24.0
(108.1)
14.3
(38.0)
(0.4)
(119.0)
(0.0)
(13.5)
(1.9)
(69.4)
1.3
(136.0)
0.1
(15.4)
Total increase on unearned
premiums . . . . . . . . . . . . . . .
(84.1)
(23.7)
(119.4)
(13.5)
(71.3)
(134.7)
(15.3)
Total insurance underwriting income . .
5,964.7
8,210.7
10,648.8
1,206.9
7,397.9
11,118.3
1,260.2
Nine Months Ended September 30, 2011 Compared to Nine Months Ended September 30, 2010. Our
total insurance underwriting income increased 50.3% to Rp.11,118.3 billion (US$1,260.2 million) in the nine
months ended September 30, 2011 from Rp.7,397.9 billion in the nine months ended September 30, 2010,
principally as a result of an increase in life and non-life gross premiums. Gross premiums increased 44.5%
to Rp.12,800.7 billion (US$1,450.9 million) in the nine months ended September 30, 2011 from Rp.8,858.4
billion in the nine months ended September 30, 2010, principally as a result of continued growth in gross
premium income generated by our life insurance business, and to a lesser extent, our non-life insurance
business. Growth in gross premium income generated by our life insurance business was due in significant
part to the increase in gross premium income from endowment policies attributable principally to a shift by
existing unit link policyholders from their existing unit link policies to new endowment policies. For more
details on the change in premium income of our life and non-life insurance businesses, see “—Results of
Operations of Sinarmas MSIG Life—Revenues—Premium Income” and “—Results of Operations of
Asuransi Sinar Mas—Underwriting Income”, respectively.
2010 Compared to 2009. Our total insurance underwriting income increased 29.7% to Rp.10,648.8
billion (US$1,206.9 million) in 2010 from Rp.8,210.7 billion in 2009, principally as a result of an increase
in gross premiums, which were partially offset by an increase in unearned premiums. Gross premiums
increased 25.7% to Rp.12,573.1 billion (US$1,425.0 million) in 2010 from Rp.10,004.9 billion in 2009,
principally as a result of increases in gross premium income for our life insurance business and, to a lesser
extent, an increase in gross premium income for our non-life insurance business. Growth in gross premium
income generated by our life insurance business was due in significant part to the increase in gross premium
income from endowment policies attributable principally to a shift by existing unit link policyholders from
their existing unit link policies to new endowment policies. For more details on the change in premium
income of our life and non-life insurance businesses, see “—Results of Operations of Sinarmas MSIG Life—
Revenues—Premium Income” and “—Results of Operations of Asuransi Sinar Mas—Underwriting Income”,
respectively.
2009 Compared to 2008. Our total insurance underwriting income increased 37.7% to Rp.8,210.7
billion in 2009 from Rp.5,964.7 billion in 2008, principally as a result of an increase in gross premiums, a
decrease in reinsurance premiums and a decrease in unearned premiums. Gross premiums increased 19.8%
to Rp.10,004.9 billion in 2009 from Rp.8,354.1 billion in 2008, principally as a result of increases in gross
premium income generated by our life insurance business. For more details on the change in premium
income of our life and non-life insurance businesses, see “—Results of Operations of Sinarmas MSIG
Life—Revenues—Premium Income” and “—Results of Operations of Asuransi Sinar Mas—Underwriting
Income”, respectively.
Interest Income
The following table shows interest income for the Company and key subsidiaries and joint ventures for
the periods indicated.
Nine Months Ended
September 30,
Year Ended December 31,
2008
2009
Rp.
Rp.
.
.
.
.
.
43.4
19.0
9.1
554.9
0.4
125.6
17.6
8.8
731.2
0.7
128.9
21.0
8.6
907.5
0.8
14.6
2.4
1.0
102.9
0.1
Total Before Elimination . . . . . . .
626.8
883.9
1,066.8
121.0
Sinarmas MSIG Life .
Asuransi Sinar Mas .
Sinarmas Sekuritas . .
Bank Sinarmas . . . .
Others. . . . . . . . . .
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
Elimination . . . . . . . . . . . . . .
Total Interest Income . . . . . . . . .
(1.4)
625.4
(19.4)
864.5
2010
2010
2010
2011
2011
Rp.
US$
85.2
13.8
5.6
644.6
0.3
184.2
29.8
6.2
902.8
0.1
20.9
3.4
0.7
102.3
—
749.5
1,123.1
127.3
Rp.
US$
Rp.
(Rp. in billions, US$ in millions)
(14.4)
1,052.4
(1.6)
119.4
(10.3)
739.2
(16.8)
1,106.3
(1.9)
125.4
For a more detailed discussion on changes on interest income attributable to Bank Sinarmas, Sinarmas
MSIG Life and Asuransi Sinar Mas, see their respective results of operations discussion below.
The following table sets forth our interest income by asset type for the periods indicated.
Nine Months Ended
September 30,
Year Ended December 31,
2008
2009
2010
2010
Rp.
Rp.
Loans . . . . . . . . . . . . . . . . . . . . .
Securities. . . . . . . . . . . . . . . . . . .
Time deposits . . . . . . . . . . . . . . . .
Placement with other banks . . . . . . .
Securities purchased under agreements
to sell . . . . . . . . . . . . . . . . . . .
Mortgaged receivables. . . . . . . . . . .
Others. . . . . . . . . . . . . . . . . . . . .
453.1
100.0
50.5
10.7
599.3
190.0
61.4
7.5
784.2
192.2
64.5
4.8
88.8
21.8
7.3
0.6
4.9
2.7
3.5
1.3
2.8
2.2
2.2
2.6
1.9
Total interest income . . . . . . . . . . .
625.4
864.5
1,052.4
2010
2011
2011
Rp.
US$
555.1
136.1
40.8
3.7
748.4
179.0
164.5
8.9
84.9
20.3
18.6
1.0
0.3
0.3
0.2
1.2
1.9
0.4
3.5
1.6
0.4
0.4
0.2
—
119.3
739.2
1,106.3
125.4
Rp.
US$
Rp.
(Rp. in billions, US$ in millions)
Nine Months Ended September 30, 2011 Compared to Nine Months Ended September 30, 2010. Our
total interest income increased 49.7% to Rp.1,106.3 billion (US$125.4 million) in the nine months ended
September 30, 2011 from Rp.739.2 billion in the nine months ended September 30, 2010, principally as a
result of an increase in interest income earned by Bank Sinarmas, and to a lesser extent, interest income
earned by Sinarmas MSIG Life. Interest income attributable to Bank Sinarmas accounted for 67.6%, or
Rp.748.4 billion (US$84.9 million) of the interest income in the nine months ended September 30, 2011,
compared to 75.1%, or Rp.555.1 billion in the nine months ended September 30, 2010. Sinarmas MSIG Life
was the second largest contributor to interest income, accounting for 16.7%, or Rp.184.2 billion (US$20.9
million) in the nine months ended September 30, 2011, compared to 11.5%, or Rp.85.2 billion in the nine
months ended September 30, 2010.
By type of asset, the growth in interest income was mainly attributable to an increase in interest
income from loans, and, to a lesser extent, securities, time deposits and placements with banks.
Interest income from loans increased 34.8% to Rp.748.4 billion (US$84.9 million) in the nine months
ended September 30, 2011 from Rp.555.1 billion in the nine months ended September 30, 2010, principally
as a result of an increase in the average volume of total loans outstanding which grew 36.8% to Rp.7,864.7
billion (US$839.0 million) in the nine months ended September 30, 2011, from Rp.5,749.3 billion in the
nine months ended September 30, 2010. This growth was primarily attributable to an increase in the average
volume of Rupiah-denominated loans made by Bank Sinarmas, which rose 47.7% to Rp.9,163.7 billion
(US$1,038.6 million) in the nine months ended September 30, 2011 from Rp.6,204.5 billion in the nine
months ended September 30, 2010, while average interest rates on Bank Sinarmas’ Rupiah loans remained
relatively flat.
Interest income from securities increased 31.5% to Rp.179.0 billion (US$20.3 million) in the nine
months ended September 30, 2011 from Rp.136.1 billion in the nine months ended September 30, 2010,
principally as a result of an increase in interest income earned by Sinarmas MSIG Life on securities held as
investments, mainly reflecting an increase in the volume of fixed income securities held in its investment
portfolio in line with the growth in premium income, and to a lesser extent, interest income from Asuransi
Sinar Mas and Sinarmas Sekuritas on their securities held as investments.
Interest income from time deposits increased 303.2% to Rp.164.5 billion (US$18.6 million) in the nine
months ended September 30, 2011 from Rp.40.8 billion in the nine months ended September 30, 2010,
principally as a result of an increase in the amount of time deposits held by Sinarmas MSIG Life, pending
use of funds contributed by MSIG as a result of its investment in Sinarmas MSIG Life. Interest income from
other assets, including placements with banks, securities under repurchase agreements and mortgage
receivables, also increased slightly.
2010 Compared to 2009. Our total interest income increased 21.7% to Rp.1,052.4 billion (US$119.3
million) in 2010 from Rp.864.5 billion in 2009, largely due to an increase in interest income earned by Bank
Sinarmas, and to a lesser extent, interest income earned by Sinarmas MSIG Life, Asuransi Sinar Mas and
Sinarmas Sekuritas. Interest income attributable to Bank Sinarmas accounted for 24.1%, or Rp.907.5 billion
(US$100.9 million) of the interest income in 2010, compared to 31.8%, or Rp.731.2 billion in 2009.
Sinarmas MSIG Life was the second largest contributor to interest income, accounting for 12.2%, or
Rp.128.9 billion (US$14.6 million) in 2010, compared to 14.5% or Rp.125.6 billion in 2009.
By type of asset, the growth in interest income was primarily due to an increase in interest income
from loans and to a lesser extent, time deposits, partially offset by a decrease in interest income from
placements with banks and securities under repurchase agreements. Interest income from securities remained
flat.
Interest income from loans increased 30.9% to Rp.784.2 billion (US$88.8 million) in 2010 from
Rp.599.3 billion in 2009, principally as a result of a 34.1% increase in total average Rupiah-denominated
loans outstanding, made by Bank Sinarmas, which increased to Rp.6,214.7 billion (US$704.4 million) in
2010 from Rp.4,635.4 billion in 2009 even as the average interest rate on Rupiah-denominated loans
declined over the same period to 14.3% from 15.9%, respectively.
Interest income from securities remained relatively constant at Rp.192.2 billion (US$21.8 million) in
2010 compared to Rp.190.0 billion in 2009. The value of securities increased to Rp.7,304.7 billion
(US$827.9 million) as of December 31, 2010 from Rp.6,086.3 billion as of December 31, 2009, but this was
offset by lower interest rates earned on the securities portfolios in 2010 as a result of market conditions.
Interest income earned on securities was principally generated by Sinarmas MSIG Life on its securities held
as short-term investments, and to a lesser extent, interest income generated from the securities held by
Asuransi Sinar Mas and Sinarmas Sekuritas.
Interest income from time deposits increased 5.0% to Rp.64.5 billion (US$7.3 million) in 2010 from
Rp.61.4 billion in 2009, principally as a result of higher interest income earned on time deposits held by
Sinarmas MSIG Life and Asuransi Sinar Mas, reflecting growth in the amount of time deposits held in their
investment portfolios, partially offset by lower interest rates earned due to market conditions. Interest
income from other assets, including placements with banks, securities under repurchase agreements and
mortgage receivables, decreased slightly as a result of a shift in asset allocation to higher interest-earning
assets, such as securities and loans.
2009 Compared to 2008. Our total interest income increased 38.2% to Rp.864.5 billion in 2009 from
Rp.625.4 billion in 2008 mainly due to an increase in interest income earned by Bank Sinarmas, and to a
lesser extent, interest income earned by Sinarmas MSIG Life. Interest income attributable to Bank Sinarmas
accounted for 31.8%, or Rp.731.2 billion in 2009, compared to 65.6%, or Rp.554.9 billion in 2008.
Sinarmas MSIG Life was the second largest contributor to interest income, accounting for 14.5%, or
Rp.125.6 billion in 2009, compared to 6.9%, or Rp.43.4 billion in 2008.
By type of asset, the growth in interest income was principally as a result of an increase in interest
income from loans, securities and time deposits, partially offset by a decrease in interest income from
placements with other banks.
Interest income from loans increased 32.3% to Rp.599.3 billion in 2009 from Rp.453.1 billion in 2008,
principally as a result of an increase in both average Rupiah-denominated loans and U.S. dollar-denominated
loans made by Bank Sinarmas, to Rp.4,635.4 billion in 2009 from Rp.3,967.7 billion in 2008, as well as
higher average rates of interest earned on Rupiah-denominated loans and U.S. dollar-denominated loans in
2009.
Interest income from securities increased 90.0% to Rp.190.0 billion in 2009 from Rp.100.0 billion in
2008 largely due to an increase in interest income earned by Sinarmas MSIG Life on securities held as
investments, reflecting an increase in the volume of securities held in its investment portfolio, and to a lesser
extent, interest income earned on securities held by Asuransi Sinar Mas and Sinarmas Sekuritas. Interest
rates on securities increased in 2009, as compared to 2008, which was partially offset by a small decrease in
the value of securities held to Rp.6,086.3 billion as of December 31, 2009 from Rp.6,721.6 billion as of
December 31, 2008.
Interest income from time deposits increased 21.6% to Rp.61.4 billion in 2009 from Rp.50.5 billion in
2008, principally as a result of higher interest income earned on time deposits held by Sinarmas MSIG Life
and Asuransi Sinar Mas. Interest income from other assets, including placements with banks, securities under
repurchase agreements and mortgage receivables, decreased slightly mainly as a result of lower interest rates
earned on such assets.
Gain from Investments in Units of Mutual Funds
Gains from investments in unit of mutual funds comprise both net realized gain or loss on investments
in unit of mutual funds and net unrealized gain or loss on investment in mutual funds. The following table
sets forth the breakdown of net realized gain (loss) and net unrealized gain (loss) for the Company and its
subsidiaries for the periods indicated.
For the Nine Months Ended September 30,
2010
2011
Net
Net
realized unrealized
gain (loss) gain (loss)
Rp.
SMMA . . . . . . . . . . . . . . . . .
Sinarmas MSIG Life: . . . . . . . .
Investments . . . . . . . . . . . . .
Segregated Funds Of Unit Link .
Segregated Funds of Sharia . . .
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
(4.5)
132.2
212.5
0.6
Total . . . . . . . . . . . . . . . . . . . . . .
Rp.
Net realized
gain (loss)
Net unrealized
gain (loss)
Rp.
US$
Rp.
(Rp. in billions, US$ in millions)
5.9
US$
(22.7)
(2.6)
37.3
4.2
86.4
353.0
2.4
100.6
488.5
0.5
11.4
55.4
0.1
108.8
67.0
(1.2)
12.3
7.6
(0.1)
345.3
441.8
589.6
66.9
174.6
19.8
Asuransi Sinar Mas . . . . . . . . . . . . . . .
Sinarmas Sekuritas . . . . . . . . . . . . . . .
58.6
—
77.0
26.5
2.5
(0.2)
109.7
0.9
12.4
0.1
Total . . . . . . . . . . . . . . . . . . . . . . . .
399.4
551.2
66.6
322.5
36.5
22.0
(1.4)
587.5
For the Year Ended December 31,
2008
2009
Net
Net
realized unrealized
gain
gain
(loss)
(loss)
Net
Net
realized unrealized
gain
gain
(loss)
(loss)
Rp.
SMMA . . . . . . . . . . .
Sinarmas MSIG Life:
Investments . . . . . .
Segregated Funds Of
Unit Link . . . . . .
Segregated Funds of
Sharia . . . . . . . .
. .
. .
(7.6)
464.2
Rp.
8.5
278.5
2010
Net realized
gain (loss)
Net unrealized
gain (loss)
Rp.
Rp.
Rp.
US$
(Rp. in billions, US$ in millions)
Rp.
(12.6)
1,098.3
US$
16.0
(16.4)
(1.9)
18.2
2.1
(385.9)
216.6
24.6
64.9
7.4
. .
(7.3)
(65.9)
84.4
225.9
222.4
25.2
519.6
58.9
. .
(0.1)
(2.4)
0.1
3.3
1.2
0.1
2.8
0.3
(156.7)
440.2
49.9
587.3
66.6
15.9
11.3
131.1
—
14.9
—
51.6
33.7
5.9
3.8
(113.5)
554.9
62.9
690.8
78.4
Total . . . . . . . . . . . . .
456.8
210.2
Asuransi Sinar Mas . . . . .
Sinarmas Sekuritas . . . . .
60.5
9.8
0.4
(17.6)
Total . . . . . . . . . . . . . .
519.5
201.5
1,182.8
128.5
9.4
1,308.1
For more details on the realized and unrealized investment gains and losses attributable to our
insurance businesses, see “—Results of Operations of Sinarmas MSIG Life—Revenues—Investment
Income” and “—Results of Operations of Asuransi Sinar Mas—Investment Income”.
Nine Months Ended September 30, 2011 Compared to Nine Months Ended September 30, 2010. Our
gain from investments in units of mutual funds decreased 4.2% to Rp.912.0 billion (US$103.4 million) in
the nine months ended September 30, 2011 from Rp.951.7 billion in the nine months ended September 30,
2010, principally as a result of lower net investment gains on mutual funds held by Sinarmas MSIG Life
and Asuransi Sinar Mas, as well as a loss of Rp.0.5 billion on investments in units of mutual funds held by
Sinarmas Sekuritas and its subsidiary, compared to a gain on units of mutual funds held by Sinarmas
Sekuritas and its subsidiary of Rp.26.5 billion in the nine months ended September 30, 2010. This was
partially offset by an increase in gain on units of mutual funds held by the Company, which increased to
Rp.13.2 billion (US$1.5 million) in the nine months ended September 30, 2011 from Rp.1.4 billion in the
nine months ended September 30, 2010.
Gains from investments in units of mutual funds held by Sinarmas MSIG Life accounted for 83.8%, or
Rp.764.2 billion (US$86.6 million) of the gain in the nine months ended September 30, 2011, compared to
82.7%, or Rp.787.1 billion in the nine months ended September 30, 2010. Slightly lower net gain from
investments in units of mutual funds held by Sinarmas MSIG Life was mainly attributable to lower
unrealized gains on units in mutual funds, which decreased 60.5% to Rp.174.6 billion (US$19.8 million),
partially offset by higher realized gains on units of mutual funds held in segregated funds of unit link in the
nine months ended September 30, 2011.
Sinarmas MSIG Life recorded lower unrealized gains on segregated funds of unit link as a result of a
reversal of unrealized gains booked in respect of units of mutual funds held as segregated funds gains,
partially offset by a corresponding increase in realized gains on units of mutual funds, which rose 70.7% to
Rp.589.6 billion (US$66.9 million) and improved realized returns on investments held in segregated funds of
unit link in the nine months ended September 30, 2011, from Rp.345.3 billion in the nine months ended
September 30, 2010. This was consistent with an increase in policy surrenders from unit link policies to
endowment policies. See “—Principal Income Statement Components of Sinarmas MSIG Life—Revenues—
Investment Income” and “—Results of Operations of Sinarmas MSIG Life—Revenues
—Investment Income—Nine Months Ended September 30, 2011 Compared to Nine Months Ended
September 30, 2010—Investment income”. As of September 30, 2011, Sinarmas MSIG Life’s investments in
units of mutual funds amounted to Rp.6,579.9 billion (US$745.8 million), compared to Rp.1,984.3 billion
(US$224.9 million) as of September 30, 2010.
2010 Compared to 2009. Our gain from investments in units of mutual funds increased 4.3% to
Rp.1,247.1 billion (US$141.3 million) in 2010 from Rp.1,195.9 billion in 2009, principally as a result of an
increase in unrealized gains on mutual funds held by Sinarmas MSIG Life, Asuransi Sinar Mas, and
Sinarmas Sekuritas and its subsidiary, as well as units in mutual funds held by the Company as market
conditions continued to improve. Our consolidated investment levels in units of mutual funds decreased to
Rp.3,128.0 billion (US$354.5 million) in 2010 from Rp.3,486.3 billion in 2009.
Gains from investments in units of mutual funds in 2010 was principally attributable to Sinarmas
MSIG Life, which accounted for 82.4%, or Rp.1,027.5 billion (US$116.5 million) of the gain in 2010,
compared to 85.8%, or Rp.1,026.1 billion in 2009. Net realized gains decreased significantly to Rp.440.2
billion (US$49.9 million) in 2010 from Rp.1,182.9 billion in 2009, principally due to a decrease in realized
gains on units of mutual funds held as investments, reflecting the reduced investment portfolio as a result of
a shift from endowment policies to unit link policies, described above under “—Insurance Underwriting
Income”. This was partially offset by higher realized and unrealized net gains on segregated funds of unit
link, which was attributable to the increase in segregated assets attributable to unit link policies in 2010 and
improved economic conditions resulting in a significant increase in unrealized investment returns. As of
December 31, 2010, Sinarmas MSIG Life’s investments in units of mutual funds amounted to Rp.1,683.0
billion (US$190.8 million), compared to Rp.2,216.8 billion as of December 31, 2009.
2009 Compared to 2008. Our gain from investments in units of mutual funds increased 65.6% to
Rp.1,195.9 billion in 2009 from Rp.722.0 billion in 2008, principally as a result of gains on mutual fund
investments held by Sinarmas MSIG Life, Asuransi Sinar Mas, and Sinarmas Sekuritas and its subsidiary, as
well as units in mutual funds held by the Company, as markets began to recover in the second half of 2009.
Our consolidated investment levels in units of mutual funds decreased 55.2% to Rp.1,925 billion as of
December 31, 2009 from Rp.3,486.3 billion as of December 31, 2008.
Gains from investments in units of mutual funds was principally attributable to Sinarmas MSIG Life,
which accounted for 85.8%, or Rp.1,026.1 billion of the gain in 2009, compared to 92.4%, or Rp.667.0
billion in 2008. Net realized gains increased significantly in 2009, to Rp.1,182.9 billion in 2009 from
Rp.456.8 billion in 2008 principally as a result of an increase in realized gains on investments held by
Sinarmas MSIG Life as it shifted its product focus from endowment to unit link policies, as well as an
increase in investments in segregated funds of unit link. Sinarmas MSIG Life recorded a net unrealized loss
on units of mutual funds in 2009 compared to a gain of Rp.210.2 billion in 2008, mainly as a result of net
unrealized losses on its units of mutual funds held as investments in 2009 due to adverse market conditions.
As of December 31, 2009, Sinarmas MSIG Life’s investments in units of mutual funds amounted to
Rp.2,216.8 billion as of December 31, 2009, compared to Rp.4,573.3 billion as of December 31, 2008.
Gain on Sale of Short-Term Investments — Net
The following table sets forth the breakdown of gain on sale of short-term investments — net for the
Company and its subsidiaries for the periods indicated.
For the Year Ended December 31,
2008
2009
Rp.
Rp.
. . .
—
—
—
—
—
—
—
. . .
. . .
. . .
30.6
2.9
—
20.9
0.1
—
191.2
3.1
0.1
21.7
0.3
—
42.9
3.0
0.1
451.4
—
—
51.2
—
—
Total . . . . . . . . . . . . . . . . . . . .
33.5
21.1
194.4
22.0
46.0
451.4
51.2
Asuransi Sinar Mas . . . . . . . . . . . .
Bank Sinarmas . . . . . . . . . . . . . . .
Sinarmas Sekuritas . . . . . . . . . . . . .
(23.5)
0.2
43.0
(38.9)
0.5
68.9
58.1
9.9
51.2
6.6
1.1
5.8
38.3
0.5
43.6
137.1
2.7
141.4
15.5
0.3
16.0
Total . . . . . . . . . . . . . . . . . . . . .
53.2
51.6
313.6
35.5
128.4
732.6
83.0
SMMA . . . . . . . . . . . . . . . . .
Sinarmas MSIG Life:
Investments . . . . . . . . . . . . .
Segregated Funds Of Unit Link
Segregated Funds of Sharia . . .
2010
For the Nine Months Ended
September 30,
2010
Rp.
US$
Rp.
(Rp. in billions, US$ in millions)
2011
Rp.
US$
Nine Months Ended September 30, 2011 Compared to Nine Months Ended September 30, 2010. Our
gain on sale of short-term investments — net increased 470.6% to Rp.732.6 billion (US$83.0 million) in the
nine months ended September 30, 2011 from Rp.128.4 billion in the nine months ended September 30, 2010,
principally as a result of higher realized gains on the sale of short-term investments held by Sinarmas MSIG
Life and Sinarmas Sekuritas, and, to a lesser extent, gains realized on the sale of investments held by Bank
Sinarmas and Asuransi Sinar Mas. Sinarmas MSIG Life realized a gain on the sale of short-term investments
of Rp.451.4 billion (US$51.2 million) in the nine months ended September 30, 2011, compared to Rp.46.0
billion in the nine months ended September 30, 2010, as it sold investments in order to make a distribution
to SMMA prior to the effective date of the MSIG’s share subscription. Sinarmas Sekuritas also realized a
gain on the sale of short-term investments of Rp.141.4 billion (US$16.0 million) in the nine months ended
September 30, 2011, compared to Rp.43.6 billion in the nine months ended September 30, 2010, mainly
reflecting improved proprietary trading results.
2010 Compared to 2009. Our gain on sale of short-term investments — net increased 507.8% to
Rp.313.6 billion (US$35.5 million) in 2010 from Rp.51.6 billion in 2009, principally as a result of higher
realized gains on the sale of short-term investments held by Sinarmas MSIG Life and Asuransi Sinar Mas,
and, to a lesser extent, higher gains realized on the sale of investments held by Bank Sinarmas as a result of
improved market conditions in 2010, partially offset by lower gains generated by Sinarmas Sekuritas.
Sinarmas MSIG Life realized a gain on the sale of short-term investments of Rp.194.4 billion (US$22.0
million) in 2010, compared to a gain of Rp.21.1 billion in 2009. This was largely attributable to the sale of
investments in order to reallocate the proceeds to RDPT funds, which have a more favorable tax treatment.
Asuransi Sinarmas realized a gain of Rp.58.1 billion (US$6.6 million) in 2010, compared to a loss of Rp.38.9
billion in 2009. However, Sinarmas Sekuritas realized a lower gain on the sale of short-term investments of
Rp.51.2 billion (US$5.8 million) in 2010, compared to Rp.68.9 billion in 2009, as a result of its proprietary
trading activities.
2009 Compared to 2008. Our gain on sale of short-term investments — net decreased 3.1% to Rp.51.6
billion in 2009 from Rp.53.2 billion in 2008, principally as a result of the effects of the global financial crisis
and the impact on debt and equity markets on the investment portfolios of Sinarmas MSIG Life and Asuransi
Sinar Mas, as well as Sinarmas Sekuritas. This decrease reflected lower gains on the sale of short- term
investments held by Sinarmas MSIG Life, and a loss on the sale of short-term investments held by
Asuransi Sinar Mas. Sinarmas MSIG Life realized a gain on the sale of short-term investments of Rp.21.1
billion in 2009, compared to a gain of Rp.33.5 billion in 2008 and Asuransi Sinar Mas realized a loss on the
sale of short-term investments of Rp.38.9 billion in 2009, compared to a loss of Rp.23.5 billion in 2009, as
a result of continued poor economic conditions in the first half of 2009. This was partially offset by a higher
gain on the sale of short-term investments realized by Sinarmas Sekuritas, which increased to Rp.68.9 billion
in 2009 from Rp.43.0 billion in 2008 as a result of its proprietary trading activities.
Administrative Fees and Commissions
Nine Months Ended September 30, 2011 Compared to Nine Months Ended September 30, 2010.
Administrative fees and commissions increased 57.7% to Rp.169.1 billion (US$19.2 million) in the nine
months ended September 30, 2011 from Rp.107.2 billion in the nine months ended September 30, 2010,
principally as a result of an increase in administrative fees and commissions earned by Sinar Mas
Multifinance and Bank Sinarmas in respect of consumer refinancing loans channeled to banks, which
continued to experience growth as a result of the expansion of the distribution network of Sinar Mas
Multifinance.
2010 Compared to 2009. Administrative fees and commissions decreased 23.3% to Rp.83.4 billion
(US$9.5 million) in 2010 from Rp.108.8 billion in 2009, principally as a result of a decrease in
administrative fees and commissions earned by Bank Sinarmas due to a decrease in fees earned primarily as
a result of providing free banking services as part of a marketing campaign for new offices, partially offset
by an increase in administrative fees and commissions earned by Sinar Mas Multifinance in line with the
continued growth of its consumer refinancing loans channeled to banks, on which Sinar Mas Multifinance
earns a fee.
2009 Compared to 2008. Administrative fees and commissions increased 8.7% to Rp.108.8 billion in
2009 from Rp.100.1 billion in 2008, principally as a result of an increase in administrative fees and
commissions earned by Bank Sinarmas, mainly due to an increase in fees earned as a result of more credit
facilities extended by Bank Sinarmas in 2009 and commissions from bancassurance products, and to a lesser
extent, an increase in administrative fees and commissions earned by Sinar Mas Multifinance or consumer
refinancing loans channeled to banks, on which Sinar Mas Multifinance earns a fee.
Consumer Financing Income
Nine Months Ended September 30, 2011 Compared to Nine Months Ended September 30, 2010.
Consumer financing income increased 89.8% to Rp.165.1 billion (US$18.7 million) in the nine months
ended September 30, 2011 from Rp.87.0 billion in the nine months ended September 30, 2010, as a result of
an increase in financing income generated by Sinar Mas Multifinance through an increase in financing loans
for the purchase of used vehicles it originated and made direct to customers, partially offset by a slight
decrease in interest rates. The continued growth in its consumer finance business is largely attributable to the
expansion of its distribution network.
2010 Compared to 2009. Consumer financing income increased 41.5% to Rp.169.8 billion (US$19.2
million) in 2010 from Rp.120.0 billion in 2009, principally as a result of an increase in financing income
generated by Sinar Mas Multifinance, reflecting growth in its consumer finance business primarily driven by
its entry into the motorcycle financing business. Sinar Mas Multifinance increased the amount of vehicle
financing loans extended to customers through its rapidly growing distribution network.
2009 Compared to 2008. Consumer financing income increased 42.7% to Rp.120.0 billion in 2009
from Rp.84.1 billion in 2008, principally as a result of an increase in financing income generated by Sinar
Mas Multifinance, attributable largely to the improvement of the general economy.
Stock Brokerage and Underwriting Income
Nine Months Ended September 30, 2011 Compared to Nine Months Ended September 30, 2010. Our
stock brokerage and underwriting income decreased 22.3% to Rp.39.7 billion (US$4.5 million) in the nine
months ended September 30, 2011 from Rp.51.1 billion in the nine months ended September 30, 2010,
principally as a result of increased underwriting income generated by Sinarmas Sekuritas.
2010 Compared to 2009. Our stock brokerage and underwriting income increased 91.4% to Rp.60.3
billion (US$6.8 million) in 2010 from Rp.31.6 billion in 2009, principally as a result of an increase in
brokerage fees and underwriting fees and commissions generated by Sinarmas Sekuritas and its subsidiary,
as market conditions improved in 2010.
2009 Compared to 2008. Our stock brokerage and underwriting income decreased 65.6% to Rp.31.6
billion in 2009 from Rp.91.7 billion in 2008, reflecting lower fees and commissions earned by Sinarmas
Sekuritas and its subsidiary as a result of reduced market activity during the financial crisis.
Unrealized Gain (Loss) on Increase (Decrease) in Fair Value of Securities
The following table sets forth the breakdown of unrealized gain on increase in fair value of securities
for the Company and its subsidiaries for the periods indicated.
For the Year Ended December 31,
SMMA . . . . . . . . . . . . . . . . .
Sinarmas MSIG Life:
Investments . . . . . . . . . . . . .
Segregated Funds Of Unit Link
Segregated Funds of Sharia . . .
. . .
2008
2009
Rp.
Rp.
—
2010
For the Nine Months Ended
September 30,
2010
Rp.
US$
Rp.
(Rp. in billions, US$ in millions)
—
—
—
—
2011
Rp.
US$
—
—
. . .
. . .
. . .
(63.4)
(25.2)
—
63.9
19.3
0.3
63.5
17.0
—
7.2
1.9
—
28.1
15.8
—
7.2
(0.9)
(0.1)
0.8
(0.1)
(0.0)
Total . . . . . . . . . . . . . . . . . . . .
(88.6)
83.5
80.5
9.1
43.9
6.2
0.7
Asuransi Sinar Mas . . . . . . . . . . . .
Bank Sinarmas . . . . . . . . . . . . . . .
Sinarmas Sekuritas . . . . . . . . . . . . .
(14.4)
(0.1)
(72.8)
2.5
1.0
102.8
2.1
0.5
101.8
0.2
0.1
11.6
—
0.8
9.5
2.0
1.4
(156.1)
0.2
0.2
(17.7)
Total . . . . . . . . . . . . . . . . . . . . .
(175.9)
189.4
184.9
21.0
54.2
(146.5)
(16.6)
Nine Months Ended September 30, 2011 Compared to Nine Months Ended September 30, 2010. We
recorded an unrealized net loss on decrease in fair value of securities of Rp.146.6 billion (US$16.6 million)
in the nine months ended September 30, 2011, compared with an unrealized net gain on increase in fair
value of securities of Rp.54.2 billion in the nine months ended September 30, 2010. The net loss in the nine
months ended September 30, 2011 was attributable to Asuransi Sinar Mas, partially offset by slightly higher
net unrealized gains on the increase in fair value of securities held by Sinarmas MSIG Life and Bank
Sinarmas. The unrealized net gain on increase in fair value of securities in the nine months ended September
30, 2010 reflected net unrealized gains on the fair value of securities held by Sinarmas MSIG Life, Asuransi
Sinar Mas and Bank Sinarmas as market conditions stabilized and improved.
2010 Compared to 2009. Our net unrealized gain on increase in fair value of securities decreased
slightly to Rp.184.9 billion (US$21.0 million) in 2010 from Rp.189.9 billion in 2009, principally as a result
of market conditions and the performance of investments held by Sinarmas MSIG Life and Asuransi Sinar
Mas.
2009 Compared to 2008. We recorded a net unrealized gain on increase in fair value of securities of
Rp.189.9 billion in 2009, compared with a net unrealized loss on decrease in fair value of securities of
Rp.175.9 billion in 2008. The net unrealized gain on increase in fair value of securities in 2009 was mainly
due to net unrealized gains of Sinarmas Sekuritas and Sinarmas MSIG Life in respect of their investments,
and to a lesser extent, net unrealized gains of Asuransi Sinar Mas and Bank Sinarmas. The net loss in 2008
was principally attributable to Sinarmas MSIG Life and Sinarmas Sekuritas, and to a lesser extent, Asuransi
Sinar Mas and Bank Sinarmas, as a result of a deterioration in market conditions in the latter half of 2008,
which negatively affected the securities held in their investment portfolios.
Gain on Foreign Exchange — Net
Nine Months Ended September 30, 2011 Compared to Nine Months Ended September 30, 2010. We
recorded a loss on foreign exchange — net in the nine months ended September 30, 2011 and 2010. See
“—Operating Expenses—Loss on Foreign Exchange — Net” below for a discussion.
2010 Compared to 2009. We recorded a loss on foreign exchange — net in 2009 and 2010. See
“—Operating Expenses—Loss on Foreign Exchange — Net” below for a discussion.
2009 Compared to 2008. We recorded a loss on foreign exchange — net in 2009 compared with a gain
on foreign exchange — net in 2008 of Rp.223.2 billion. See “—Operating Expenses—Loss on Foreign
Exchange — Net” below for a discussion of our loss on foreign exchange — net in 2009.
Other Income
Nine Months Ended September 30, 2011 Compared to Nine Months Ended September 30, 2010. Our
operating income increased 72.8% to Rp.341.8 billion (US$38.7 million) in the nine months ended
September 30, 2011 from Rp.197.8 billion in the nine months ended September 30, 2010. This was
principally as a result of an increase in sales attributable to the Company, which increased Rp.64.9 billion
(US$7.4 million) in the nine months ended September 30, 2011, compared to Rp.20.2 billion in the nine
months ended September 30, 2010, due to higher sales of mobile phone vouchers sold by the Company,
higher investment management income attributable to Sinarmas Sekuritas and its subsidiary, and an increase
in factoring income generated by AB Multifinance.
2010 Compared to 2009. Our other income decreased 15.8% to Rp.289.5 billion (US$32.2 million) in
2010 from Rp.343.9 billion in 2009, principally as a result of a Rp.107.2 billion decrease in sales income
attributable to our money changer subsidiary and office supplies sold by the Company and a Rp.16.7 billion
decrease in factoring income, partially offset by a Rp.21.7 billion increase in dividend income, a Rp.18.9
billion increase in investment management income and a gain on sale of investment in 2010 of Rp.12.7
billion.
2009 Compared to 2008. Our other income increased 101.0% to Rp.343.5 billion in 2009 from
Rp.170.9 billion in 2008, principally as a result of a Rp.117.2 billion increase in sales income attributable to
our money changer subsidiary and office supplies sold by the Company, a Rp.17.2 billion increase in
factoring income and the accrual in 2009 of equity in net income of the subsidiaries and associated
companies — net of Rp.41.9 billion, partially offset by a Rp.12.6 billion increase in dividend income.
Operating Expenses
Insurance Underwriting Expenses
The following table sets forth our insurance underwriting expenses for the periods indicated.
Nine Months Ended
September 30,
Year Ended December 31,
2008
2009
2010
2010
2010
Rp.
Rp.
Gross claims:
Life insurance . . . . . . . . . . . . . .
Non-life insurance . . . . . . . . . . . .
4,959.1
572.9
6,754.2
963.8
7,137.2
862.8
808.9
97.8
4,990.1
612.1
7,917.3
730.6
897.3
82.8
Total gross claims . . . . . . . . . .
5,532.0
7,718.0
8,000.0
906.7
5,602.2
8,647.9
980.1
Rp.
US$
Rp.
(Rp. in billions, US$ in millions)
2011
2011
Rp.
US$
Reinsurance claims:
Life insurance . . . . . . . . . . . . . .
Non-life insurance . . . . . . . . . . . .
(0.8)
(93.7)
(3.0)
(360.8)
(0.5)
(93.3)
(0.1)
(10.6)
1.2
(88.3)
—
(16.5)
—
(1.9)
Total reinsurance claims . . . . . .
(94.5)
(363.8)
(93.8)
(10.7)
(87.1)
(16.5)
(1.9)
Increase (decrease) in liability for
future policy benefits:
Life insurance . . . . . . . . . . . . . .
Non-life insurance . . . . . . . . . . . .
445.3
—
(1,746.6)
—
(891.7)
—
(101.1)
—
(796.6)
—
4,088.2
—
463.4
—
Total increase (decrease) in
liability for future policy
benefits . . . . . . . . . . . . . . .
445.3
(1,746.6)
(891.7)
(101.1)
(796.6)
4,088.2
463.4
Increase (decrease) in segregated
funds contract liabilities — unit
link. . . . . . . . . . . . . . . . . . . . .
241.3
2,843.6
3,688.9
418.1
2,756.9
(1,951.6)
(221.2)
Commission — net:
Life insurance . . . . . . . . . . . . . .
Non-life insurance . . . . . . . . . . . .
41.4
175.6
27.6
259.4
39.5
312.0
4.5
35.4
14.5
237.8
35.2
283.6
4.0
32.1
Total commission — net . . . . . .
217.0
287.0
351.5
39.9
252.3
318.8
36.1
9.5
14.0
60.3
6.8
73.3
72.9
8.3
Increase in estimated own retention
claims . . . . . . . . . . . . . . . . . . .
Increase in segregated funds
contract liabilities-Sharia . . . . . .
Amortization of deferred acquisition
costs . . . . . . . . . . . . . . . . . . . .
Other underwriting expenses . . . . .
7.3
4.9
17.8
2.0
13.2
15.7
1.8
21.0
2.4
—
1.7
—
3.2
—
0.4
—
9.6
—
14.4
—
1.6
Total insurance underwriting
expenses . . . . . . . . . . . . . . . . .
6,381.3
8,758.8
11,136.2
1,262.1
7,823.7
11,189.8
1,268.2
Nine Months Ended September 30, 2011 Compared to Nine Months Ended September 30, 2010. Our
total insurance underwriting expenses increased 43.0% to Rp.11,189.8 billion (US$1,268.2 million) in the
nine months ended September 30, 2011 from Rp.7,823.7 billion in the nine months ended September 30,
2010. This was principally as a result of an increase in gross claims in our life insurance business and, to a
lesser extent, our non-life insurance business, and an increase in the non-cash item of liability for future
policy benefits for our life insurance business, compared to a decrease in the non-cash item of liability for
future policy benefits in our life insurance business in the same period in 2010, and to a lesser extent, an
increase in commissions expenses — net for both our life and non-life insurance businesses. These increases
were partially offset by a decrease in the non-cash item of segregated funds contract liabilities — unit link for
our life insurance business, compared to an increase in the same period in 2010. The increase in the noncash item of estimated own retention claims remained relatively constant. For a more detailed discussion of
our underwriting expenses for Sinarmas MSIG Life and Asuransi Sinar Mas, see “—Results of Operations of
Sinarmas MSIG Life” and “—Results of Operations of Asuransi Sinar Mas” below.
2010 Compared to 2009. Our total insurance underwriting expenses increased 27.1% to Rp.11,136.2
billion (US$1,262.2 million) in 2010 from Rp.8,758.8 billion in 2009, principally as a result of an increase
in gross claims for our life insurance business, an increase in the non-cash item of segregated funds contract
liabilities — unit link of our life insurance business and an increase in commissions expenses — net for
both our life and non-life insurance businesses. These higher underwriting expense items were partially offset
by a decrease in gross claims and reinsurance claims by our non-life insurance business and a decrease in
the non-cash item of liability for future policy benefits recorded by our life insurance business. For a more
detailed discussion of our underwriting expenses for Sinarmas MSIG Life and Asuransi Sinar Mas, see “—
Results of Operations of Sinarmas MSIG Life” and “—Results of Operations of Asuransi Sinar Mas” below.
2009 Compared to 2008. Our total insurance underwriting expenses increased 37.3% to Rp.8,758.8
billion in 2009 from Rp.6,381.3 billion in 2008, principally as a result of an increase in gross claims for
both our life and non-life insurance business, an increase in the non-cash item of segregated funds contract
liabilities — unit link for our life insurance business, and an increase in commissions — net for our non-life
insurance business, partially offset by an increase in reinsurance claims for our non-life insurance business
and a decrease in the non-cash item of liability for future policy benefits. For a more detailed discussion of
our underwriting expenses for Sinarmas MSIG Life and Asuransi Sinar Mas, see “—Results of Operations of
Sinarmas MSIG Life” and “—Results of Operations of Asuransi Sinar Mas” below.
Interest Expense
The following table sets forth our interest expense for the Company and our key subsidiaries for the
periods indicated.
Nine Months Ended
September 30,
Year Ended December 31,
2008
2009
Rp.
Rp.
.
.
.
.
425.8
25.3
0.4
0.7
470.4
43.8
2.5
—
497.7
50.8
4.8
0.1
56.4
5.8
0.5
—
Total Before Elimination . . . . . . .
452.2
516.7
553.4
(20.0)
496.7
Bank Sinarmas . . . . . .
Sinar Mas Multifinance .
AB Multifinance . . . . .
Others. . . . . . . . . . . .
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
Elimination . . . . . . . . . . . . . . .
Total Interest Expense . . . . . . . .
(1.8)
450.4
2010
2010
2010
2011
2011
Rp.
US$
350.8
36.8
3.2
0.1
572.1
55.7
7.0
20.5
64.9
6.3
0.8
2.3
62.7
390.9
655.3
74.3
(15.6)
(1.7)
(10.8)
(18.7)
(2.1)
537.8
61.0
380.1
636.6
72.2
Rp.
US$
Rp.
(Rp. in billions, US$ in millions)
The following table sets forth our interest expense by type of liability for the periods indicated.
Nine Months Ended
September 30,
Year Ended December 31,
2008
2009
Rp.
Rp.
.
.
.
.
337.2
26.4
25.9
26.8
355.0
46.3
45.5
30.5
361.8
55.4
59.5
37.3
41.0
6.3
6.8
4.2
. .
. .
16.9
10.0
4.3
13.8
4.2
17.9
. .
. .
—
7.2
—
1.3
Total interest expense . . . . . . . . . .
450.4
496.7
Time deposits . . . . . . . . . . . . . .
Loans received . . . . . . . . . . . . .
Savings deposits . . . . . . . . . . . .
Current account . . . . . . . . . . . . .
Deposits and deposits from other
banks. . . . . . . . . . . . . . . . . .
Premium on Government guarantee
Securities sold under repurchase
agreement . . . . . . . . . . . . . . .
Others. . . . . . . . . . . . . . . . . . .
.
.
.
.
2010
2010
2010
2011
2011
Rp.
US$
252.2
40.0
42.9
26.8
446.9
83.0
60.6
25.4
50.6
9.4
6.9
2.9
0.5
2.0
4.7
12.1
0.7
19.9
0.1
2.3
—
1.7
—
0.2
1.3
0.1
—
0.1
—
—
537.8
61.0
380.1
636.6
72.2
Rp.
US$
Rp.
(Rp. in billions, US$ in millions)
For a more detailed discussion of changes in interest expense attributable to Bank Sinarmas see
“—Results of Operations of Bank Sinarmas” below.
Nine Months Ended September 30, 2011 Compared to Nine Months Ended September 30, 2010. Our
total interest expense increased 67.5% to Rp.636.6 billion (US$72.2 million) in the nine months ended
September 30, 2011 from Rp.380.1 billion in the nine months ended September 30, 2010, principally as a
result of an increase in interest expense incurred by Bank Sinarmas, and to a lesser extent, interest income
incurred by Sinar Mas Multifinance and AB Multifinance. Interest expense attributable to Bank Sinarmas
accounted for 89.9%, or Rp.572.1 billion (US$64.8 million) of the interest income in the nine months ended
September 30, 2011, compared to 92.3%, or Rp.350.8 billion in the nine months ended September 30, 2010.
This was principally attributable to an increase in the average volume of customer Rupiah time and savings
deposits in 2010. Interest expense incurred by Sinar Mas Multifinance was due to financing loans
outstanding.
By type of liability, interest expense was mainly attributable to an increase in interest expense of time
and savings deposits of Bank Sinarmas, as well as loans received by Sinar Mas Multifinance.
Interest expense on time deposits increased 77.2% to Rp.446.9 billion (US$50.6 million) in the nine
months ended September 30, 2011 from Rp.252.2 billion in the nine months ended September 30, 2010,
principally as a result of a significant increase in the average amount of customer Rupiah-denominated time
deposits held by Bank Sinarmas in the nine months ended September 30, 2011 compared to the same period
in 2010, as well as higher average interest rates on customer deposits, based on the monthly average, in the
nine months ended September 30, 2011.
Interest expense on loans received increased 107.5% to Rp.83.0 billion (US$9.4 million) in the nine
months ended September 30, 2011 from Rp.40.0 billion in the nine months ended September 30, 2010,
principally as a result of an increase in loans drawn down by Sinar Mas Multifinance. These loans
outstanding comprise a loan facility from Bank BNI of Rp.350 billion, of which Rp.293 billion was drawn
down, a loan facility from Bank Panin of Rp.250 billion, which was drawn down in full, a loan facility from
Bank Capital of Rp.100 billion, which was drawn down in full, a loan facility from Bank Victoria of Rp.100
billion, which was drawn down in full and a loan facility from CIMB Bank of Rp.50 billion, also drawn
down in full by Sinar Mas Multifinance.
Interest expense on savings deposits increased 41.3% to Rp.60.6 billion (US$6.9 million) in the nine
months ended September 30, 2011 from Rp.42.9 billion in the nine months ended September 30, 2010,
principally as a result of a significant increase in the average volume of Rupiah-denominated savings deposit
accounts placed with Bank Sinarmas, although average interest rates, based on monthly averages, remained
relatively constant.
Interest expense on current account decreased 5.2% to Rp.25.4 billion (US$2.9 million) in the nine
months ended September 30, 2011 from Rp.26.8 billion in the nine months ended September 30, 2010,
principally as a result of a decline in average interest rates, based on monthly averages, on U.S. dollardenominated demand deposits, partially offset by an increase in the average volume of both Rupiah and
foreign currency-denominated demand deposits placed by customers with Bank Sinarmas. Average interest
rates on Rupiah-denominated demand deposits, based on monthly averages, remained constant between
periods.
Interest expense on deposits and deposits from other banks fell 85.1% to Rp.0.7 billion (US$0.1
million) in the nine months ended September 30, 2011 from Rp.4.7 billion in the nine months ended
September 30, 2010, principally because Bank Sinarmas did not take any new placements with other banks
in the nine months ended September 30, 2011.
Premiums on Government guarantee increased 64.5% to Rp.19.9 billion (US$2.3 million) in the nine
months ended September 30, 2011 from Rp.12.1 billion in the nine months ended September 30, 2010,
principally reflecting an increase in premiums on guarantees paid by Bank Sinarmas in relation to guarantees
of private bank obligations in line with the increase in deposits placed with Bank Sinarmas.
2010 Compared to 2009. Our total interest expense increased 8.3% to Rp.537.8 billion (US$61.0
million) in 2010 from Rp.496.7 billion in 2009, principally as a result of increases in interest expense on
time deposits, loans, savings deposits and current account and an increase in premiums on Government
guarantee.
Interest expense on time deposits increased 1.9% to Rp.361.8 billion (US$41.0 million) in 2010 from
Rp.355.0 billion in 2009, principally as a result of an increase in the average volume of both Rupiah and
foreign currency-denominated time deposits placed by customers with Bank Sinarmas, partially offset by
lower average interest rates paid on Rupiah and foreign currency-denominated time deposits.
Interest expense on loans received increased 19.7% to Rp.55.4 billion (US$6.3 million) in 2010 from
Rp.46.3 billion in 2009, principally as a result of an increase in loans drawn down by Sinar Mas
Multifinance to fund its motorcycle financing.
Interest expense on savings deposits increased 30.8% to Rp.59.5 billion (US$6.7 million) in 2010 from
Rp.45.5 billion in 2009, principally as a result of an increase in the average volume of Rupiah-denominated
savings deposits placed with Bank Sinarmas in 2010, partially offset by lower average interest rates on
Rupiah-denominated savings deposits, which fell to 5.3% in 2010 from 5.8% in 2009.
Interest expense on current account increased 22.3% to Rp.37.3 billion (US$4.2 million) in 2010 from
Rp.30.5 billion in 2009, principally as a result of an increase in average volume of both Rupiah and foreign
currency-denominated demand deposits placed by customers with Bank Sinarmas in 2010, partially offset by
lower average interest rates paid on Rupiah-denominated current accounts, which fell to 2.9% in 2010 from
3.6% in 2009. Average rates on foreign currency-denominated demand deposits remained relatively stable.
Interest expense on deposits and deposits from other banks remained relatively stable at Rp.4.2 billion
(US$0.5 million) in 2010 compared to Rp.4.3 billion in 2009.
Premiums on Government guarantee increased 29.7% to Rp.17.9 billion (US$2.0 million) in 2010 from
Rp.13.8 billion in 2009, reflecting an increase in premiums on guarantees paid by Bank Sinarmas in relation
to guarantees of private bank obligations in line with the increase in deposits placed with Bank Sinarmas.
2009 Compared to 2008. Our total interest expense increased 10.3% to Rp.496.7 billion in 2009 from
Rp.450.4 billion in 2008, principally as a result of increases in interest expense incurred by Bank Sinarmas
on customer time and savings deposits accounts, and to a lesser extent interest expense incurred by Sinar
Mas Multifinance in respect of loans outstanding.
By type of asset, the increase in interest expense was principally attributable to an increase in the
average volume of interest-bearing loans, savings deposits and current accounts outstanding in 2009,
partially offset by lower interest rates due to the economic conditions during this period.
Interest expense on time deposits increased 5.3% to Rp.355.0 billion in 2009 from Rp.337.2 billion in
2008, principally as a result of an increase in average interest rates, based on monthly averages, on Rupiahdenominated time deposits to 10.1% in 2009 from 9.4% in 2008 and an increase in the average volume of
foreign currency-denominated time deposits, partially offset by a slight decrease in the average volume of
Rupiah-denominated time deposits and decrease in average interest rates of foreign currency-denominated
time deposits, based on monthly averages, on foreign currency-denominated time deposits to 2.9% in 2009
from 3.8% in 2008.
Interest expense on loans received increased 75.4% to Rp.46.3 billion in 2009 from Rp.26.4 billion in
2008, principally as a result of an increase in loans drawdown by Sinar Mas Multifinance to fund its
consumer financing loans for vehicle purchases.
Interest on savings deposits increased 75.7% to Rp.45.5 billion in 2009 from Rp.25.9 billion in 2008,
principally as a result of an increase in the average volume of Rupiah-denominated savings deposits placed
with Bank Sinarmas, partially offset by lower average interest rates, based on monthly averages, paid on
Rupiah-denominated savings deposits to 5.8% in 2009 from 7.1% in 2008.
Interest on current account increased 13.8% to Rp.30.5 billion in 2009 from Rp.26.8 billion in 2008,
principally as a result of an increase in both Rupiah and foreign currency-denominated current accounts
placed with Bank Sinarmas, partially offset by lower average interest rates paid on Rupiah and foreign
currency-denominated current accounts to 3.6% in 2009 from 4.7% in 2008.
Interest on deposits and deposits from other banks decreased 74.6% to Rp.4.3 billion in 2009 from
Rp.16.9 billion in 2008, principally as a result of a decrease in both average volume and average interest
rates paid on Rupiah placements with other banks.
Premiums on Government guarantee increased 38.0% to Rp.13.8 billion in 2009 from Rp.10.0 billion
in 2008, reflecting an increase in premiums on guarantees paid by Bank Sinarmas in relation to guarantees
of private bank obligations following an increase in deposits placed with Bank Sinarmas.
Salaries and Employee Benefits
Nine Months Ended September 30, 2011 Compared to Nine Months Ended September 30, 2010. Our
salaries and employee benefits increased 48.7% to Rp.382.6 billion (US$43.4 million) in the nine months
ended September 30, 2011 from Rp.257.2 billion in the nine months ended September 30, 2010, principally
as a result of an increase in headcount at our subsidiaries and, to a lesser extent, salary increases.
2010 Compared to 2009. Our salaries and employee benefits increased 33.9% to Rp.335.8 billion
(US$38.1 million) in 2010 from Rp.250.7 billion in 2009, principally as a result of an increase in employee
expenses at Asuransi Sinar Mas, Bank Sinarmas and Sinar Mas Multifinance, mainly due to an increase in
headcount at these subsidiaries as they expanded their distribution networks and, to a lesser extent, salary
increases.
2009 Compared to 2008. Our salaries and employee benefits increased 13.4% to Rp.250.7 billion in
2009 from Rp.221.0 billion in 2008, principally as a result of an increase in employee expenses at Bank
Sinarmas, largely due to headcount increases as it expanded its branch network.
General and Administrative Expenses
Nine Months Ended September 30, 2011 Compared to Nine Months Ended September 30, 2010. Our
general and administrative expenses increased 33.9% to Rp.297.1 billion (US$33.7 million) in the nine
months ended September 30, 2011 from Rp.221.9 billion in the nine months ended September 30, 2010,
principally as a result of higher general expenses, an increase in utility expenses, higher marketing and
advertising expenses and higher rental expenses, consistent with the growth in the distribution networks of
key subsidiaries including Sinar Mas Multifinance, Asuransi Sinar Mas and Sinarmas MSIG Life.
2010 Compared to 2009. Our general and administrative expenses increased 24.8% to Rp.327.1 billion
(US$37.1 million) in 2010 from Rp.262.2 billion in 2009, principally as a result of increases in general
expenses, electricity, water and telephone expenses, marketing and advertising expenses, rental expenses,
office supplies expenses and defined-benefit post employment expense — net.
2009 Compared to 2008. Our general and administrative expenses increased 9.6% to Rp.262.2 billion
in 2009 from Rp.239.3 billion in 2008, principally as a result of general expenses, electricity, water and
telephone expenses, marketing and advertising expenses, rental expenses, office supplies expenses and
defined-benefit post employment expense — net, partially offset by a decrease in marketing and advertising
expenses.
Depreciation and Amortization
Nine Months Ended September 30, 2011 Compared to Nine Months Ended September 30, 2010. Our
depreciation and amortization expenses increased 46.4% to Rp.81.9 billion (US$9.3 million) in the nine
months ended September 30, 2011 from Rp.56.0 billion in the nine months ended September 30, 2010.
2010 Compared to 2009. Our depreciation and amortization expenses increased 9.1% to Rp.78.8
billion (US$8.9 million) in 2010 from Rp.72.2 billion in 2009 due to acquisition of new fixed assets of Bank
Sinarmas, Sinar Mas Multifinance and Asuransi Sinar Mas as they expanded their distribution network.
2009 Compared to 2008. Our depreciation and amortization expenses increased 20.7% to Rp.72.2
billion in 2009 from Rp.59.8 billion in 2008 due to acquisition of new fixed assets of Bank Sinarmas and
Asuransi Sinar Mas as they expanded their distribution network.
Loss on Foreign Exchange — Net
Nine Months Ended September 30, 2011 Compared to Nine Months Ended September 30, 2010. Our
loss on foreign exchange — net decreased 78.3% to Rp.12.6 billion (US$1.4 million) in the nine months
ended September 30, 2011 from Rp.57.9 billion in the nine months ended September 30, 2010. The loss on
foreign exchange — net was principally attributable to net foreign exchange losses incurred by Sinarmas
MSIG Life, but the lower level of loss reflected the further appreciation of the Rupiah.
2010 Compared to 2009. Our loss on foreign exchange — net decreased 72.5% to Rp.53.3 billion
(US$6.0 million) in 2010 from Rp.193.5 billion in 2009. Loss on foreign exchange — net was principally
attributable to Sinarmas MSIG Life, accounting for 90.4% and 87.9% of the loss in 2009 and 2010,
respectively, and reflected the appreciation of the Rupiah in 2010. For more details, see “—Results of
Operations of Sinarmas MSIG Life” below.
2009 Compared to 2008. We recorded a loss on foreign exchange — net of Rp.193.5 billion in 2009
compared with a gain on foreign exchange — net in 2008, principally due to foreign exchange gains and
losses incurred by Sinarmas MSIG Life, and reflecting the depreciation of the Rupiah in 2009 as a result of
the financial crisis. See “—Operating Income—Gain on Foreign Exchange — Net” above for a discussion of
our gain on foreign exchange — net in 2008.
Cost of Goods Sold
Nine Months Ended September 30, 2011 Compared to Nine Months Ended September 30, 2010. Our
cost of goods sold increased 319.2% to Rp.85.1 billion (US$9.6 million) in the nine months ended
September 30, 2011 from Rp.20.3 billion in the nine months ended September 30, 2010, principally as a
result of increased sales by Simas Money Changer and the Company.
2010 Compared to 2009. Our cost of goods sold decreased 69.4% to Rp.47.2 billion (US$5.3 million)
in 2010 from Rp.154.1 billion in 2009, principally as a result of lower sales by Simas Money Changer,
partially offset by higher sales of office supplies by the Company.
2009 Compared to 2008. Our cost of goods sold increased significantly to Rp.154.1 billion in 2009
from Rp.37.1 billion in 2008, principally as a result of higher sales by Simas Money Changer and office
supplies sold by the Company.
Unrealized loss on decrease in fair value of securities
In the nine months ended September 30, 2011, we recorded a net unrealized loss on decrease in fair
value of securities in the amount of Rp.146.5 billion (US$16.6 million), which was mainly attributable to
unrealized losses in respect of equity securities held by Sinarmas Sekuritas, as a result of the deterioration in
financial markets, partially offset by small net unrealized gains on increase in fair value of securities held by
Sinarmas MSIG Life and Bank Sinarmas.
Other Expense
Nine Months Ended September 30, 2011 Compared to Nine Months Ended September 30, 2010. Our
other expense increased 71.4% to Rp.145.6 billion (US$16.5 million) in the nine months ended September
30, 2011 from Rp.131.7 billion in the nine months ended September 30, 2010, principally as a result of an
increase in other miscellaneous operating expenses, slightly higher provision for doubtful accounts and
higher investment management expenses incurred by Sinarmas Sekuritas, partially offset by a Rp.30.2 billion
(US$3.4 million) decrease in provisions for possible losses on earning and non-earning assets held by Bank
Sinarmas due to the improved economic climate in the nine months ended September 30, 2011 and lower
stock brokerage and underwriting expenses incurred by Sinarmas Sekuritas.
2010 Compared to 2009. Our other expense increased 11.6% to Rp.165.9 billion (US$18.8 million) in
2010 from Rp.148.6 billion in 2009, principally as a result of a Rp.8.0 billion increase in provision for
doubtful accounts, a Rp.8.2 billion increase in stock brokerage and underwriting expenses, a Rp.5.8 billion
increase in training expenses, a Rp.4.5 billion increase in investment management expenses and a Rp.4.0
billion increase in repairs and maintenance, partially offset by a Rp.19.6 billion decrease in provision for
possible losses on earning and non-earning assets as Bank Sinarmas recorded lower provisions on loans as
the economy recovered.
2009 Compared to 2008. Our other expense decreased 22.4% to Rp.148.6 billion in 2009 from
Rp.121.4 billion in 2008, principally as a result of a Rp.175.9 billion unrealized loss on decrease in fair
value of securities that we recorded in 2008, primarily because of rapidly deteriorating economic conditions
in the fourth quarter of 2008, partially offset by a Rp.53.9 billion increase in provision for possible losses on
earning and non-earning assets, primarily because of higher provisions on loans by Bank Sinarmas as a
result of the deteriorating economic conditions.
Income from Operations Before Tax — Net
Nine Months Ended September 30, 2011 Compared to Nine Months Ended September 30, 2010. As a
result of the above, our income from operations before tax — net increased 109.9% to Rp.1,607.0 billion
(US$182.1 million) in the nine months ended September 30, 2011 from Rp.765.7 billion in the nine months
ended September 30, 2010.
2010 Compared to 2009. As a result of the above, our income from operations — net increased 75.4%
to Rp.1,367.6 billion (US$155.0 million) in 2010 from Rp.779.6 billion in 2009.
2009 Compared to 2008. As a result of the above, our income from operations — net increased
123.3% to Rp.779.6 billion in 2009 from Rp.349.2 billion in 2008.
Tax Expense (Benefit)
The following table sets forth a breakdown of our tax expense (benefit) for the periods indicated.
Nine Months Ended
September 30,
Year Ended December 31,
2008
2009
2010
2010
Rp.
Rp.
Current . . . . . . . . . . . . . . . . . . . .
Deferred . . . . . . . . . . . . . . . . . . .
34.6
23.7
48.1
(2.2)
68.0
21.8
7.7
2.5
Total tax expense (benefit) . . . . . . . .
58.3
45.9
89.8
10.2
2010
2011
2011
Rp.
US$
47.2
18.3
83.0
6.8
9.4
0.7
65.5
89.8
10.1
Rp.
US$
Rp.
(Rp. in billions, US$ in millions)
Nine Months Ended September 30, 2011 Compared to Nine Months Ended September 30, 2010. Our
tax expense (benefit) increased 37.3% to Rp.89.8 billion (US$10.1 million) in the nine months ended
September 30, 2011 from Rp.65.5 billion in the nine months ended September 30, 2010, principally as a
result of an increase in current tax expense attributable to the increase in income from operations.
2010 Compared to 2009. Our tax expense increased 95.6% to Rp.89.8 billion (US$10.2 million) in
2010 from Rp.45.9 billion in 2009, principally as a result of a Rp.19.9 billion (US$2.3 million) increase in
our current tax expense in 2010 and a Rp.21.8 billion (US$2.5 million) deferred tax expense in 2010
compared with a deferred tax benefit of Rp.2.3 billion in 2009. The increase reflects higher income from
operations, partially offset by a lower statutory tax rate in 2010 of 25%, compared to 28% in 2009.
2009 Compared to 2008. Our tax expense decreased 21.4% to Rp.45.8 billion in 2009 from Rp.58.3
billion in 2008, principally as a result of a deferred tax benefit of Rp.2.3 billion in 2009 compared with a
deferred tax expense of Rp.23.7 billion in 2008, partially offset by a Rp.13.5 billion increase in current tax
expense in 2009. The statutory tax rate fell to 28% in 2009 from 30% in 2008.
Net Income
Nine Months Ended September 30, 2011 Compared to Nine Months Ended September 30, 2010. As a
result of the above, our net income increased 116.7% to Rp.1,517.2 billion (US$172.0 million) in the nine
months ended September 30, 2011 from Rp.700.2 billion in the nine months ended September 30, 2010.
2010 Compared to 2009. As a result of the above, our net income increased 74.2% to Rp.1,277.8
billion (US$144.8 million) in 2010 from Rp.733.7 billion in 2009.
2009 Compared to 2008. As a result of the above, our net income increased significantly to Rp.733.7
billion in 2009 from Rp.290.9 billion in 2008.
Other Comprehensive Income (Loss)
Nine Months Ended September 30, 2011 Compared to Nine Months Ended September 30, 2010. We
recorded a loss in other comprehensive income (loss) of Rp.215.2 billion (US$24.4 million) in the nine
months ended September 30, 2011, mainly as a result of a net unrealized loss on change in fair value of
available for sale securities of subsidiaries which was partially offset by a gain on change in ownership
interest in subsidiaries and associates of Rp.38.5 billion (US$4.4 million). In the nine months ended
September 30, 2010, we recorded other comprehensive income of Rp.2.7 billion, mainly attributable to a
small unrealized gain on change in fair value of available for sale securities of subsidiaries of Rp.6 billion.
2010 Compared to 2009. We recorded an increase in other comprehensive income (loss) in 2010 to
Rp.132.4 billion (US$15.0 million) from Rp.48.2 billion in 2009, mainly due to higher net unrealized gain
on change in fair value of available for sale securities of subsidiaries.
2009 Compared to 2008. We recorded an increase in other comprehensive income (loss) in 2009 to
Rp.48.2 billion from a loss of Rp.81.4 billion in 2008, principally because we recorded a net unrealized loss
on change in fair value of available for sale securities of subsidiaries in 2008.
Total Comprehensive Income
Nine Months Ended September 30, 2011 Compared to Nine Months Ended September 30, 2010. For the
reasons discussed above, we recorded a 85.2% increase in total comprehensive income to Rp.1,302.0 billion
(US$147.6 million) in the nine months ended September 30, 2011 from Rp.702.9 billion in the nine months
ended September 30, 2010.
2010 Compared to 2009. For the reasons discussed above, we recorded a 80.4% increase in total
comprehensive income to Rp.1,410.2 billion (US$159.8 million) in 2010 from Rp.781.9 billion in 2009.
2009 Compared to 2008. For the reasons discussed above, we recorded a 273.2% increase in total
comprehensive income to Rp.781.9 billion in 2009 from Rp.209.5 billion in 2009.
Comprehensive Income Attributable to Equity Holders of Parent and Non-Controlling Interests
Nine Months Ended September 30, 2011 Compared to Nine Months Ended September 30, 2010. In the
nine months ended September 30, 2011, comprehensive income attributable to equity holders of the amount
amounted to Rp.3,963.7 billion (US$449.2 million) and comprehensive loss attributable to non-controlling
interests amounted to Rp.2,661.7 billion (US$301.6 million). This principally reflects the proportionate share
of the subscription by MSIG in Sinarmas MSIG Life, and its 50% ownership interest in Sinarmas MSIG Life.
We did not record any non-controlling interests in the nine months ended September 30, 2010.
2010 Compared to 2009. For the reasons discussed above, we recorded a 80.3% increase in total
comprehensive income to Rp.1,410.2 billion (US$159.8 million) in 2010 from Rp.781.9 billion in 2009.
2009 Compared to 2008. For the reasons discussed above, we recorded a 273.2% increase in total
comprehensive income to Rp.781.9 billion in 2009 from Rp.209.5 billion in 2008.
2009 Compared to 2008. Our non-controlling interest in net income of the subsidiaries increased
26.8% to Rp.34.1 billion in 2009 from Rp.26.9 billion in 2008.
Segment Information
Business Segments
The following tables show a breakdown of total operating income, total operating expense and net
income by business segment from our consolidated financial statements, and as a percentage of each total
before elimination.
Year Ended December 31,
2008
Rp.
Operating Income:
Parent company . . . . . . . . .
Insurance underwriting . . . . . .
Consumer financing, finance lease
and factoring . . . . . . . . .
Share administration fee . . . . .
Stock brokerage, underwriting and
investment management . . . .
Banking . . . . . . . . . . . . .
Development, trading and service .
.
266.5
. 6,988.2
2009
Nine Months Ended September 30,
2010
%
Rp.
3.3
84.0
707.9
9,595.3
6.0
81.1
2010
%
Rp.
US$
%
Rp.
%
(Rp. in billions, US$ in millions, except percentages)
1,290.2
146.2
12,315.0 1,395.8
8.4
80.4
709.4
8,564.0
6.8
82.1
Rp.
US$
%
1,394.9
158.1
12,904.3 1,462.6
8.6
80.5
.
.
182.1
4.1
2.2
—
233.5
3.2
2.0
—
301.2
4.5
34.1
0.5
2.0
0.1
190.2
3.2
1.8
—
331.1
3.1
37.5
0.4
2.1
—
.
.
.
177.8
647.8
52.6
2.1
7.8
0.6
267.4
849.5
176.6
2.2
7.2
1.5
327.9
991.6
78.3
37.2
112.4
8.9
2.1
6.5
0.5
192.3
725.3
41.5
1.8
7.0
0.4
270.2
1,003.5
126.9
30.6
113.7
14.4
1.7
6.3
0.8
Total before elimination . . . . . . 8,319.1
Elimination . . . . . . . . . . . . (283.7)
Total after elimination . . . . . . . 8,035.4
100.0 11,833.4
(3.4)
(716.9)
96.6
100.0 15,308.7 1,735.1
(6.1) (1,259.0) (142.7)
11,116.5
93.9
14,049.7 1,592.4
100.0 10,425.9 100.0 16,034.0 1,817.3
(8.2)
(711.5)
(6.8) (1,449.1) (164.2)
91.8
Year Ended December 31,
2008
Rp.
Operating Expenses:
Parent company . . . . . . . . .
Insurance underwriting . . . . . .
Consumer financing, finance lease
and factoring . . . . . . . . .
Share administration fee . . . . .
Stock brokerage, underwriting and
investment management . . . .
Banking . . . . . . . . . . . . .
Development, trading and service .
2011
.
2.8
. 6,731.0
2009
Rp.
—
87.4
7.7
9,223.8
0.1
88.7
93.2
14,584.9 1,653.1
92.0
Nine Months Ended September 30,
2010
%
9,714.4
100.0
(9.0)
2010
2011
%
Rp.
US$
%
Rp.
%
(Rp. in billions, US$ in millions, except percentages)
12.4
1.4
11,456.0 1,298.4
0.1
90.2
9.2
8,097.9
0.1
90.1
Rp.
US$
12.4
1.4
11,506.1 1,304.1
%
0.1
88.2
.
.
117.8
2.0
1.5
—
146.4
2.0
1.4
—
232.2
2.5
26.3
0.3
1.8
—
161.4
1.6
1.8
—
272.2
1.9
30.9
0.2
2.1
—
.
.
.
164.8
628.2
50.6
2.2
8.2
0.7
66.1
778.8
169.8
0.6
7.5
1.7
75.8
850.6
67.6
8.6
96.4
7.7
0.6
6.7
0.6
56.2
628.9
34.5
0.6
7.0
0.4
216.3
901.9
139.9
24.5
102.2
15.9
1.7
6.8
1.1
Total before elimination . . . . . . 7,697.2
Elimination . . . . . . . . . . . .
(11.0)
100.0
(0.1)
10,394.6
(57.8)
100.0
(0.6)
12,697.1 1,439.1
(15.0)
(1.7)
100.0
(0.1)
8,989.7
(40.9)
100.0 13,050.7 1,479.2
(0.5)
(72.8)
(8.3)
100.0
(0.6)
99.4
12,682.1 1,437.4
99.9
8,948.8
Total after elimination . . . . . . 7,686.2
99.9
10,336.8
99.5
12,977.9 1,470.9
99.4
Year Ended December 31,
2008
2009
Nine Months Ended September 30,
2010
2010
Rp.
%
Rp.
.
.
263.6
239.7
46.8
42.5
700.1
376.3
50.3
27.0
1,277.8
840.9
144.8
95.3
50.7
33.3
700.2
441.4
.
.
42.9
1.6
7.6
0.3
62.0
1.2
4.4
0.1
49.8
1.9
5.6
0.2
2.0
0.1
.
.
.
1.1
12.8
2.0
0.2
2.3
0.3
197.9
48.8
6.7
14.2
3.5
0.5
238.8
101.8
10.7
27.1
11.5
1.2
Total before elimination . . . . . .
Elimination . . . . . . . . . . . .
563.7
(272.8)
100.0
(48.4)
1,393.0
(659.1)
100.0
2,521.7
285.7
(47.3) (1,243.9) (140.9)
290.9
51.6
733.9
Net Income:
Parent company . . . . . . . . .
Insurance underwriting . . . . . .
Consumer financing, finance lease
and factoring . . . . . . . . .
Share administration fee . . . . .
Stock brokerage, underwriting and
investment management . . . .
Banking . . . . . . . . . . . . .
Development, trading and service .
Total after elimination . . . . . .
2011
%
Rp.
US$
%
Rp.
%
(Rp. in billions, US$ in millions, except percentages)
52.7
1,277.8
144.8
Rp.
US$
%
51.1
32.2
1,382.5
1,366.2
156.7
154.8
47.8
47.2
19.5
1.4
1.4
0.1
43.5
1.2
4.9
0.1
1.5
—
9.5
4.0
0.4
124.5
76.8
7.0
9.1
5.6
0.5
39.8
73.4
(13.1)
4.5
8.3
(1.5)
1.4
2.5
(0.6)
100.0
(49.3)
1,370.8
(670.6)
100.0
2,893.5 327.8
(48.9) (1,376.3) (156.0)
100.0
(47.6)
50.7
700.2
51.1
1,517.2
171.8
52.4
The following tables show a breakdown of total assets and liabilities by business segment, and as a
percentage of each total before elimination.
As of December 31,
2008
Total Assets:
Parent company . . . . . . . . .
Insurance underwriting . . . . . .
Consumer financing, finance lease
and factoring . . . . . . . . .
Share administration fee . . . . .
Stock brokerage, underwriting and
investment management . . . .
Banking . . . . . . . . . . . . .
Development, trading and service .
2009
As of September 30,
2010
Rp.
%
Rp.
.
.
2,673.1
8,377.3
14.5
45.4
3,613.1
9,959.6
15.5
42.7
.
.
769.0
15.6
4.2
0.1
839.1
16.3
3.6
0.1
.
.
.
389.3
6,064.6
148.7
2.1
32.9
0.8
659.2
8,036.0
177.2
2.8
34.5
0.8
84.3
19,700.3
5,077.2
575.5
14,212.4 1,610.8
15.3
42.9
4,327.4
12,763.6
14.5
42.7
121.5
2.0
3.2
0.1
983.3
17.6
3.3
—
1,220.6
138.3
11,232.2 1,273.1
294.7
33.4
3.7
33.9
0.9
1,461.4
10,077.3
265.1
4.9
33.7
0.9
1,072.0
18.4
84.5
27,845.0 3,155.9
Total Liabilities:. . . . . . . . .
Parent company . . . . . . . . .
Insurance underwriting . . . . . .
Consumer financing, finance lease
and factoring . . . . . . . . .
Share administration fee . . . . .
Stock brokerage, underwriting and
investment management . . . .
Banking . . . . . . . . . . . . .
Development, trading and service .
2009
84.1
%
Rp.
.
.
.
19.1
7,100.2
0.1
53.3
15.7
8,264.0
0.1
50.5
.
.
408.2
1.5
3.1
—
416.4
1.0
2.5
—
25,086.5
83.9
.
.
.
71.1
5,647.0
66.0
0.5
42.4
0.6
143.2
7,464.6
65.2
0.9
45.6
0.4
Total before elimination . . . . . . 13,313.1
Elimination . . . . . . . . . . . . (543.0)
Total after elimination . . . . . . 12,770.1
100.0 16,370.1
(4.1)
(267.3)
95.9
16,102.8
1,612.0
19.4
%
17.5
46.6
182.7
2.2
3.1
—
1,037.7
117.6
15,668.1 1,775.8
269.4
30.5
2.0
30.3
0.5
42,980.2 4,871.3
100.0
(16.9)
83.1
2011
0.1
50.0
14.6
10,623.6
0.1
49.2
63.5
0.1
2.4
—
539.0
1.0
2.5
—
465.7
52.8
10,320.7 1,169.7
152.8
17.3
2.0
44.8
0.7
820.8
9,425.5
147.8
3.8
43.7
0.7
100.0 23,056.5 2,613.2
(1.6)
(472.5) (52.6)
100.0
(2.0)
21,572.3
(798.7)
98.0
20,773.6
98.4
8,996.9 1,019.7
24,116.7 2,733.4
2010
%
Rp.
US$
%
Rp.
%
(Rp. in billions, US$ in millions, except percentages)
14.1
1.6
11,541.6 1,308.2
560.4
1.2
US$
As of September 30,
2010
Rp.
Rp.
100.0 29,895.7 100.0 51,720.2 5,861.9
(15.9) (4,809.2) (16.1) (8,740.0) (990.6)
As of December 31,
2008
2011
%
Rp.
US$
%
Rp.
%
(Rp. in billions, US$ in millions, except percentages)
Total before elimination . . . . . . 18,437.5 100.0 23,300.5 100.0 33,127.5 3,754.6
Elimination . . . . . . . . . . . . (2,900.3) (15.7) (3,600.2) (15.5) (5,282.5) (598.7)
Total after elimination . . . . . . 15,537.2
2010
22,584.0 2,559.6
Rp.
US$
17.1
1.9
14,100.1 1,598.2
936.8
1.1
0.1
47.3
106.2
0.1
3.1
—
243.0
27.5
14,411.2 1,633.4
72.8
8.3
0.8
48.4
0.3
100.0 29,782.2 3,375.6
(3.7)
(792.3) (89.8)
96.3
%
28,989.9 3,285.8
See Note 59 to our consolidated financial statements for further details of our business segments.
100.0
(2.7)
97.3
Geographic Segments
We also classify our business activities using geographical segments based on location in Indonesia.
The following table shows a breakdown of operating income by geographic segment.
Year Ended December 31,
2008
Rp.
2009
%
Rp.
.
. 5,714.0
.
292.2
.
110.8
.
91.2
.
3.2
92.0
4.6
1.8
1.5
0.1
8,089.2
208.2
86.0
86.3
3.0
Total before elimination . . . . . . 6,211.4
Elimination . . . . . . . . . . . .
(8.5)
100.0
(0.1)
8,472.7
(12.7)
99.9
8,460.0
Operating Income:
Java and Bali . . .
Sumatera. . . . . .
Kalimantan . . . .
Sulawesi . . . . . .
Irian . . . . . . . .
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
Total after elimination . . . . . . 6,219.9
Nine Months Ended September 30,
2010
2010
2011
%
Rp.
US$
%
Rp.
%
(Rp. in billions, US$ in millions, except percentages)
95.5
2.5
1.0
1.0
—
10,596.2 1,201.0
203.2
23.0
108.8
12.3
83.3
9.4
3.4
0.4
100.0 10,994.9 1,246.1
(0.1)
(10.4)
(1.2)
99.9
10,984.5 1,244.9
96.4
1.8
1.0
0.8
—
7,232.8
206.3
95.3
73.6
2.6
100.0
(0.1)
7,610.6
(10.5)
99.9
7,600.1
95.0
2.7
1.3
1.0
—
Rp.
US$
10,966.2 1,242.9
202.4
22.9
161.8
18.3
103.0
11.7
3.0
0.3
100.0 11,436.4 1,296.1
(0.1)
(6.8)
(0.8)
99.9
%
95.9
1.8
1.4
0.9
—
100.0
(0.1)
11,429.6 1,295.3
99.9
See Note 59 to our consolidated financial statements for further details of our geographic segments.
Principal Income Statement Components of Sinarmas MSIG Life
Revenues
Sinarmas MSIG Life’s principal sources of revenues comprise premium income and investment
income.
Premium Income
Gross premium income is generated principally from unit link and combined endowment insurance, and
to a lesser extent, whole life, death term life, health and personal accident insurance. Premium income
comprises both new business premiums and existing or renewal business premiums. New business premiums
comprise the sum of first year premiums on new business, before reinsurance ceded, written during the
period. As most of Sinarmas MSIG Life’s policies are single premium policies, new business premiums
include premiums on new policies taken by existing customers irrespective of whether as a result of surrender
or maturity of their existing policy. Premium income also gives effect to reinsurance premium and the
decrease or increase in unearned premiums, which are not material.
All amounts received in relation to Sinarmas MSIG Life’s unit link insurance products are reflected as
premium income.
Premium income for Sinarmas MSIG Life is recorded as “Insurance Underwriting Income” in the
Company’s consolidated financial statements.
Investment Income
Investment income comprises net realized gain on investment in trading securities, net unrealized gain
or loss on the increase or decrease in fair value of investments in trading securities, as well as interest
income from bonds, time deposits, mortgage loans and policy loans, bond amortization and dividends. It also
includes the net gain or loss on foreign exchange in respect of investments held. Investments in trading
securities comprise investments held by Sinarmas MSIG Life and investments held as segregated assets of
unit link policies.
Net realized gain or loss on investment in trading securities comprises gains or losses realized upon
the disposition of securities in the period.
Net unrealized gain or loss on the increase or decrease in fair value of investments in trading securities
comprises (1) unrealized gain or loss recorded to reflect the increase or decrease in fair value of units of
mutual funds and equity and debt securities held through profit and loss in the period as Sinarmas MSIG
Life records and maintains such investments at cost and (2) the reversal for accounting purposes of
unrealized gain or loss recorded in a prior period attributable to gain or loss realized in the current period on
such financial instruments.
In the Company’s consolidated financial statements, net realized and unrealized gain or loss attributable
to units of mutual funds of Sinarmas MSIG Life, including units of mutual funds held as segregated assets of
unit link policies, are recorded as “Gain from Investment in Units of Mutual Funds”. Net realized gain or
loss on investment in other trading securities, such as bonds and shares, of Sinarmas MSIG Life are recorded
as “Gain on Sale of Short-Term Investments”, and net unrealized gain or loss on increase or decrease in fair
value of investments in such other trading securities are recorded as “Unrealized Gain on Increase in Fair
Value of Securities — Net” or “Unrealized Loss on Decrease in Fair Value of Securities — Net”. The
interest component of investment income of Sinarmas MSIG Life is recorded as “Interest Income” in the
Company’s consolidated financial statements and dividends earned on investments
by Sinarmas MSIG Life are recorded as “Other Income” in the Company’s consolidated financial statements.
Other Income
Other income comprises gain on foreign exchange-net in respect of non-investment assets and
liabilities, including U.S. dollar claims expenses and accounts receivable, interest income from current
accounts, gain on sale of fixed assets and other.
Operating Expenses
Sinarmas MSIG Life’s operating expenses comprise principally claims and benefits attributable to
insurance, increase in payables to unit link’s policyholders and Sharia’s policyholders, general and
administrative expenses, acquisition expenses, marketing expenses, reinsurance claims and increase or
decrease in liability for future policy benefits and estimated claims liability — net, which relates to
guaranteed benefits payable to endowment policyholders.
Claims and Benefits Expenses
Claims and benefits expenses comprise surrender and redemption of policies, maturity and periodical
claims on all insurance products, and claims payable in respect of conventional health and death policies.
Claims and benefit expenses are recorded as gross claims under “Insurance Underwriting Expenses” in the
Company’s consolidated financial statements.
Increase or Decrease in Payables to Unit Link Policyholders
Increase or decrease in amounts payable to unit link policyholders is a non-cash item and represents
the difference in reserves for payables to unit link policyholders between the beginning of the period and the
end of the period. Amounts payable will increase or decrease following the placement or withdrawal of unit
link holders’ funds and the change in current net asset value of the related investments. Increase or decrease
in payable to unit link policyholders is recorded under “Insurance Underwriting Expenses” in the Company’s
consolidated financial statements.
General and Administrative Expenses
General and administrative expenses comprise principally general expenses such as
salaries and allowances, defined benefit post-employment expenses, professional fees,
depreciation of fixed assets electricity, water and telephone expenses and other expenses.
Acquisition Expenses
Acquisition expenses consist of commissions payable to agents in respect of insurance
contracts or renewals. Acquisition expenses are recorded as commissions — net under
“Insurance Underwriting Expenses” in the Company’s consolidated financial statements.
Marketing Expenses
Marketing expenses consist of expenses not directly related to an insurance policy,
including advertising and promotion, conferences and meetings and other similar
marketing expenses.
Increase or Decrease in Liability for Future Policy Benefits
Increase or decrease in liability for future policy benefits is a non-cash item and is recorded
under
“Insurance Underwriting Expenses” in the Company’s consolidated financial statements.
Results of Operations of Sinarmas MSIG Life
The following table provides a breakdown of Sinarmas MSIG Life’s principal income
statement components, including each principal component as a percentage of its total revenues, for
the periods indicated. You should read this table together with Sinarmas MSIG Life’s financial
statements, including the notes thereto.
Year Ended December 31,
30,
2008
Rp.
2009
Nine Months Ended September
2010
%
Rp.
Premium(1) . . . . . . . . . . . 5,107.4
85.1
7,109.6
Reinsurance premium . . . . . .
(7.6)
(0.1)
(8.0)
(0.1)
Decrease (increase) in unearned
premium . . . . . . . . . . .
24.0
0.4
14.3
0.2
2010
2011
%
Rp.
US$
%
Rp.
%
(Rp. in billions, US$ in millions, except percentages)
Rp.
US$
%
Revenues:
Premium income: . . . . . . . . .
Total premium income — net . 5,123.9
85.4
1,110.8
86.6
9,289.6 1,052.9
86.9
6,392.1
87.3
9,805.9 1,111.4
(6.2)
(0.7)
(0.1)
(6.0)
(0.1)
(0.4)
(0.0)
(0.0)
(2.0)
(0.0)
(0.7)
(0.1)
1.3
0.1
0.0
7,115.9
86.7
9,282.9 1,052.1
87.3
86.9
6,384.1
87.2
9,801.4
1,256.2
15.3
1,442.0
160.5
13.5
978.0
13.4
1,416.1
Investment income:. . . . . . . . .
Investment income . . . . . . . .
Gain (loss) on foreign exchange
— net . . . . . . . . . . . . .
657.0
212.2
3.5
(2.8)
net . . . . . . . . . . . . .
869.2
Other income — net . . . . . . . .
10.9
7.5
(180.3)
(2.2)
(50.0)
(0.2) Total investment income —
14.5
1,075.9
13.1
1,392.1
157.7
0.1
13.3
0.2
11.5
3.7
Total revenues . . . . . . . . . . 6,000.6
100.0
1,272.3
8,205.1
100.0
163.4
12.6
(5.6)
(0.5)
(56.7)
(0.8)
87.4
(5.8)
(24.5)
157.8
12.4
1.3
0.3
13.0
921.3
12.6
1,391.6
0.1
13.2
0.2
32.4
10,686.5 1,211.2
100.0
100.0
7,318.6
100.0
11,225.4
Year Ended December 31,
2008
Rp.
2009
Nine Months Ended September 30,
2010
2010
2011
%
Rp.
%
Rp.
US$
%
Rp.
%
(Rp. in billions, US$ in millions, except percentages)
82.6
6,754.2
82.3
7,137.2
808.9
66.8
4,990.1
68.2
Rp.
US$
%
897.3
70.5
Expenses:
Claims and benefits . . . . . . . . 4,959.1
7,917.3
Increase in payables to unit link’s
policyholders . . . . . . . . . .
241.3
4.0
2,843.6
34.7
3,688.9
418.1
34.5
2,756.9
37.7
General and administrative . . . . .
99.9
1.7
100.0
1.2
120.5
13.7
1.1
81.8
1.1
95.2
10.8
0.8
Acquisition . . . . . . . . . . . .
63.8
1.1
28.0
0.3
40.3
4.5
0.4
23.1
0.3
48.9
5.5
0.4
Increase in payable to Sharia’s
policyholders . . . . . . . . . .
7.3
0.1
4.9
0.1
17.8
2.0
0.2
13.2
0.2
15.7
2.0
0.1
Marketing . . . . . . . . . . . . .
9.5
0.2
7.9
0.1
11.8
1.3
0.1
4.4
0.1
17.4
1.8
0.2
Reinsurance claims . . . . . . . . .
(0.8)
(0.0)
(3.0)
(0.0)
(0.5)
(0.1)
(0.0)
1.2
0.0
—
(0.0)
(0.0)
Increase (decrease) in liability for
future policy benefits and
estimated claims liability—net . .
451.1
7.5
(1,750.8)
(21.3)
(885.6) (100.4)
(8.3)
(788.1)
(10.8)
463.0
36.4
Total expenses . . . . . . . . . . . 5,831.3
97.2
7,984.8
97.3
10,228.4 1,159.3
91.1
2.8
220.2
2.7
556.0
(0.1)
12.2
0.1
2.7
232.4
2.8
Income before deferred income tax
benefit (expense). . . . . . . . .
Deferred income tax benefit
(expense) . . . . . . . . . . . .
Net Income . . . . . . . . . . . .
(1)
169.3
(5.3)
164.0
10,130.5 1,148.2
(1,951.6) (221.2)
4,085.5)
(17.4)
94.8
7,082.5
96.8
63.0
5.2
236.1
3.2
997.0
113.0
8.9
(13.5)
(1.5)
(0.1)
(16.8)
(0.2)
1.7
0.2
—
542.5
61.5
5.1
219.3
3.0
998.8
113.2
8.9
Premium income comprises both new business premiums and existing or renewal business premiums. New business premiums
comprise the sum of first year premiums on new business, before reinsurance ceded, written during the period. Premiums from
unit link policies comprise the entire amount recorded under the policy.
Revenues
Nine Months Ended September 30, 2011 Compared to Nine Months Ended September 30, 2010.
Sinarmas MSIG Life’s total revenues increased 53.4% to Rp.11,225.4 billion (US$1,272.3 million) in the
nine months ended September 30, 2011 from Rp.7,318.6 billion in the nine months ended September 30,
2010, primarily attributable to an increase in premium and investment income.
2010 Compared to 2009. Sinarmas MSIG Life’s total revenues increased 30.2% to Rp.10,686.5 billion
(US$1,211.2 million) in 2010 from Rp.8,205.1 billion in 2009, primarily attributable to an increase in
premium and investment income.
2009 Compared to 2008. Sinarmas MSIG Life’s total revenues increased 36.7% to Rp.8,205.1 billion
in 2009 from Rp.6,000.6 billion in 2008, primarily attributable to an increase in premium and investment
income.
Premium Income
The following table provides a breakdown of Sinarmas MSIG Life’s premium income for the periods
indicated.
Nine Months Ended
September 30,
Year Ended December 31,
2008
2009
Rp.
Rp.
.
.
.
.
.
.
593.1
4,298.1
16.7
3.6
1.1
0.8
3,562.2
3,401.6
15.9
4.6
1.7
0.7
8,565.8
573.0
14.6
6.7
2.2
1.2
970.9
64.9
1.6
0.8
0.3
0.1
5,796.2
480.1
11.1
4.0
1.6
0.6
5,037.5
4,619.5
10.3
3.1
2.2
1.8
571.0
523.6
1.2
0.4
0.3
0.2
Total individual premium . . . . . .
4,913.4
6,986.6
9,163.6
1,038.6
6,293.6
9,674.3
1,096.7
.
.
.
.
.
57.6
128.0
1.5
—
7.0
51.3
70.2
1.3
0.0
0.1
63.2
60.9
1.9
0.0
—
7.2
6.9
0.2
0.0
—
45.0
52.0
1.5
0.0
0.0
71.2
50.7
1.2
0.0
8.4
8.0
5.7
0.1
0.0
0.9
Total group premium . . . . . . .
194.1
123.0
126.0
14.3
98.5
131.5
14.7
Total premium . . . . . . . . . . . .
Reinsurance premium . . . . . . . . . .
(Decrease) increase in unearned
premium . . . . . . . . . . . . . . . . .
5,107.4
(7.6)
7,109.6
(8.0)
9,289.6
(6.2)
1,052.9
(0.7)
6,392.1
(6.0)
24.0
14.3
(0.4)
(0.0)
(2.0)
Total premium income — net . . . . .
5,123.9
7,115.9
Premium income:
Premium:
Individual:
Unit link . . . . . . . . .
Combined endowment .
Whole life . . . . . . . .
Death term life . . . . .
Health. . . . . . . . . . .
Personal accident . . . .
Group:
Death term life . .
Health. . . . . . . .
Personal accident .
Endowment . . . .
Unit link . . . . . .
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
2010
2010
2010
Rp.
US$
Rp.
(Rp. in billions, US$ in millions)
9,282.9
1,052.1
6,384.1
2011
2011
Rp.
US$
9,805.9
(5.8)
1,111.4
(0.7)
1.3
0.1
9,801.4
1,110.8
Nine Months Ended September 30, 2011 Compared to Nine Months Ended September 30, 2010.
Sinarmas MSIG Life’s total premium income — net increased 53.5% to Rp.9,801.4 billion (US$1,110.8
million) in the nine months ended September 30, 2011 from Rp.6,384.1 billion in the nine months ended
September 30, 2010. This growth was driven by a significant increase in gross premium income from
combined endowment policies written, which rose 862.2% to Rp.4,619.5 billion (US$523.6 million) in the
nine months ended September 30, 2011, from Rp.480.1 billion in the nine months ended September 30,
2010, partially offset by a small decrease in unit link policy premiums. The premium growth for endowment
policies is attributable principally to a shift by existing unit link policyholders from their existing unit link
policies to new endowment policies offering a higher guaranteed return, and to a lesser extent, an increase in
endowment policies sold to new customers. This reflected a strategic focus by Sinarmas MSIG Life to target
a more balanced allocation between its endowment policies and unit link policies by permitting the growth
of its endowment policy premiums, as a result of completion of the MSIG share subscription in Sinarmas
MSIG Life, which enhanced its capital and solvency ratios. Sinarmas MSIG Life recorded increases in gross
premiums through most of its distribution channels, with the largest increases attributable to bancassurance,
which increased 55.1% to Rp.8,290.6 billion (US$939.7 million) in the nine months ended September 30,
2011 from Rp.5,343.8 billion in the nine months ended September 30, 2010, consistent with the growth of
endowment gross premiums in the same period as endowment policies accounted for most of the policies
sold through bancassurance, which increased 36% to Rp.3,849,6 billion (US$436.3 million) in the nine
months ended September 30, 2011 from Rp.391.0 billion in the nine months ended September 30, 2010. For
the nine months ended September 30, 2011, bancassurance accounted for 84.6% of total sales.
Reinsurance premium as a percentage of gross premiums amounted to 0.06% in the nine months ended
September 30, 2011, compared to 0.09% in the nine months ended September 30, 2010.
2010 Compared to 2009. Sinarmas MSIG Life’s total premium income — net increased 30.5% to
Rp.9,282.9 billion (US$1,052.1 million) in 2010 from Rp.7,115.9 billion in 2009. The increase in premium
income was principally driven by increases in gross premium income from individual unit link insurance
policies, partially offset by a reduction in gross premium income from combined endowment policies. Gross
premium income from new business rose 31.6% to Rp.9,046.6 billion (US$1,025.3 million) in 2010 from
Rp.6,872.7 billion in 2009, while gross premium income from existing business remained relatively stable at
Rp.243.0 billion (US$27.5 million) in 2010 and Rp.236.8 billion in 2009. As most of the policies written by
Sinarmas MSIG Life are single premium policies, new business includes both new customers and existing
customers who take out a new insurance policy. The increase in premium income from individual unit link
policies was attributable principally to a migration of existing endowment customers to unit link policies
and, to a lesser extent, the growth in the customer base, resulting in an overall increase in gross premiums.
The shift in 2010 in gross premium income from endowment products to unit link was largely due to
customer surrenders of Sinarmas MSIG Life’s endowment products in favor of its unit link product as
Sinarmas MSIG Life offered higher target investment returns for its unit link products as part of its policy
mix strategy to shift from endowment products to unit link products. By distribution channel, gross premium
income attributable to bancassurance increased to Rp.7,889.6 billion (US$894.2 million), or 36.6% in 2010
from Rp.5,776.8 billion in 2009. Gross premiums attributable to other distribution channels remained
relatively flat.
Reinsurance premium as a percentage of gross premiums remained constant at 0.1% in 2009 and 2010.
2009 Compared to 2008. Sinarmas MSIG Life’s total premium income — net increased 38.9% to
Rp.7,115.9 billion in 2009 from Rp.5,123.9 billion in 2008, primarily attributable to an increase in our gross
premiums. Sinarmas MSIG Life’s gross premiums increased 39.2% to Rp.7,109.6 billion in 2009 from
Rp.5,107.4 billion in 2008, principally attributable to a 42.4% increase in gross premium income from new
business to Rp.6,872.8 billion in 2009 from Rp.4,826.8 billion in 2008, while existing business decreased
slightly to Rp.236.8 billion in 2009 from Rp.280.6 billion in 2008 as a result of the introduction of Sinarmas
MSIG Life’s Stable Link unit link insurance product. New business was driven by a Rp.2,969.1 billion
increase in premiums from individual unit link insurance policies, partially offset by a Rp.896.5 billion
decrease in premiums from individual combined endowment insurance policies and a Rp.57.7 billion
decrease in group health insurance policies. Gross premium income from individual unit link insurance
policies increased as Sinarmas MSIG Life continued to attract new customers through bancassurance and
agency channels and migration of existing endowment policyholders to unit link policies, which offered
higher target returns. By distribution channel, the main contributors to growth were bancassurance, which
increased 48.7% to Rp.5,776.7 billion in 2009 from Rp.3,885.0 billion in 2008, and agent sales, which
increased 17.4% to Rp.1,101.7 billion in 2009 from Rp.938.7 billion in 2008, in line with the overall growth
in the agency force. The decrease in group health insurance policies was principally because of a shift in
repricing strategy which increased premiums on group health insurance policies, resulting in increased
surrenders and lower premium volume but an increase in profitability from group health insurance policies.
Reinsurance premium as a percentage of gross premiums remained constant at 0.1% in 2008 and 2009.
Investment Income
The following table sets forth Sinarmas MSIG Life’s investment income for the periods indicated.
Nine Months Ended
September 30,
Year Ended December 31,
Interest on:
Bonds . . . . . . . . . . . . . . . .
Time deposits . . . . . . . . . . .
Mortgage Loans . . . . . . . . . .
Policy Loans . . . . . . . . . . . .
Net realized gain on investment in
trading securities:
Investments:(1)
Units in mutual funds . . . . . .
Equity securities . . . . . . . . . .
Debt securities . . . . . . . . . . .
Subtotal . . . . . . . . . . . . .
Segregated funds of unit link:
Units in mutual funds . . . . . .
Equity securities . . . . . . . . . .
Debt securities . . . . . . . . . . .
Subtotal . . . . . . . . . . . . . . .
Segregated Funds of Sharia:
Subtotal . . . . . . . . . . . . .
2008
2009
Rp.
Rp.
2010
2010
2010
Rp.
US$
Rp.
(Rp. in billions, US$ in millions)
2011
2011
Rp.
US$
.
.
.
.
.
.
.
.
.
.
.
.
11.8
26.0
2.4
3.3
63.2
57.7
2.5
2.2
60.8
46.1
2.3
1.9
6.9
5.2
0.3
0.2
54.3
28.7
1.7
0.5
37.8
144.7
1.3
0.4
4.2
16.4
0.1
0.0
.
.
.
.
.
.
.
.
.
.
.
.
464.2
21.7
8.9
494.8
1,098.3
16.4
4.5
1,119.2
210.0
174.7
16.5
401.2
23.8
19.8
1.9
45.5
132.2
26.4
16.5
175.1
93.5
451.3
—
544.8
10.6
51.2
—
61.8
.
.
.
.
.
.
.
.
.
.
.
.
(7.3)
0.7
2.2
(4.4)
84.4
—
0.1
84.6
222.4
—
3.1
225.5
25.2
—
0.4
25.6
212.5
—
3.0
215.5
488.5
—
—
488.5
55.4
—
—
55.4
. . .
(0.1)
0.1
1.3
0.1
0.7
0.5
0.1
1,203.9
627.9
71.2
391.3
1,033.8
117.3
108.8
7.2
—
116.0
12.3
0.8
—
13.1
Total . . . . . . . . . . . . . . . . . . . .
Net unrealized gain (loss) on increase
(decrease) in fair value of
investment in trading securities:
Investments:(1)
Units in mutual funds . . . . . . .
Equity securities . . . . . . . . . .
Debt securities . . . . . . . . . . .
Subtotal . . . . . . . . . . . . . .
Segregated funds of unit link:
Units in mutual funds . . . . . . . .
Equity securities . . . . . . . . . . . .
Debt securities . . . . . . . . . . . . .
Subtotal . . . . . . . . . . . . . . .
Segregated funds of Sharia:
Subtotal . . . . . . . . . . . . . . .
490.3
.
.
.
.
278.5
(67.3)
40.5
251.7
(385.9)
34.9
4.4
(346.7)
64.9
67.6
(4.2)
128.4
7.4
7.7
(0.5)
14.6
86.4
24.5
3.6
114.5
.
.
.
.
(65.9)
(8.7)
(16.9)
(91.5)
225.9
13.7
5.6
245.2
519.6
9.5
7.5
536.6
58.9
1.1
0.9
60.8
353.1
9.0
6.7
368.8
67.0
(3.6)
2.7
66.1
7.6
(0.4)
0.3
7.5
.
(2.4)
3.3
2.8
0.3
2.4
(1.3)
(0.1)
Total . . . . . . . . . . . . . . . . . . . .
Bond amortization . . . . . . . . . . . . .
Dividend . . . . . . . . . . . . . . . . . . .
Mutual fund . . . . . . . . . . . . . . . . .
Investment expense . . . . . . . . . . . .
Investment written-off expense . . . . .
Gain (loss) on foreign exchange — net .
157.8
(36.2)
2.7
0.0
(1.0)
—
212.2
180.8
0.0
12.3
7.1
(2.1)
—
(24.5)
20.5
0.0
1.4
0.8
(0.2)
—
(2.8)
Total investment income — net . . . . .
869.2
(1)
(98.2)
43.5
1.0
0.0
(1.0)
(18.5)
(180.3)
1,075.9
667.8
17.9
13.9
6.6
(3.1)
—
(50.0)
1,392.1
75.7
2.0
1.5
0.7
(0.3)
—
(5.6)
157.8
485.7
0.0
13.8
4.9
(2.9)
—
(56.7)
921.3
1,391.5
157.7
Comprises policyholder investments (excluding investments of its unit link assets) and shareholder investments funded by paid-up
capital.
Nine Months Ended September 30, 2011 Compared to Nine Months Ended September 30, 2010.
Sinarmas MSIG Life’s total investment income — net increased 51.0% to Rp.1,391.5 billion (US$157.7
million) in the nine months ended September 30, 2011 from Rp.921.3 billion in the nine months ended
September 30, 2010, primarily attributable to an increase in investment income and a decrease in loss on
foreign exchange — net.
Investment income. Sinarmas MSIG Life’s investment income increased 44.8% to Rp.1,416.0 billion
(US$160.5 million) in the nine months ended September 30, 2011 from Rp.978.0 billion in the nine
months ended September 30, 2010. This increase was primarily attributable a net realized gain on
investment in trading securities of Rp.1,033.8 billion (US$117.3 million) in the nine months ended
September 30, 2011, compared to a net realized gain on investment in trading securities of Rp.391.3
billion in the nine months ended September 30, 2010. The net realized gain in the nine months ended
September 30, 2011 was principally attributable to a Rp.451.3 billion (US$51.2 million) realized gain
on sale of equity securities in order to make a distribution to SMMA prior to the effective date of
MSIG’s share subscription on July 1, 2011. The increase in net realized gain was also attributable to a
lesser extent to a Rp.488.5 billion (US$55.4 million) realized gain from the sale of units of mutual
funds with respect to segregated funds of unit link primarily to fund redemptions of unit link policies
by policyholders migrating to Sinarmas MSIG Life’s endowment policies and interest income from
time deposits as a result of increases in amounts placed in time deposits due to the capital contribution
from MSIG from its share subscription.
The increase in net realized gain on investment in trading securities in the nine months ended
September 30, 2011 was partially offset by a decrease in net unrealized gain on increase in fair value
of investment in trading securities to Rp.180.8 billion (US$20.5 million) in the nine months ended
September 30, 2011 from Rp.485.7 billion in the nine months ended September 30, 2010, primarily
attributable to the decrease in net unrealized gain on units of mutual funds with respect to segregated
funds of unit link to Rp.67.0 billion (US$7.6 million) in the nine months ended September 30, 2011
from Rp.353.1 billion in the nine months ended September 30, 2010 due to the reversal of unrealized
gains recorded on the units of mutual funds in the prior period attributable to gains realized in the
current period for accounting purposes, and to a lesser extent, the decrease in net unrealized loss on
equity securities with respect to policyholder (excluding investments of unit link assets) and
shareholder investments to Rp.7.2 billion (US$0.8 million) in the nine months ended September 30,
2011 from Rp.24.5 billion in the nine months ended September 30, 2010 due to the reversal of
unrealized gains recorded in the prior period attributable to realized gains in the current period for
accounting purposes. The amount of the reversal was small compared to the realized gain from sale of
equity securities as the reversal was partially offset by unrealized gains on outstanding positions and
new placements of securities.
Loss on foreign exchange — net. Sinarmas MSIG Life’s loss on foreign exchange — net decreased
56.8% to Rp.24.5 billion (US$2.8 million) in the nine months ended September 30, 2011 from Rp.56.7
billion in the nine months ended September 30, 2010, principally as a result of a decrease in foreign
exchange rate yield on U.S. dollar-denominated investments for the nine months ended September 30,
2011 as compared with the foreign exchange rate yield on U.S. dollar-denominated investments for the
nine months ended September 30, 2011 due to the strengthening of the Rupiah against the U.S. dollar.
2010 Compared to 2009. Sinarmas MSIG Life’s total investment income — net increased 29.4% to
Rp.1,392.1 billion (US$157.8 million) in 2010 from Rp.1,075.9 billion in 2009, primarily attributable to an
increase in investment income and a decrease in loss on foreign exchange — net.
Investment income. Sinarmas MSIG Life’s investment income increased 14.8% to Rp.1,442.0 billion
(US$163.4 million) in 2010 from Rp.1,256.2 billion in 2009. This increase in investment income was
primarily attributable to a net unrealized gain on increase in fair value of investment in trading
securities of Rp.667.8 billion (US$75.7 million) in 2010, compared to a net unrealized loss on
decrease in fair value of investment in trading securities of Rp.98.2 billion in 2009. The net unrealized
gain in 2010 was principally attributable to significantly higher investment levels in 2010 in respect of
segregated assets — unit link, mostly in units of mutual funds, in line with the increase in unit link
policies principally due to the migration of policyholders from endowment policies. In 2009, Sinarmas
MSIG Life recorded net unrealized loss on decrease in fair value of securities, principally due to the
reversal of unrealized gains recorded in the prior year to reflect gains realized in the current year for
accounting purposes, partially offset by unrealized gains recorded to reflect fair value through profit
and loss of new mutual fund units purchased. Investments principally comprised units of mutual funds
which amounted to Rp.7,652.9 billion in 2010, compared to Rp.5,308.7 billion as of December 31,
2009, of which 77.5% and 58.0% was attributable to segregated assets — unit link.
This was partially offset by a decrease in the net realized gain on investment in trading securities
to Rp.627.9 billion (US$71.2 million) in 2010 from Rp.1,203.9 billion in 2009, principally because
Sinarmas MSIG Life realized a smaller amount of securities in 2010.
Loss on foreign exchange — net. Sinarmas MSIG Life’s loss on foreign exchange — net
decreased 72.3% to Rp.50.0 billion (US$5.7 million) in 2010 from Rp.180.3 billion in 2009,
principally as a result of a decrease in foreign exchange rate yield on U.S. dollar denominated
investments for the year ended December 31, 2010 as compared with the foreign exchange rate yield
on U.S. dollar denominated investments due to the strengthening of the Rupiah against the U.S. dollar.
2009 Compared to 2008. Sinarmas MSIG Life’s total investment income — net increased 23.8% to
Rp.1,075.9 billion in 2009 from Rp.869.2 billion in 2008, primarily attributable to an increase in investment
income, partially offset by a loss on foreign exchange — net in 2009, compared to a gain on foreign
exchange — net in 2008.
Investment income. Sinarmas MSIG Life’s investment income increased 91.2% to Rp.1,256.2 billion in
2009 from Rp.657.0 billion in 2008. This increase was primarily attributable to an increase in net
realized gain on investment in trading securities to Rp.1,203.9 billion in 2009 from Rp.490.3 billion in
2008, principally because of a significant increase in net realized gains on units of mutual funds,
principally as a result of the liquidation of investments in conventional mutual funds managed by
related parties and other investments with respect to both policyholder (excluding investments of its
unit link assets) and shareholder investments and segregated assets — unit link and re-investment of
such funds in newly created RDPT funds beginning 2009 as encouraged by the Ministry of Finance at
the time to improve corporate governance and to avoid instability due to market volatility. This was
partially offset by a net unrealized loss on decrease in fair value of investment trading securities of
Rp.98.2 billion, compared to a net unrealized gain on increase in fair value of investment in trading
securities of Rp.157.8 billion in 2008, principally due to the reversal of unrealized gains recorded in
the prior year to reflect gains realized in the current year for accounting purposes. As of December 31,
2009, Sinarmas MSIG Life’s investments in units of mutual funds amounted to Rp.5,308.7 billion as of
December 31, 2009, compared to Rp.5,027.5 billion as of December 31, 2008, of which 58% and
8.9% was attributable to segregated assets — unit link.
Loss on foreign exchange — net. Sinarmas MSIG Life’s recorded a loss on foreign exchange — net of
Rp.180.3 billion in 2009, compared to a gain on foreign exchange — net of Rp.212.2 billion in 2008. The
loss on foreign exchange — net in 2009 was principally as a result of a decrease in foreign exchange rate
yield on U.S. dollar-denominated investments for the year ended December 31, 2010 as compared with the
foreign exchange rate yield on U.S. dollar-denominated investments due to the strengthening of the Rupiah
against the U.S. dollar in 2009, compared to the weakening of the Rupiah against the U.S. dollar in 2008 due
to shift of increased amounts into current accounts to meet higher working capital needs.
Other Income
Nine Months Ended September 30, 2011 Compared to Nine Months Ended September 30, 2010.
Sinarmas MSIG Life’s other income — net increased 145.5% to Rp.32.4 billion (US$3.7 million) in the nine
months ended September 30, 2011 from Rp.13.2 billion in the nine months ended September 30, 2010,
primarily attributable to interest income from current accounts related to an increase in cash position in
current accounts for working capital.
2010 Compared to 2009. Sinarmas MSIG Life’s other income — net decreased 13.2% to Rp.11.5
billion (US$1.3 million) in 2010 from Rp.13.3 billion in 2009, primarily attributable to a Rp.2.3 billion
decrease on gain on foreign exchange — net, due to the strengthening of the Rupiah against the U.S. dollar
with respect to non-investment assets and liabilities such as U.S. dollar claims payable (excluding reserves)
and accounts receivables, and a Rp.1.0 billion decrease in gain on sale of fixed assets, partially offset by a
Rp.0.9 billion decrease in other receivables written-off and a Rp.0.5 billion increase in interest income from
current accounts.
2009 Compared to 2008. Sinarmas MSIG Life’s other income — net increased 77.3% to Rp.13.3
billion in 2009 from Rp.7.5 billion in 2008, primarily attributable to a Rp.5.0 billion increase in gain on
foreign exchange — net, a Rp.1.4 billion increase in interest income from current accounts due to a shift of
assets into current accounts in anticipation of possible increased claims and redemption expenses due to
adverse global financial conditions and a Rp.1.5 billion increase in gain on sale of company vehicles as a
result of Sinarmas MSIG Life’s adoption of a car pooling policy, partially offset by a Rp.1.0 billion increase
in other receivables write-off with respect to uncollectible group insurance premiums.
Expenses
Nine Months Ended September 30, 2011 Compared to Nine Months Ended September 30, 2010.
Sinarmas MSIG Life’s total expenses increased 44.4% to Rp.10,228.4 billion (US$1,159.3 million) in the
nine months ended September 30, 2011 from Rp.7,082.5 billion in the nine months ended September 30,
2010, primarily attributable to increases in claims and benefit expenses and increase in liability for future
policy benefits and estimated claims liability — net in respect of endowment policies, partially offset by a
decrease in liability for future policy benefits and estimated claims liability — net in respect of unit link
policies.
2010 Compared to 2009. Sinarmas MSIG Life’s total expenses increased 26.9% to Rp.10,130.5 billion
(US$1,148.2 million) in 2010 from Rp.7,984.8 billion in 2009, primarily attributable to increases in claims
and benefits expenses and payables to unit link policyholders, partially offset by a decrease in liability for
future policy benefits and estimated claims liability — net in respect of endowment policies.
2009 Compared to 2008. Sinarmas MSIG Life’s total expenses increased 36.9% to Rp.7,984.8 billion in
2009 from Rp.5,831.3 billion in 2008, primarily attributable to increases in claims and benefits expenses and
payables to unit link’s policyholders. This was partially offset by a decrease in liability for future policy
benefits and estimated claims liability — net in 2009, compared to an increase in liability for future policy
benefits and estimated claims liability — net in 2008 in respect of endowment polices.
Claims and Benefits
The following table sets forth Sinarmas MSIG Life’s claims and benefits expenses for the periods
indicated.
Nine Months Ended
September 30,
Year Ended December 31,
2008
2009
Rp.
Rp.
.
.
.
.
.
2,885.8
1,902.2
141.9
27.1
2.3
4,552.5
2,095.5
69.3
36.9
0.0
6,431.1
636.0
35.1
34.9
0.1
728.9
72.1
3.9
3.9
0.0
Total claims and benefits . . . . . . . .
4,959.1
6,754.2
7,137.2
808.9
Surrender and redemption . .
Maturity and periodical claim
Health. . . . . . . . . . . . . . .
Death . . . . . . . . . . . . . . .
Refund premium . . . . . . . .
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
2010
2010
2010
2011
2011
Rp.
US$
4,393.3
545.0
26.1
25.7
0.0
7,286.7
568.6
26.9
34.5
0.6
825.9
64.4
3.0
3.9
0.1
4,990.1
7,917.3
897.3
Rp.
US$
Rp.
(Rp. in billions, US$ in millions)
Nine Months Ended September 30, 2011 Compared to Nine Months Ended September 30, 2010.
Sinarmas MSIG Life’s claims and benefits expenses increased 58.7% to Rp.7,917.3 billion (US$897.3
million) in the nine months ended September 30, 2011 from Rp.4,990.1 billion in the nine months ended
September 30, 2010, principally as a result of redemption of unit link policies.
Surrender and redemption. Sinarmas MSIG Life’s surrender and redemption expenses increased 65.8%
to Rp.7,286.7 billion (US$825.9 million) in the nine months ended September 30, 2011 from
Rp.4,393.3 billion in the nine months ended September 30, 2010, principally because of an increase in
surrender and redemption claims in respect of unit link policies, as customers shifted to endowment
policies, which offered higher guaranteed returns, in line with Sinarmas MSIG Life’s strategy to
increase the proportionate amount of endowment products as a percentage of premium income,
following the increase in its capital and solvency ratios in 2011.
Maturity and periodical claim. Sinarmas MSIG Life’s maturity and periodical claim expenses
increased slightly by 4.3% to Rp.568.6 billion (US$64.4 million) in the nine months ended September
30, 2011 from Rp.545.0 billion in the nine months ended September 30, 2010, principally because of
an increase in periodical claims on endowment policies which came due in the nine months ended
September 30, 2011.
2010 Compared to 2009. Sinarmas MSIG Life’s claims and benefits expenses increased 5.7% to
Rp.7,137.2 billion (US$808.9 million) in 2010 from Rp.6,754.2 billion in 2009, principally as a result of an
increase in surrender and redemption expenses, partially offset by a decrease in maturity and periodical
claim expenses.
Surrender and redemption. Sinarmas MSIG Life’s surrender and redemption expenses increased 41.3%
to Rp.6,431.1 billion (US$728.9 million) in 2010 from Rp.4,552.5 billion in 2009, principally due to
customers migrating to unit link products to take advantage of higher target investment returns on an
offer by Sinarmas MSIG Life.
Maturity and periodical claim. Sinarmas MSIG Life’s maturity and periodical claim expenses
decreased 69.6% to Rp.636.0 billion (US$72.1 million) in 2010 from Rp.2,095.5 billion in 2009,
principally because of decrease in endowment policies and other conventional insurance policies.
2009 Compared to 2008. Sinarmas MSIG Life’s claims and benefits expenses increased 36.2% to
Rp.6,754.2 billion in 2009 from Rp.4,959.1 billion in 2008, principally as a result of increases in surrender
and redemption expenses and maturity and periodical claim expenses.
Surrender and redemption. Sinarmas MSIG Life’s surrender and redemption expenses increased 57.8%
to Rp.4,552.5 billion in 2009 from Rp.2,885.8 billion in 2008, principally because of endowment
policyholders migrating to unit link products.
Maturity and periodical claim. Sinarmas MSIG Life’s maturity and periodical claim expenses
increased 10.2% to Rp.2,095.5 billion in 2009 from Rp.1,902.2 billion in 2008, principally because of
increase in periodical claims on endowment policies which came due in 2009.
Increase in Payables to Unit Link’s Policyholders
Nine Months Ended September 30, 2011 Compared to Nine Months Ended September 30, 2010.
Sinarmas MSIG Life’s increase in payables to unit link’s policyholders decreased 170.8% to Rp.(1,951.6)
billion (US$(221.2) million) in the nine months ended September 30, 2011 from Rp.2,756.9 billion in the
nine months ended September 30, 2010, principally because of a decrease in the amount of unit link policies
written as customers migrated to endowment polices which offered higher guaranteed returns. Segregated
assets — unit link decreased to Rp.5,386.1 billion (US$610.5 million) in the nine months ended September
30, 2011 from Rp.6,211.2 billion in the nine months ended September 30, 2010.
2010 Compared to 2009. Sinarmas MSIG Life’s increase in payables to unit link’s policyholders
increased 29.7% to Rp.3,688.9 billion (US$418.1 million) in 2010 from Rp.2,843.6 billion in 2009,
principally because of an increase in the sale of unit link insurance products. Segregated assets — unit link
increased to Rp.7,434.8 billion (US$842.7 million) in 2010 from Rp.3,464.6 billion in 2009.
2009 Compared to 2008. Sinarmas MSIG Life’s increase in payables to unit link’s policyholders
increased significantly to Rp.2,843.6 billion in 2009 from Rp.241.3 billion in 2008, in line with the increase
in the sale of unit link insurance products by Sinarmas MSIG Life. Segregated assets — unit link increased
to Rp.3,464.6 billion (US$392.7 million) in 2009 from Rp.513.8 billion in 2008.
General and Administrative Expenses
Nine Months Ended September 30, 2011 Compared to Nine Months Ended September 30, 2010.
Sinarmas MSIG Life’s general and administrative expenses increased 16.3% to Rp.95.2 billion (US$10.8
million) in the nine months ended September 30, 2011 from Rp.81.8 billion in the nine months ended
September 30, 2010, primarily attributable to increase in salaries and allowances, principally reflecting
increased costs for bancassurance at Bank Sinarmas, following a change in regulation.
2010 Compared to 2009. Sinarmas MSIG Life’s general and administrative expenses increased 20.5%
to Rp.120.5 billion (US$13.7 million) in 2010 from Rp.100.0 billion in 2009, primarily attributable to a
Rp.12.5 billion increase in defined-benefit post employment expense — net and, to a lesser extent, a Rp.2.4
billion increase in salaries and allowances, a Rp.2.1 billion increase in professional fees and a Rp.1.5 billion
increase in depreciation, principally due to depreciation of vehicles used by Bank Sinarmas employees selling
Sinarmas MSIG Life bancassurance products.
2009 Compared to 2008. Sinarmas MSIG Life’s general and administrative expenses remained
relatively stable, increasing slightly to Rp.100.0 billion in 2009 from Rp.99.9 billion in 2008.
Acquisition Expenses
Nine Months Ended September 30, 2011 Compared to Nine Months Ended September 30, 2010.
Sinarmas MSIG Life’s acquisition expenses increased 111.5% to Rp.48.9 billion (US$5.6 million) in the nine
months ended September 30, 2011 from Rp.23.1 billion in the nine months ended September 30, 2010,
primarily attributable to increase in commissions corresponding to increase in sales.
2010 Compared to 2009. Sinarmas MSIG Life’s acquisition expenses increased 43.8% to Rp.40.3
billion (US$4.6 million) in 2010 from Rp.28.0 billion in 2009, primarily attributable to a Rp.12.5 billion
increase in commissions corresponding to increase in sales.
2009 Compared to 2008. Sinarmas MSIG Life’s acquisition expenses decreased 56.0% to Rp.28.0
billion in 2009 from Rp.63.8 billion in 2008, primarily attributable to a Rp.14.3 billion decrease in
commissions due to amortization of the last deferred acquisition cost in 2008. The decrease in acquisition
was also attributable to deferred acquisition costs, which were nil in 2009, compared to Rp.21.0 billion in
2008.
Increase in Payables to Sharia’s Policyholders
Nine Months Ended September 30, 2011 Compared to Nine Months Ended September 30, 2010.
Sinarmas MSIG Life’s increase in payable to Sharia’s policyholders increased 19.6% to Rp.15.7 billion
(US$1.8 million) in the nine months ended September 30, 2011 from Rp.13.2 billion in the nine months
ended September 30, 2010, principally as a result of increase in premium income.
2010 Compared to 2009. Sinarmas MSIG Life’s increase in payable to Sharia’s policyholders increased
significantly to Rp.17.8 billion (US$2.0 million) in 2010 from Rp.4.9 billion in 2009, principally as a result
of an increase in premium income attributable to Sharia policies written.
2009 Compared to 2008. Sinarmas MSIG Life’s increase in payable to Sharia’s policyholders
decreased 32.9% to Rp.4.9 billion in 2009 from Rp.7.3 billion in 2008, principally as a result of a decrease
in premium income in 2009 compared with 2008.
Marketing Expenses
Nine Months Ended September 30, 2011 Compared to Nine Months Ended September 30, 2010.
Sinarmas MSIG Life’s marketing expenses increased 295.5% to Rp.17.4 billion (US$2.0 million) in the nine
months ended September 30, 2011 from Rp.4.4 billion in the nine months ended September 30, 2010,
principally as a result of an increase in advertising expenses.
2010 Compared to 2009. Sinarmas MSIG Life’s marketing expenses increased 50.0% to Rp.11.8
billion (US$1.3 million) in 2010 from Rp.7.9 billion in 2009, principally as a result of a Rp.1.9 billion
increase in advertising and promotion expenses and a Rp.1.9 billion increase in contest expenses, as
Sinarmas MSIG Life expanded its distribution channels.
2009 Compared to 2008. Sinarmas MSIG Life’s marketing expenses decreased 17.1% to Rp.7.9 billion
in 2009 from Rp.9.5 billion in 2008, principally as a result of a Rp.0.6 billion decrease in conference and
meeting expenses and a Rp.3.1 billion decrease in contest expenses, partially offset by a Rp.2.7 billion
increase in advertisement expenses.
Reinsurance Claims
Nine Months Ended September 30, 2011 Compared to Nine Months Ended September 30, 2010.
Sinarmas MSIG Life’s reinsurance claims decreased 100.0% to nil in the nine months ended September 30,
2011 from Rp.1.2 billion in the nine months ended September 30, 2010, principally because of a decrease in
policies reinsured.
2010 Compared to 2009. Sinarmas MSIG Life’s reinsurance claims decreased 84.9% to Rp.0.5 billion
(US$0.1 million) in 2010 from Rp.3.0 billion in 2009, principally because of a decrease in policies
reinsured.
2009 Compared to 2008. Sinarmas MSIG Life’s reinsurance claims increased 260.7% to Rp.3.0 billion
in 2009 from Rp.0.8 billion in 2008, principally because of an increase in policies reinsured.
Decrease in Liability for Future Policy Benefits and Estimated Claims — Net
Nine Months Ended September 30, 2011 Compared to Nine Months Ended September 30, 2010.
Sinarmas MSIG Life recorded an increase in liability for future policy benefits of Rp.4,085.5 billion
(US$463.0 million) in the nine months ended September 30, 2011, compared to a decrease in liability for
future policy benefits of Rp.788.1 billion recorded in the nine months ended September 30, 2010
representing a 618.4% increase. This was principally due to a significant increase in liability for future
combined endowment policy benefits, in line with Sinarmas MSIG Life’s strategic focus to increase
endowment policies written, both from new customers and existing customers moving from unit link policies
to endowment policies.
2010 Compared to 2009. Sinarmas MSIG Life’s decrease in liability for future policy benefits and
estimated claims — net decreased 49.4% to Rp.885.6 billion (US$100.4 million) in 2010 from Rp.1,750.8
billion in 2009, principally as a result of a Rp.942.3 billion decrease in liabilities for individual combined
endowment policy benefits, as customers migrated to unit link products.
2009 Compared to 2008. Sinarmas MSIG Life recorded a decrease in liability for future policy
benefits and estimated claims — net of Rp.1,750.8 billion in 2009, compared to an increase in liability for
future policy benefits and estimated claims — net of Rp.451.1 billion in 2008, principally as a result of a
Rp.1,749.5 billion decrease in liabilities for individual combined endowment policy benefits, as customers
migrated to unit link products.
Income Before Deferred Income Tax Benefit (Expense)
Nine Months Ended September 30, 2011 Compared to Nine Months Ended September 30, 2010. As a
result of the above, Sinarmas MSIG Life’s income before deferred income tax benefit (expense) increased
322.2% to Rp.997.0 billion (US$113.0 million) in the nine months ended September 30, 2011 from Rp.236.1
billion in the nine months ended September 30, 2010.
2010 Compared to 2009. As a result of the above, Sinarmas MSIG Life’s income before deferred
income tax benefit increased 152.5% to Rp.556.0 billion (US$63.0 million) in 2010 from Rp.220.2 billion in
2009.
2009 Compared to 2008. As a result of the above, Sinarmas MSIG Life’s income before deferred
income tax benefit increased 30.1% to Rp.220.2 billion in 2009 from Rp.169.3 billion in 2008.
Deferred Income Tax Benefit (Expense)
Nine Months Ended September 30, 2011 Compared to Nine Months Ended September 30, 2010.
Sinarmas MSIG Life recorded a deferred income tax benefit of Rp.1.7 billion (US$0.2 million) in the nine
months ended September 30, 2011, compared to a deferred income tax expense of Rp.16.8 billion in the
nine months ended September 30, 2010.
2010 Compared to 2009. Sinarmas MSIG Life’s deferred income tax expense was Rp.13.5 billion
(US$1.5 million), compared to a deferred income tax benefit of Rp.12.2 billion in 2009.
2009 Compared to 2008. Sinarmas MSIG Life recorded a deferred income tax benefit of Rp.12.2
billion in 2009, compared to a deferred income tax expense of Rp.5.3 billion in 2009.
Net Income
Nine Months Ended September 30, 2011 Compared to Nine Months Ended September 30, 2010. As a
result of the above, Sinarmas MSIG Life’s net income increased 355.4% to Rp.998.8 billion (US$113.2
million) in the nine months ended September 30, 2011 from Rp.219.3 billion in the nine months ended
September 30, 2010.
2010 Compared to 2009. As a result of the above, Sinarmas MSIG Life’s net income increased 133.4%
to Rp.542.5 billion (US$61.5 million) in 2010 from Rp.232.4 billion in 2009.
2009 Compared to 2008. As a result of the above, Sinarmas MSIG Life’s net income increased 41.7%
to Rp.232.4 billion in 2009 from Rp.164.0 billion in 2008.
Principal Income Statement Components of Asuransi Sinar Mas
Underwriting Income
Premiums Earned — Net
Gross premiums comprise premiums received from policyholders based on short-term and long-term
contracts and are generated principally from Asuransi Sinar Mas’ fire and property, motor vehicles and
health and personal accident insurance products, and to a lesser extent, its marine hull, marine cargo,
engineering and other insurance products. Premiums earned — net is gross premiums less reinsurance
premiums paid plus the decrease or increase in unearned premiums.
Reinsurance premiums comprise premiums due to reinsurance companies for reinsurance coverage. For
proportionate reinsurance coverage, reinsurance premiums are recognized during the period of the
reinsurance contract in proportion to the insurance coverage received, and for excess-of-loss reinsurance
coverage, reinsurance premium represents premiums for reinsurance coverage above the net retention level.
For non-proportionate reinsurance coverage, reinsurance premium amounts for interim periods do not reflect
adjustments from proportionate reinsurance which are usually made at the end of the year and therefore
interim results may differ from results for the entire year.
Unearned premiums represent the portion of the premium which has not been recognized as revenue
since the period covered extend beyond the end of the current period of the accounting year, and are
calculated in aggregate using a certain percentage in accordance with applicable regulations. See
“Business—Non-Life Insurance—Asuransi Sinar Mas—Reserves” for further information. The increase or
decrease in unearned premiums represents the difference between the unearned premiums balance for the
current and prior year.
Premiums earned — net is recorded in the Company’s consolidated statements of income under
“Insurance Underwriting Income”.
Underwriting Expenses
Total Claim Expenses — Net
Gross claims comprise claims payable in respect of Asuransi Sinar Mas’ insurance policies. Total claim
expenses — net is gross claims less reinsurance claims plus increases or decreases in estimated own
retention claims.
Reinsurance claims comprise claims under insurance coverage which have been ceded to the reinsurers
and are calculated as a percentage of gross claims in proportion to amounts reinsured together with the share
of reinsurance above the insurance net retention level for non-proportionate insurance.
Estimated own retention claims are loss provisions for estimated claims liability and are computed
based on estimated loss for claims Asuransi Sinar Mas retains which at balance sheet date are still in
process, including claims incurred but not reported. See “Business—Non-Life Insurance—Asuransi Sinar
Mas—Reserves” for further information. The increase or decrease in estimated own retention claims
represents the difference between the estimated own retention claims balance for the current and prior year.
Total claim expenses — net is recorded in the Company’s consolidated statements of income under
“Insurance Underwriting Expenses”.
Commissions Expense — Net
Commissions expense — net comprises commissions due to insurance brokers, agents, banks and other
insurance companies in connection with insurance coverage, net of commissions received from reinsurers in
reinsurance transactions. Commissions expense — net is recorded in the Company’s consolidated statements
of income under “Insurance Underwriting Expenses”.
Investment Income
Investment income — net principally comprises the gain on mutual funds, the net gain (loss) on sale of
marketable securities, net unrealized gain from change in fair value of marketable securities, interest income,
dividend income, the net gain or loss on foreign exchange of investment, rental income from affiliates for the
lease of office space and the equity portion in net income of an associated company, LIG. Interest income
comprises interest derived from time deposits, bonds and notes and mortgage loans. Gain on mutual funds
comprises the net realized and unrealized gains in the investments in units of mutual funds
held by Asuransi Sinar Mas. Gain (loss) on sale of marketable securities comprises gains or losses on
marketable securities which include equities and bonds. Gain (loss) on foreign exchange comprises realized
and unrealized foreign exchange gains and realized and unrealized foreign exchange losses, primarily in
relation to adjustments to assets and liabilities denominated in foreign currencies on the balance sheet date
by Asuransi Sinar Mas.
In the Company’s consolidated statement of income, net realized and unrealized gain or loss on mutual
funds of Asuransi Sinar Mas are recorded under “Gain from Investment in Units of Mutual Funds”. Net
realized gain or loss on sale of marketable securities of Asuransi Sinar Mas are recorded under “Gain on
Sale of Short-Term Investments”, and net unrealized gain or loss from change in fair value of marketable
securities — net are recorded under “Unrealized Gain on Increase in Fair Value of Securities — Net” or
“Unrealized Loss on Decrease in Fair Value of Securities — Net”. The interest component of investment
income of Asuransi Sinar Mas is recorded under “Interest Income” in the Company’s consolidated statement
of income and dividends earned on investments by Asuransi Sinar Mas are recorded under “Other Income”
in the Company’s consolidated statement of income.
Operating Expenses
Operating expenses principally comprise employee expenses, general and administrative expenses,
depreciation, rental expenses, training and education, entertainment, repair and maintenance and provision
for doubtful accounts.
Employee Expenses
Employee expenses include salaries and wages, provisions for post-employment benefits, holidays and
other entitlements and is recorded in the Group’s consolidated statement of comprehensive income under
“Salaries and employee benefits”.
General and Administrative Expenses
General and administrative expenses include expenses for communication, utilities, business travel,
fuel, which is recorded in the Group’s consolidated statement of comprehensive income under “General and
administrative expenses” and “Others”.
Depreciation
Depreciation includes depreciation costs relating to Asuransi Sinar Mas’ property and equipment,
which is recorded in the Group’s consolidated statement of comprehensive income under “Depreciation
expense”.
Rental Expenses
Rental expenses include expenses incurred by Asuransi Sinar Mas for rental of office space, computer
equipment and leases of company vehicles.
Entertainment Expenses
Entertainment expenses are primarily incurred for expenses incurred for business and client
development.
Training and Education Expenses
Training and education expenses are primarily incurred for training for Asuransi Sinar Mas’ agents,
professional insurance certification training, coursework and workshops, training for marketing officers and
training for operational officers.
Repair and Maintenance Expenses
Repair and maintenance expenses are primarily incurred for repair and maintenance of company
vehicles provided to directors, managers and head office marketing personnel.
Provision for doubtful accounts
Provision for doubtful accounts refer to impairment loss recognized on premiums and reinsurance
receivables and recorded in the Group’s consolidated statement of comprehensive income under “Provision
for doubtful accounts”.
Results of Operations of Asuransi Sinar Mas
The following table provides a breakdown of Asuransi Sinar Mas’ principal income statement
components, including each principal component as a percentage of its net income, for the periods indicated.
You should read this table together with Asuransi Sinar Mas’ financial statements, including the notes
thereto.
Nine Months Ended
September 30,
Year Ended December 31,
2008
Rp.
Underwriting Income:
Gross premiums . . . . . . . . . . . . .
Reinsurance premiums . . . . . . . . .
Decrease (increase) in unearned
premiums . . . . . . . . . . . . . . .
Total Premiums Earned — Net . . . . .
Underwriting Expenses:
Gross claims . . . . . . . . . . . . . . .
Reinsurance claims . . . . . . . . . . .
Increase in estimated own retention
claims . . . . . . . . . . . . . . . . . .
Total Claim Expenses — Net . . . . . .
Commissions Expense — Net . . . . . .
Other Underwriting Expenses . . . . . .
2009
2010
2010
2011
Rp.
Rp.
US$
Rp.
Rp.
(Rp. in billions, US$ in millions, except percentages)
US$
3,229.3
(2,297.8)
2,872.7
(1,762.5)
3,259.0
(1,798.7)
369.4
(203.9)
2,445.0
(1,383.2)
2,988.2
(1,541.9)
338.7
(174.8)
(108.1)
(38.0)
(119.0)
(13.5)
(69.4)
(136.0)
(15.4)
152.0
992.4
823.4
1,072.3
1,341.3
1,310.3
148.5
(572.9)
93.7
(963.8)
360.8
(862.8)
93.4
(97.8)
10.6
(612.1)
88.3
(730.6)
16.5
(82.8)
1.9
(3.7)
(482.8)
(175.6)
(1.5)
(18.2)
(621.3)
(259.4)
(1.1)
(54.3)
(823.7)
(312.0)
(2.3)
(6.2)
(93.4)
(35.4)
(0.3)
(64.8)
(588.6)
(237.8)
(2.2)
(75.6)
(789.7)
(283.5)
(0.7)
(8.6)
(89.5)
(32.1)
(0.1)
Total Underwriting Expenses. . . . . . .
(660.0)
(881.9)
(1,138.0)
(129.0)
(828.6)
(1,073.9)
(121.7)
Underwriting Income — Net . .
Investment Income — Net . . .
Profit Sharing to Participants .
Tabarru Fund . . . . . . . . . . .
Operating Expenses . . . . . . .
163.4
52.5
(0.3)
—
(134.0)
190.4
106.9
(0.2)
—
(155.5)
203.3
264.5
(0.2)
(0.04)
(174.5)
23.0
30.0
(0.0)
(0.0)
(19.8)
163.8
186.2
0.2
—
(127.4)
236.4
318.7
—
—
(161.7)
26.8
36.1
—
—
(18.3)
Income from Operations . . . . . . . .
Other Income — Net . . . . . . . . . . .
81.6
7.1
141.6
8.9
293.0
10.1
33.2
1.1
222.8
7.1
393.4
7.7
44.6
0.9
Income before Tithe . . . . . . . . . . .
Tithe . . . . . . . . . . . . . . . . . . . . .
88.7
(0.02)
150.5
(0.05)
303.1
(0.1)
34.4
(0.0)
—
—
—
—
—
—
Income before Income Tax Expense .
88.7
150.4
303.0
34.3
229.9
401.1
45.5
Income Tax Expense:
Current . . . . . . . . . . . . . . . . . .
Deferred . . . . . . . . . . . . . . . . . .
—
(12.2)
—
(7.4)
(0.5)
(4.0)
(0.1)
(0.5)
(3.2)
(4.7)
(28.2)
(5.5)
(3.2)
(0.6)
Total
Net Income . . . . . . . . . . . . . . . . .
(12.2)
76.5
(7.4)
143.0
(4.5)
298.5
(0.5)
33.8
(7.9)
222.0
(33.7)
367.4
(3.8)
41.6
Income attributable to:
Equity Holder of ASM . . . . . . . . .
Non-controlling Interest . . . . . . . .
76.5
—
143.0
—
298.5
—
33.8
—
222.0
—
367.4
—
41.6
—
76.5
143.0
298.5
33.8
222.0
367.4
41.6
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
Underwriting Income
The following table sets forth the breakdown of Asuransi Sinar Mas’ gross premium income and total
premiums earned — net for the periods indicated.
Nine Months Ended
September 30,
Year Ended December 31,
2008
2009
Rp.
Rp.
.
.
.
.
.
.
.
2,043.9
551.6
250.5
79.7
15.4
15.8
272.4
1,428.8
760.0
245.0
130.8
23.0
11.8
273.4
1,446.8
924.8
466.1
129.8
38.9
8.5
244.1
164.0
104.8
52.8
14.7
4.4
1.0
27.7
. . . . . . .
3,229.3
2,872.7
3,259.0
369.4
.
.
.
.
.
.
.
(1,933.7)
(36.3)
(16.6)
(60.9)
(10.1)
(11.3)
(228.9)
(1,317.2)
(71.7)
(6.7)
(112.1)
(17.0)
(8.7)
(229.2)
(1,374.2)
(72.0)
(6.1)
(115.4)
(31.0)
(6.0)
(194.0)
(155.8)
(8.2)
(0.7)
(13.1)
(3.5)
(0.7)
(22.0)
Total Reinsurance Premiums . . . .
(2,297.8)
(1,762.5)
(1,798.7)
.
.
.
.
.
.
.
(24.6)
(47.7)
(22.9)
(6.4)
(2.0)
(0.0)
(4.5)
(4.9)
(35.2)
1.8
0.2
(0.3)
0.3
0.2
. .
(108.1)
(38.0)
Gross Premiums:
Fire and property
Motor Vehicles . .
Health . . . . . . .
Marine Cargo . .
Marine Hull . . .
Engineering . . . .
Miscellaneous . .
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
Total Gross Premiums .
Reinsurance Premiums:
Fire and property . . . . .
Motor Vehicles . . . . . . .
Health . . . . . . . . . . . .
Marine Cargo . . . . . . .
Marine Hull . . . . . . . .
Engineering . . . . . . . . .
Miscellaneous . . . . . . .
Decrease (Increase) in
Premiums:
Fire and property . .
Motor Vehicles . . . .
Health . . . . . . . . .
Marine Cargo . . . .
Marine Hull . . . . .
Engineering . . . . . .
Miscellaneous . . . .
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
2010
2010
2010
2011
2011
Rp.
US$
1,044.6
749.5
284.9
121.4
31.4
7.9
205.3
1,212.0
891.7
474.2
122.7
52.9
8.4
226.3
137.4
101.1
53.7
13.9
6.0
1.0
25.6
2,445.0
2,988.2
338.7
(989.9)
(74.3)
(5.6)
(112.2)
(25.8)
(5.1)
(170.3)
(1,137.7)
(61.1)
(14.3)
(100.9)
(42.9)
(6.6)
(178.4)
(128.9)
(6.9)
(1.6)
(11.5)
(4.9)
(0.8)
(20.2)
(203.9)
(1,383.2)
(1,541.9)
(174.8)
13.6
(45.9)
(84.7)
1.4
(1.1)
0.1
(2.4)
1.5
(5.2)
(9.6)
0.2
(0.1)
0.0
(0.3)
4.6
(24.5)
(47.9)
0.7
(1.6)
(0.4)
(0.3)
(7.2)
(51.7)
(69.5)
(2.2)
(1.7)
0.4
(4.1)
(0.8)
(5.9)
(7.9)
(0.2)
(0.2)
0.0
(0.4)
(119.0)
(13.5)
(69.4)
(136.0)
(15.4)
9.8
91.5
42.5
1.8
0.8
0.3
5.4
152.0
59.3
650.7
231.4
9.9
4.0
2.4
34.7
992.4
Rp.
US$
Rp.
(Rp. in billions, US$ in millions)
Unearned
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
Total Decrease (Increase) in
Unearned Premiums . . . . . . .
Premiums Earned — Net:
Fire and property . . . . . . . . . .
Motor Vehicles . . . . . . . . . . . .
Health . . . . . . . . . . . . . . . . .
Marine Cargo . . . . . . . . . . . .
Marine Hull . . . . . . . . . . . . .
Engineering . . . . . . . . . . . . . .
Miscellaneous . . . . . . . . . . . .
Total Premiums Earned — Net.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
85.6
467.6
211.0
12.5
3.4
4.4
39.0
823.4
106.6
653.2
240.2
18.9
5.6
3.4
44.4
1,072.3
86.1
807.0
375.2
15.8
6.8
2.6
47.7
1,341.3
67.1
778.9
390.4
19.6
8.3
2.2
43.8
1,310.3
7.7
88.3
44.2
2.2
0.9
0.2
5.0
148.5
Total Premiums Earned — Net
Nine Months Ended September 30, 2011 Compared to Nine Months Ended September 30, 2010.
Asuransi Sinar Mas’ total premiums earned — net increased 32.0% to Rp.1,310.3 billion (US$148.5 million)
in the nine months ended September 30, 2011 from Rp.992.4 billion in the nine months ended September
30, 2010, primarily attributable to an increase in gross premium income, which was partially offset by an
increase in reinsurance premiums and an increase in unearned premiums for the period.
Gross Premiums. Asuransi Sinar Mas’ gross premiums increased 22.2% to Rp.2,988.2 billion
(US$338.7 million) in the nine months ended September 30, 2011 from Rp.2,445.0 billion in the nine
months ended September 30, 2010 as a result of increases in gross premium income across all product
categories, particularly fire and property, motor vehicles and health insurance, reflecting the continued
expansion of Asuransi Sinar Mas’ customer base, principally in Java. Premiums attributable to new
business accounted for approximately 27.5%, 92.4% and 10.0% of the total gross premiums for each
of fire and property, motor vehicles and health insurance categories, respectively, in the nine months
ended September 30, 2011.
Reinsurance premiums. Asuransi Sinar Mas’ reinsurance premiums increased 11.5% to Rp.1,541.9
billion (US$174.8 million) in the nine months ended September 30, 2011 from Rp.1,383.2 billion in
the nine months ended September 30, 2010 principally as Asuransi Sinar Mas ceded more fire and
property insurance policies to reinsurers due to more prudent underwriting and assessment of policies.
Reinsurance premiums for fire and property insurance policies as a percentage of gross premiums for
fire and property insurance policies increased to 93.9% in the nine months ended September 30, 2011
from 94.8% in the nine months ended September 30, 2010.
However, total reinsurance premiums as a percentage of gross premiums decreased slightly to 51.6%
in the nine months ended September 30, 2011 from 56.6% in the nine months ended September 30, 2010 as
a significant portion of new policies written in 2011 were health and motor vehicle policies and Asuransi
typically retains insurance risk on most of its health and motor vehicle policies.
As adjustments for non-proportionate reinsurance are typically made at the end of the year, reinsurance
premiums for the nine months period do not reflect adjustments to non-proportionate reinsurance for the
period.
Decrease (increase) in unearned premiums. Asuransi Sinar Mas’ unearned premiums increased 96.0%
to Rp.136.0 billion (US$15.4 million) in the nine months ended September 30, 2011 from Rp.69.4
billion in the nine months ended September 30, 2010, due to increases in unearned premium reserves
corresponding to increases in gross premiums.
2010 Compared to 2009. Asuransi Sinar Mas’ total premiums earned — net increased 25.1% to
Rp.1,341.3 billion (US$152.0 million) in 2010 from Rp.1,072.3 billion in 2009, primarily attributable to an
increase in gross premium income which was partially offset by an increase in unearned premiums.
Gross Premiums. Asuransi Sinar Mas’ gross premiums increased 13.5% to Rp.3,259.0 billion (US$369.4
million) in 2010 from Rp.2,872.7 billion in 2009. In 2010, Asuransi Sinar Mas experienced growth in
gross premium income across all products, except for a small decline in engineering, with the main
drivers of growth being from increases in motor vehicle and health insurance as a result of more
policies written. The largest contributor to gross premium income, fire and property insurance,
increased 1.3% to Rp.1,446.8 billion (US$164.0 million) in 2010, with approximately 5.8% comprising
new fire and property premiums, from Rp.1,428.7 billion in 2009.
Reinsurance premiums. Asuransi Sinar Mas’ reinsurance premiums increased slightly by 2.1% to
Rp.1,798.7 billion (US$203.9 million) in 2010 from Rp.1,762.5 billion in 2009, as Asuransi Sinar Mas
ceded more fire and property and marine hull insurance policies to reinsurers. However, total
reinsurance premiums as a percentage of total gross premiums decreased to 55.2% in 2010 from 61.4%
in 2009 as most of the new policies written in 2010 were health and motor vehicle policies and
Asuransi Sinar Mas typically retains insurance risk on its health and motor vehicle policies.
Decrease (increase) in unearned premiums. Asuransi Sinar Mas’ unearned premiums increased 213.5%
to Rp.119.0 billion (US$13.5 million) in 2010 from Rp.38.0 billion in 2009. The significant increase in
unearned premiums was principally due to an increase in unearned premiums for health insurance
products, which increased Rp.84.7 billion in 2010 as compared to a decrease of Rp.1.8 billion in 2009
corresponding to the overall increase in health gross premiums, which was partially offset by a
decrease in unearned premiums for its fire and property insurance.
2009 Compared to 2008. Asuransi Sinar Mas’ total premiums earned — net increased 30.2% to
Rp.1,072.3 billion in 2009 from Rp.823.4 billion in 2008 although gross premiums declined, as a result of
reinsurance premiums and unearned premiums decreasing at a greater rate than the decrease in gross
premiums.
Gross Premiums. Asuransi Sinar Mas’ gross premiums decreased 11.0% to Rp.2,872.7 billion in 2009
from Rp.3,229.3 billion in 2008, principally attributable to a significant decrease in gross premiums
from fire and property insurance products as Asuransi Sinar Mas implemented more stringent
underwriting requirements for such products in 2009, based on its past claims experience and price
competition.
Reinsurance premiums. Asuransi Sinar Mas’ reinsurance premiums decreased 23.3% to Rp.1,762.5
billion in 2009 from Rp.2,297.8 billion in 2008, principally as Asuransi Sinar Mas ceded less fire and
property insurance policies to reinsurers in line with the decrease in gross premiums from fire and
property insurance in the same period. Total reinsurance premiums as a percentage of total gross
premiums decreased to 61.4% in 2009 from 71.2% in 2008 principally as most of the new policies
written in 2009 were motor vehicle policies and Asuransi Sinar Mas typically retains insurance risk in
respect of its health and motor vehicle policies.
Decrease (increase) in unearned premiums. Asuransi Sinar Mas’ unearned premiums decreased 64.9%
to Rp.38.0 billion in 2009 from Rp.108.1 billion in 2008, principally attributable to significant
decreases in unearned premiums across all insurance products, particularly fire and property and health
products corresponding to decreases in gross premiums in the same period.
Underwriting Expenses
The following table sets forth the breakdown of Asuransi Sinar Mas’ gross claims and total claim
expenses — net for the periods indicated.
Nine Months Ended
September 30,
Year Ended December 31,
2008
2009
Rp.
Rp.
.
.
.
.
.
.
.
109.4
279.1
149.8
5.4
4.9
2.0
22.3
355.3
385.6
152.4
6.2
14.8
3.1
46.4
103.8
470.4
267.5
5.3
5.9
7.7
2.2
11.8
53.3
30.3
0.6
0.7
0.9
0.2
. . . . . . . . .
572.9
963.8
862.8
.
.
.
.
.
.
.
.
.
.
.
.
.
.
(82.8)
(0.2)
(1.6)
(2.5)
(1.7)
—
(5.0)
(327.8)
0.1
(1.1)
(4.3)
(9.7)
(1.4)
(16.4)
Total Reinsurance Claims . . . . . .
(93.7)
(360.8)
Gross Claims:
Fire and property
Motor Vehicles . .
Health . . . . . . .
Engineering . . . .
Marine Cargo . .
Marine Hull . . .
Miscellaneous . .
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
Total Gross Claims .
Reinsurance Claims:
Fire and property . . .
Motor Vehicles . . . . .
Health . . . . . . . . . .
Engineering . . . . . . .
Marine Cargo . . . . .
Marine Hull . . . . . .
Miscellaneous . . . . .
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
2010
2010
2010
2011
2011
Rp.
US$
94.0
339.7
164.8
4.7
4.9
7.3
(3.3)
28.1
377.8
305.8
2.3
4.6
4.0
8.0
3.2
42.8
34.7
0.3
0.5
0.4
0.9
97.8
612.1
730.6
82.8
(80.3)
(0.1)
(1.4)
(4.1)
(0.9)
(4.2)
(2.4)
(9.1)
(0.1)
(0.2)
(0.5)
(0.1)
(0.5)
(0.3)
(76.6)
(0.1)
(1.0)
(3.9)
(0.6)
(4.4)
(1.7)
(10.7)
(0.0)
(1.3)
(2.2)
(0.4)
(1.3)
(0.6)
(1.2)
(0.0)
(0.2)
(0.2)
(0.0)
(0.2)
(0.1)
(93.4)
(10.6)
(88.3)
(16.5)
(1.9)
Rp.
US$
Rp.
(Rp. in billions, US$ in millions)
Nine Months Ended
September 30,
Year Ended December 31,
Increase (Decrease) in Estimated
Own Retention Claims:
Fire and property . . . . . . . . . .
Motor Vehicles . . . . . . . . . . . .
Health . . . . . . . . . . . . . . . . .
Engineering . . . . . . . . . . . . . .
Marine Cargo . . . . . . . . . . . .
Marine Hull . . . . . . . . . . . . .
Miscellaneous . . . . . . . . . . . .
.
.
.
.
.
.
.
.
.
.
.
.
.
.
Total Increase (Decrease) in
Estimated Own Retention Claims .
Claim Expenses — Net:
Fire and property . . . . . . . . . . . .
Motor Vehicles . . . . . . . . . . . . . .
Health . . . . . . . . . . . . . . . . . . .
Engineering . . . . . . . . . . . . . . . .
Marine Cargo . . . . . . . . . . . . . .
Marine Hull . . . . . . . . . . . . . . .
Miscellaneous . . . . . . . . . . . . . .
Total Claim Expenses — Net . . . . .
2008
2009
Rp.
Rp.
2010
2010
2010
Rp.
US$
Rp.
(Rp. in billions, US$ in millions)
2011
2011
Rp.
US$
(4.5)
0.7
9.4
(0.5)
3.5
0.8
(5.6)
7.7
19.5
(13.6)
0.1
0.2
1.6
2.7
11.9
10.6
28.1
0.4
(1.4)
2.5
2.2
1.3
1.2
3.2
0.0
(0.2)
0.3
0.2
7.6
36.5
20.0
0.0
(2.8)
1.1
2.4
11.4
51.1
7.4
0.3
(1.1)
4.4
2.1
1.4
5.8
0.8
0.0
(0.1)
0.5
0.2
3.7
18.2
54.3
6.2
64.8
75.6
8.6
22.1
279.6
157.6
2.4
6.7
2.8
11.8
482.8
35.2
405.2
137.7
2.0
5.3
3.3
32.6
621.3
35.4
480.9
294.3
1.6
3.6
6.0
1.9
823.7
4.0
54.5
33.4
0.2
0.4
0.7
0.2
93.3
25.0
376.1
183.8
0.8
1.5
4.0
(2.6)
588.6
28.8
428.9
311.9
0.4
3.1
7.1
9.5
789.7
3.3
48.6
35.3
0.1
0.3
0.8
1.1
89.5
Total Claim Expenses — Net
Nine Months Ended September 30, 2011 Compared to Nine Months Ended September 30, 2010. Asuransi
Sinar Mas’ total claim expenses — net increased 34.1% to Rp.789.7 billion (US$89.5 million) in the nine
months ended September 30, 2011 from Rp.588.6 billion in the nine months ended September 30,
2010 as a result of increases in gross claims, decreases in reinsurance claims and increases in estimated own
retention claims.
Gross Claims. Asuransi Sinar Mas’ gross claims increased 19.3% to Rp.730.6 billion (US$82.8
million) in the nine months ended September 30, 2011 from Rp.612.1 billion in the nine months ended
September 30, 2010, principally as a result of an increase in claims frequency for its health insurance
and motor vehicle insurance policies, partially offset by a decrease in claims for fire and property
products as a result of its more prudent assessment and underwriting of such policies.
Reinsurance Claims. Asuransi Sinar Mas’ reinsurance claims decreased 81.4% to Rp.16.5 billion
(US$1.9 million) in the nine months ended September 30, 2011 from Rp.88.3 billion in the nine
months ended September 30, 2010, principally due to a significant decrease in fire and property
reinsurance claims which decreased 86.0% from Rp.76.6 billion for the nine months ended September
30, 2010 to Rp.10.7 billion (US$1.2 million) for the nine months ended September 30, 2011, and to a
lesser extent, decreases in marine hull and engineering reinsurance claims, due to the decrease in
claims frequency for the two types of policies.
Increase in Estimated Own Retention Claims. Asuransi Sinar Mas’ increase in estimated own retention
claims increased 16.7% to Rp.75.6 billion (US$8.6 million) in the nine months ended September 30,
2011 from Rp.64.8 billion in the nine months ended September 30, 2010, principally as a result of an
increase in estimated own retention claims for motor vehicles insurance products in line with the
increase in new gross motor vehicle policies written, partially offset by a decrease in estimated own
retention claims for health insurance policies as Asuransi Sinar Mas made less provisions for estimated
own retention claims for health policies based on lower claims frequency for health insurance policies
in the prior period.
2010 Compared to 2009. Asuransi Sinar Mas’ total claim expenses — net increased 32.6% to Rp.823.7
billion (US$93.4 million) in 2010 from Rp.621.3 billion in 2009, primarily attributable to a larger decrease
in reinsurance claims than the decrease in gross claims, and to increases in estimated own retention claims.
Gross Claims. Asuransi Sinar Mas’ gross claims decreased 10.5% to Rp.862.8 billion (US$97.8 million)
in 2010 from Rp.963.8 billion in 2009 principally due to lower claims paid in respect of fire and
property insurance, partially offset by higher claims on motor vehicle and health insurance policies due
to the corresponding increase in new motor vehicle and health insurance policies written.
Reinsurance Claims. Asuransi Sinar Mas’ reinsurance claims decreased 74.1% to Rp.93.4 billion
(US$10.6 million) in 2010 from Rp.360.8 billion in 2009, principally as a result of a decrease in fire
and property insurance policies written, which in turn resulted in lower reinsurance claims payable by
reinsurers.
Increase in Estimated Own Retention Claims. Asuransi Sinar Mas’ increase in estimated own retention
claims increased 198.1% to Rp.54.3 billion (US$6.2 million) in 2010 from Rp.18.2 billion in 2009,
principally as a result of an increase in estimated own retention claims for health and fire and property
insurance products due to the increase in claims frequency for these policies in the period. This
increase was partially offset by a decrease in estimated own retention claims for motor vehicle
insurance policies as a result of the implementation of the new e-claim system which reduced the
number of fraudulent motor vehicle insurance claims and consequently provisions for such claims.
2009 Compared to 2008. Asuransi Sinar Mas’ total claim expenses — net increased 28.7% to Rp.621.3
billion (US$70.4 million) in 2009 from Rp.482.8 billion in 2008 as a result of increases in gross claims and
increases in estimated own retention claims, partially offset by increases in reinsurance claims.
Gross Claims. Asuransi Sinar Mas’ gross claims increased 68.3% to Rp.963.8 billion in 2009 from
Rp.572.9 billion in 2008 as a result of increases in gross claims across all its products, particularly its
fire and property insurance products, mainly as a result of a large claim of approximately Rp.290.0
billion from one corporate account.
Reinsurance Claims. Asuransi Sinar Mas’ reinsurance claims increased 284.9% to Rp.360.8 billion in
2009 from Rp.93.7 billion in 2008, principally because of the increase in claims under fire and
property insurance policies, a significant proportion of which had been ceded to reinsurers.
Increase in Estimated Own Retention Claims. Asuransi Sinar Mas’ increase in estimated own retention
claims increased 391.7% to Rp.18.2 billion in 2009 from Rp.3.7 billion in 2008, principally as a result
of an increase in estimated own retention claims of motor vehicle products due to growth in motor
vehicle policies written. This increase was partially offset by a decrease in volume of claims for health
insurance policies in 2009.
Commissions Expenses — Net
Nine Months Ended September 30, 2011 Compared to Nine Months Ended September 30, 2010.
Asuransi Sinar Mas’ commissions expenses — net increased 19.2% to Rp.283.5 billion (US$32.1 million) in
the nine months ended September 30, 2011 from Rp.237.8 billion in the nine months ended September 30,
2010, as a result of increases in commissions expenses in line with increases in insurance policies written.
The increases were principally attributable to increases in commissions expenses — net with respect to
motor vehicle products and marine cargo insurance products. The increase in gross commissions expenses
for motor vehicle products and marine cargo insurance products was partially offset by increases in
reinsurance commission received from reinsurers for such products as more fire insurance and marine cargo
policies were ceded to reinsurers in the nine months ended September 30, 2011.
2010 Compared to 2009. Asuransi Sinar Mas’ commissions expenses — net increased 20.2% to
Rp.312.0 billion (US$35.4 million) in 2010 from Rp.259.4 billion in 2009, principally due to an increase in
commissions expenses attributable to motor vehicles insurance policies in line with the increase in motor
vehicle policies written, partially offset by a decrease in commissions expenses for fire and property
insurance and marine cargo insurance policies. The decrease in commissions expenses — net with respect to
fire and property and marine cargo insurance products was primarily due to a decrease in reinsurance
commission income received from fire and property and marine cargo reinsurers as a result of discounts
provided for a good claims record in the previous underwriting year.
2009 Compared to 2008. Asuransi Sinar Mas’ commissions expenses — net increased 47.7% to
Rp.259.4 billion (US$29.4 million) in 2009 from Rp.175.6 billion in 2008, principally due to an increase in
commissions expenses — net with respect to motor vehicle policies, which increased to Rp.178.8 billion in
2009 from Rp.93.3 billion in 2008 and, to a lesser extent, an increase in commissions expenses — net with
respect to health insurance policies, partially offset by decreases in commissions expenses — net with
respect to its fire and marine hull insurance products. The decrease in commissions expenses — net for fire
insurance products was attributable to an increase in commissions paid by reinsurers as a result of discounts
provided for a good claims record in the previous underwriting year. The decrease in commission expenses
— net for marine hull products was attributable to an increase in commissions paid by reinsurers as a result
of discounts provided to marine hull reinsurers for a good claims record in the previous underwriting year.
Investment Income
The following table sets forth Asuransi Sinar Mas’ investment income for the periods indicated.
Nine Months Ended
September 30,
Year Ended December 31,
Investment Income — Net:
Gain on mutual funds . . . . . . . . .
Gain (loss) on foreign exchange . . .
Gain (loss) on sale of marketable
securities . . . . . . . . . . . . . . . .
Fixed Income . . . . . . . . . . . . .
Equity . . . . . . . . . . . . . . . . .
Dividends income . . . . . . . . . . . .
Interest income: . . . . . . . . . . . . .
Time deposits . . . . . . . . . . . . .
Bonds and promissory notes . . . .
Mortgage loans . . . . . . . . . . . .
Rental income . . . . . . . . . . . . . .
Unrealized gain from increase in
value of marketable securities —
net . . . . . . . . . . . . . . . . . . . .
Net income from associated
company . . . . . . . . . . . . . . . .
Loss from decrease in value of
bonds . . . . . . . . . . . . . . . . . .
Income from investment portfolio of
participants fund administrator. . .
Total . . . . . . . . . . . . . . . . . . . . .
2008
2009
2010
2010
Rp.
Rp.
55.4
14.1
144.4
(20.4)
182.7
(7.7)
20.7
(0.9)
(25.1)
(18.7)
(6.4)
9.6
(36.5)
(0.8)
(35.7)
1.1
58.1
—
58.1
7.2
8.4
1.8
0.3
0.3
15.3
1.9
0.3
0.3
1.6
2010
2011
2011
Rp.
US$
135.6
(8.8)
132.7
(1.0)
15.0
(0.1)
6.6
—
6.6
0.8
35.8
—
35.8
7.1
136.6
—
136.6
15.3
15.5
—
15.5
1.7
18.9
1.9
0.3
0.2
2.1
0.2
0.0
0.0
12.4
1.2
0.3
0.1
26.5
3.0
0.3
0.1
3.0
0.3
0.0
0.0
2.5
2.1
0.2
2.5
2.4
0.3
0.5
0.1
1.0
0.1
—
2.4
0.3
(14.4)
(2.2)
—
—
—
—
—
—
—
—
—
—
0.4
0.1
52.5
106.9
264.5
30.0
186.2
318.7
36.1
Rp.
US$
Rp.
(Rp. in billions, US$ in millions)
Nine Months Ended September 30, 2011 Compared to Nine Months Ended September 30, 2010.
Asuransi Sinar Mas’ total investment income — net increased 71.2% to Rp.318.7 billion (US$36.1 million)
in the nine months ended September 30, 2011 from Rp.186.2 billion in the nine months ended September
30, 2010, primarily attributable to a 281.7% gain on the sale of marketable securities to Rp.136.6 billion
(US$15.5 million) in the nine months ended September 30, 2011 from Rp.35.8 billion in the nine months
ended September 30, 2010 and a 2.1% gain on mutual funds to Rp.132.7 billion (US$15.0 million) in the nine
months ended September 30, 2011 from Rp.135.6 billion in the nine months ended September 30, 2010. The
gain on mutual funds and gain on the sale of marketable securities was principally attributable to both the
increase in investments in mutual fund units, corresponding to the growth in premium income, and larger
capital gains on the sale of marketable securities.
2010 Compared to 2009. Asuransi Sinar Mas’ total investment income — net increased 147.4% to
Rp.264.5 billion (US$30.0 million) in 2010 from Rp.106.9 billion in 2009, primarily attributable to a 26.5%
gain on mutual funds to Rp.182.7 billion (US$20.7 million) in 2010 from Rp.144.4 billion in 2009 and a
258.9% gain on the sale of marketable securities to Rp.58.1 billion (US$6.6 million) in 2010 from a loss of
Rp.36.5 billion in 2009, partially offset by a slight decrease in unrealized gain from increase in value of
marketable securities — net and rental income. The gain on the sale on mutual funds and gain on the sale of
marketable securities was principally attributable to increases in investments in mutual fund units, and an
increase in the volume of units of mutual funds sold, and larger capital gains on sale of marketable
securities.
2009 Compared to 2008. Asuransi Sinar Mas’ total investment income — net increased 103.8% to
Rp.106.9 billion in 2009 from Rp.52.5 billion in 2008, primarily attributable to a 160.6% gain on mutual
funds to Rp.144.4 billion in 2009 from Rp.55.4 billion in 2008 attributable to an increase in the volume of
mutual fund units invested, partially offset by a loss on the sale of marketable securities and loss on foreign
exchange of investment and decrease in dividends income. The loss on foreign exchange of investment was
as a result of the weakening of the Rupiah against the US dollar and the loss on sale of marketable securities
was due to a loss incurred in respect of an equity portfolio held with a stockbroker who
fraudulently appropriated the portfolio. Dividend income decreased due to decreased average holding periods
of equity investments.
Operating Expenses
Nine Months Ended September 30, 2011 Compared to Nine Months Ended September 30, 2010.
Asuransi Sinar Mas’ operating expenses increased 26.9% to Rp.161.7 billion (US$18.3 million) in the nine
months ended September 30, 2011 from Rp.127.4 billion in the nine months ended September 30, 2010,
primarily attributable to an increase in employee expenses in relation to expansion of its sales offices and
increased headcount to 1,777 as of September 30, 2011 from 1,588 as of September 30, 2010 and annual
salary adjustments increases for inflation, and to a lesser extent, increases in general and administrative
expenses and training and education.
2010 Compared to 2009. Asuransi Sinar Mas’ operating expenses increased 12.2% to Rp.174.5 billion
(US$19.8 million) in 2010 from Rp.155.5 billion in 2009, primarily attributable to an increase in employee
expenses as a result of the expansion of its distribution network. This contributed to increased headcount,
which rose to 1,588 employees as of December 31, 2010 from 1,262 employees as of December 31, 2009
and annual salary increases. Provision for doubtful accounts also increased as a result of the implementation
of PSAK No. 55 beginning January 1, 2010, which requires impairment based on objective evidence. See
“—Critical Accounting Policies—SMMA—Allowance for Impairment of Financial Instruments”.
2009 Compared to 2008. Asuransi Sinar Mas’ operating expenses increased 16.0% to Rp.155.5 billion
in 2009 from Rp.134.0 billion in 2008, primarily attributable to an increase in employee expenses and
general and administrative expenses primarily as a result of expansion of its sales offices and to a lesser
extent, increases in headcount, which increased to 1,262 employees as of December 31, 2009 from 1,234
employees as of December 31, 2008 and also an increase in rental expenses due to a reclassification of land
and buildings from property investments to fixed assets in 2009.
Income from Operations
As a result of the foregoing, Asuransi Sinar Mas’ income from operations increased 76.5% to Rp.393.4
billion (US$44.6 million) in the nine months ended September 30, 2011 from Rp.222.8 billion in the nine
months ended September 30, 2010. Asuransi Sinar Mas’ income from operations increased 106.9% to
Rp.293.0 billion (US$33.2 million) in 2010 from Rp.141.6 billion in 2009, which was a 73.5% increase on
income from operations of Rp.81.6 billion in 2008.
Net Income
Our net income increased 65.5% to Rp.367.5 billion (US$41.6 million) in the nine months ended
September 30, 2011, from Rp.222.0 billion in the nine months ended September 30, 2010. In 2010, Asuransi
Sinar Mas’ net income increased 108.7% to Rp.298.5 billion (US$33.8 million), compared to Rp.143.0
billion in 2009, which was a 87.0% increase from Rp.76.5 billion in 2008.
Principal Income Statement Components of Bank Sinarmas
Interest Income and Profit Sharing
Interest income and profit sharing of Bank Sinarmas comprises interest income generated principally
from Bank Sinarmas’ loans and securities portfolios. Bank Sinarmas’ securities portfolio comprises securities
held for trading, available for sale securities and securities held to maturity. By type of instrument, the
securities portfolio includes Government bonds (including Bank Indonesia Certificates), corporate bonds,
credit-linked notes, subordinated notes and units of mutual funds. Bank Sinarmas also receives income from
placements with other banks and Bank Indonesia, securities purchased under agreements to resell and its
Sharia banking products. Interest income derived by Bank Sinarmas from demand deposits placed with other
banks are recorded in the Company’s consolidated statement of comprehensive income under “Other income”.
Interest income derived by Bank Sinarmas from fees it charges on credit facilities are recorded in the
Company’s consolidated statement of comprehensive income under “Administration fees and commissions”.
All other interest income derived by Bank Sinarmas, including income derived from current accounts,
placement in other banks, marketable securities and Government bonds, are recorded in the Company’s
consolidated statement of comprehensive income under “Interest income”.
Interest Expense and Profit Sharing
Interest expense and profit sharing of Bank Sinarmas principally comprises interest paid or accrued on
deposits from its customers and other banks and securities sold under agreement to repurchase, and
premiums paid to the Government for guarantee on its obligations and its Sharia products. Interest expense
attributable to Bank Sinarmas is recorded in the Company’s consolidated statement of comprehensive
income under “Interest expense” after intercompany eliminations.
Other Operating Revenues
Other operating revenues principally comprise fees and commissions other than from loans, net gain
on increase in fair value of trading securities, net gain on foreign exchange and reversal of estimated losses
on commitments and contingencies.
Fees and commissions other than from loans
Fees and commissions other than from loans comprise fees for trade finance, such as letters of credit,
fees for managing customer accounts such as monthly service fees and charges for failing to maintain
minimum balances, money transfer fees, bank remittance guarantee fees, and other miscellaneous charges,
commissions for bancassurance and other revenue associated with services provided. Fees and commissions
other than loans of Bank Sinarmas are recorded in the Company’s consolidated statement of comprehensive
income under “Administration fees and commissions” after intercompany eliminations.
Net gain on increase in fair value of trading securities
Net gain on increase in fair value of trading securities relate to both realized gains, net of losses, from
the sale of Bank Sinarmas’ trading of securities and unrealized gains, net of losses, on the increase or
decrease in fair value of its securities held in the trading portfolio, with fair value determined by marking to
market its trading securities. Realized gains, net of losses, is recorded in the Company’s consolidated
statement of comprehensive income under “Gain on sale of short-term investments — net” and unrealized
gains, net of unrealized losses, is recorded in the Company’s consolidated statement of comprehensive
income under “Unrealized gain on increase in fair value of securities”.
Net gain on foreign exchange
Net gain on foreign exchange refers to realized and unrealized foreign exchange gains and losses on
spot and forward translation and translations of foreign exchange positions and is recorded in the Company’s
consolidated statement of comprehensive income under “Gain on foreign exchange — net” or “Loss on
foreign exchange — net”, as the case may be.
Reversal of estimated losses on commitments and contingencies
Reversal of estimated losses on commitments and contingencies refer to reversals of estimated losses
on commitments and contingencies such as irrevocable letters of credit, bank guarantees and unused loan
facilities based on Bank Indonesia regulations. Reversal of estimated losses on commitments and
contingencies is netted against impairment losses on financial assets and recorded in the Company’s
consolidated statement of comprehensive income under “Provision for possible losses on earning assets and
non-earning assets”.
Other Operating Expenses
Other operating expenses principally comprise general and administrative expenses, personnel
expenses, impairment losses on financial assets and depreciation. Other operating expenses also include
provision for possible losses on non-earning assets, estimated losses on commitments and contingencies and
other.
General and administrative expenses
General and administrative expenses include expenses for communication, repair and maintenance,
building rent, stationery and printing, vehicle and transportation expenses, training and development and
business promotion expenses. General and administrative expenses of Bank Sinarmas are recorded in the
Company’s consolidated statement of comprehensive income under “General and administrative services”
and “Others”.
Personnel expenses
Personnel expenses include salaries and wages, provisions for post-employment benefits, holidays and
other entitlements. Personal expenses of Bank Sinarmas are recorded in the Company’s consolidated
statement of comprehensive income under “Salaries and employee benefits”.
Impairment losses on financial assets
Impairment losses on financial assets refer to impairment loss recognized on loans, marketable
securities and other financial assets. Impairment losses on financial assets is netted against reversal of
estimated losses on commitments and contingencies and recorded in the Company’s consolidated statement
of comprehensive income under “Provision for possible losses on earning assets and non-earning assets”.
Depreciation
Depreciation includes depreciation costs relating to Bank Sinarmas’ property, equipment inventory and
vehicles. Depreciation of Bank Sinarmas is recorded in the Company’s consolidated statement of
comprehensive income under “Depreciation and amortization”.
Results of Operations of Bank Sinarmas
The following table provides a breakdown of Bank Sinarmas’ income statement, including each
component as a percentage of its net income for the periods indicated. You should read this table together
with Bank Sinarmas’ financial statements, including the notes thereto.
Nine Months Ended
September 30,
Year Ended December 31,
2008
Rp.
2009
2010
2010
2011
Rp.
Rp.
US$
Rp.
Rp.
(Rp. in billions, US$ in millions, except percentages)
2011
US$
Operating Revenue and Expenses:
Interest Revenues and Profit Sharing . .
Interest Expense and Profit Sharing . .
601.0
425.7
782.4
470.4
916.1
497.6
103.8
56.4
674.3
350.8
941.8
572.1
106.7
64.8
Interest Revenues — Net . . . . . . . . .
175.3
312.0
418.5
47.4
323.5
369.7
41.9
35.8
9.2
55.4
10.0
61.6
2.4
6.9
0.3
47.4
1.6
50.8
7.7
5.7
0.9
0.6
1.1
9.9
1.1
1.3
2.7
0.3
—
0.5
0.5
0.1
—
1.4
0.2
2.5
—
3.2
0.4
—
—
—
—
1.4
0.2
0.5
—
3.4
—
0.4
—
0.7
—
0.5
—
0.1
224.8
379.7
499.5
56.6
374.5
432.8
49.1
Other Operating Revenues: . . . . . . . .
Fees and commissions other than
loans . . . . . . . . . . . . . . . . . .
Gain on foreign exchange — net. . .
Gain on sale of trading securities —
net . . . . . . . . . . . . . . . . . . . .
Gain on increase in fair value of
trading securities — net . . . . . . .
Reversal of estimated losses on
commitments and contingencies . .
Reversal of allowance for
impairment losses of nonproductive assets . . . . . . . . . . .
Other income . . . . . . . . . . . . . . .
Total Operating Revenues . . . . . . . .
Nine Months Ended
September 30,
Year Ended December 31,
2008
2009
Rp.
Other Operating Expenses: . . . . . .
General and administrative
expenses . . . . . . . . . . . . . .
Personnel expenses . . . . . . . . .
Depreciation — premises and
equipment . . . . . . . . . . . . .
Impairment losses on financial
assets . . . . . . . . . . . . . . . .
Estimated losses on commitments
and contingencies. . . . . . . . .
Provision for possible losses on
non-earning assets . . . . . . . .
Loss on decrease in fair value of
trading securities — net . . . . .
2010
2010
2011
Rp.
Rp.
US$
Rp.
Rp.
(Rp. in billions, US$ in millions, except percentages)
2011
US$
. .
. .
. .
118.3
59.5
148.3
72.5
180.7
103.9
20.5
11.8
128.7
80.1
178.9
111.5
20.3
12.6
. .
13.6
18.8
22.1
2.5
16.3
20.3
2.3
. .
13.1
60.5
48.1
5.4
49.9
19.2
2.2
. .
—
4.3
—
—
0.4
0.6
0.1
. .
—
—
—
—
—
0.3
—
. .
0.4
—
—
—
—
—
—
Other expenses . . . . . . . . . . . . . .
0.3
4.5
3.7
0.4
2.6
0.3
—
Total Operating Expenses . . . . . . . . .
205.2
308.9
358.5
40.6
278.0
331.1
37.5
Income Before Tax . . . . . . . . . . . .
19.6
70.8
141.0
16.0
96.5
101.7
11.6
Tax Expense:
Current . . . . . . . . . . . . . . . . . .
Deferred . . . . . . . . . . . . . . . . . .
—
6.8
19.3
2.7
35.0
4.2
3.9
0.5
23.2
(3.5)
25.5
2.8
2.9
0.4
Net Income . . . . . . . . . . . . . . . . .
12.8
48.8
101.8
11.6
76.8
73.4
8.3
Net Interest Revenues and Net Interest Margin
The following table sets forth the principal components of interest income and profit sharing and
interest expense and profit sharing of Bank Sinarmas for the periods indicated.
Nine Months Ended
September 30,
Year Ended December 31,
2008
Rp.
Loans . . . . . . . . . . . . . . . . . . . . .
Securities. . . . . . . . . . . . . . . . . . .
Placement with other banks . . . . . . .
Securities purchased under agreements
to resell . . . . . . . . . . . . . . . . . .
Demand deposits with other banks . . .
Total interest revenues and profit
sharing . . . . . . . . . . . . . . . . . .
2009
2010
2010
2010
2011
Rp.
Rp.
US$
Rp.
Rp.
(Rp. in billions, US$ in millions, except percentages)
2011
US$
497.9
80.8
16.1
650.5
123.0
7.6
792.3
111.7
9.5
89.8
12.7
1.1
584.7
80.5
7.8
784.1
137.6
13.2
88.9
15.6
1.5
4.8
1.4
1.3
—
2.2
0.4
0.2
—
1.3
—
3.5
3.4
0.4
0.3
601.0
782.4
916.1
103.8
674.3
941.8
106.7
Nine Months Ended
September 30,
Year Ended December 31,
2008
2009
Rp.
Time deposits . . . . . . . . . . . . . .
Savings deposits . . . . . . . . . . . .
Deposits from other banks . . . . . .
Demand deposits(3) . . . . . . . . . . .
Securities. . . . . . . . . . . . . . . . .
Securities sold under agreements to
repurchase . . . . . . . . . . . . . .
Premium on Government guarantee
.
.
.
.
.
2010
2010
2010
2011
2011
Rp.
Rp.
US$
Rp.
Rp.
(Rp. in billions, US$ in millions, except percentages)
US$
.
.
.
.
.
338.8
25.9
16.8
27.0
—
374.5
45.5
4.3
31.0
—
376.2
59.5
4.2
38.5
—
42.6
6.7
0.5
4.4
—
262.5
42.9
4.7
27.3
—
464.1
60.6
0.7
26.9
—
52.6
6.9
0.1
3.0
—
. .
. .
7.2
10.0
1.3
13.8
1.3
17.9
0.1
2.0
1.3
12.1
—
19.8
—
2.3
sharing . . . . . . . . . . . . . . . . . .
425.7
470.4
497.6
56.3
350.8
572.1
64.8
Interest Revenues — Net . . . . . . . .
175.3
312.0
418.5
47.4
323.5
369.7
41.9
Net interest margin(1) . . . . . . . . . . .
Average interest earning assets(2) . . . .
3.4%
5,208.6
4.8%
6,440.1
4.9%
8,552.1
4.9%
969.3
5.3%
8,109.4
4.3%
11,586.8
4.3%
1,313.2
(1)
Net interest revenues and profit sharing as a percentage of average interest earning assets. Computation of the net interest margin
for the nine months ended September 30, 2010 and 2011 is on an annualized basis.
(2)
Calculated on the basis of monthly averages.
(3)
Demand deposits are classified as “Current Account” in the Company’s consolidated financial statements.
Volume and Rate Analysis
The following table sets forth certain information regarding changes in interest income and interest
expense of the Bank for the periods indicated. For each category of interest earning assets and interest
bearing assets, information is provided on changes attributable to: (1) changes in volume (changes in
average outstanding balances multiplied by the prior period’s average interest rate) and (2) changes in
interest rate (changes in average interest rate times the average outstanding balances at end of the period).
Net changes attributable to changes in both volume and interest rate has been allocated proportionately to
the changes in volume and the changes in interest rate.
Nine Months Ended
September 30,
Year Ended December 31,
2009 over 2008
Increase/(decrease)
due to changes in
Volume
2010 over 2009
Net
change
Rate
Increase/(decrease)
due to changes in
Volume
2011 over 2010
Net
change
Rate
Increase/(decrease)
due to changes in
Volume
Net
change
Rate
(Rp. in billions)
ASSETS
Interest-Earning Assets:
Current account at BI . . . . .
SBI(1), FASBI(2), BI Time
Deposit. . . . . . . . . . .
Placements with other banks
Securities . . . . . . . . . . .
Securities purchased under
agreements to resell . . . .
Loans . . . . . . . . . . . . .
Government obligations . . .
. . .
5.9
(7.3)
(1.4)
. . .
. . .
. . .
23.6
12.4
(7.1)
1.7
(20.8)
14.0
25.3
(8.4)
6.9
—
0.4
0.4
—
3.4
3.4
(10.6)
11.0
3.7
(4.3)
(9.2)
(3.8)
(14.9)
1.8
(0.1)
45.9
(2.6)
(2.9)
6.0
8.1
7.2
51.9
5.5
4.3
. . .
. . .
. . .
2.6
103.3
10.5
(6.0)
49.1
(0.6)
(3.4)
152.4
9.9
(0.3)
243.9
0.7
1.0
(102.0)
(3.0)
0.7
141.9
3.7
1.9
215.1
1.3
0.3
(15.7)
(0.5)
2.2
199.4
0.8
Total Interest-Earning Assets . .
151.2
30.1
181.3
248.4
(114.8)
133.5
258.7
8.8
267.5
Nine Months Ended
September 30,
Year Ended December 31,
2009 over 2008
Increase/(decrease)
due to changes in
Volume
2010 over 2009
Net
change
Rate
Increase/(decrease)
due to changes in
Volume
2011 over 2010
Net
change
Rate
Increase/(decrease)
due to changes in
Net
change
Volume
Rate
2.4
19.0
105.4
20.0
(2.8)
(1.3)
73.5
2.5
(0.4)
17.7
178.9
22.5
—
(0.9)
(1.3)
(4.0)
(Rp. in billions)
LIABILITIES . . . . . . . . . . .
Interest-Bearing Liabilities:
Demand deposits . . . . . . . . .
Saving accounts . . . . . . . . .
Time deposits . . . . . . . . . .
Deposits On Call . . . . . . . . .
Securities sold under agreements
to repurchase . . . . . . . . .
Placements from other banks . .
.
.
.
.
.
23.3
29.7
26.1
13.8
(19.4)
(10.1)
(7.1)
2.8
3.9
19.6
19.0
16.6
.
.
(1.5)
(10.8)
(4.4)
(1.8)
(5.9)
(12.6)
80.6
(40.0)
40.6
Total Interest-Bearing
Liabilities . . . . . . . . . . . .
14.6
20.2
113.3
(1.0)
(7.1)
(6.1)
(100.9)
(9.5)
7.5
14.1
12.4
(10.5)
0.6
4.7
(0.6)
(4.8)
—
(0.1)
152.4
(129.0)
(1)
Represents Certificates of Bank Indonesia.
(2)
Represents placements in the form of Bank Indonesia deposit facility.
23.4
(1.3)
(3.1)
142.4
71.0
213.4
For details on Bank Sinarmas’ average balances and average rates on interest-earning assets and
liabilities, see “Business—Banking—Bank Sinarmas”.
Interest Income and Profit Sharing
Nine Months Ended September 30, 2011 Compared to Nine Months Ended September 30, 2010.
Bank Sinarmas’ interest income and profit sharing increased 39.7% to Rp.941.8 billion (US$106.7 million)
in the nine months ended September 30, 2011 from Rp.674.3 billion in the nine months ended September
30, 2010, principally as a result of increases in interest income from loans to customers.
Interest income from Rupiah and U.S. dollar-denominated loans to customers increased 34.1% to
Rp.784.1 billion (US$88.9 million) in the nine months ended September 30, 2011 from Rp.584.7 billion in
the nine months ended September 30, 2010, primarily as a result of an increase in the average volume of
loans outstanding made by Bank Sinarmas, based on monthly averages, which rose 36.8% to Rp.7,864.7
billion (US$891.4 million) in the nine months ended September 30, 2011, from Rp.5,749.3 billion in the
nine months ended September 30, 2010. This growth was principally attributable to an increase in the
average volume of Rupiah-denominated loans, which increased 38.9% to Rp.6,957.1 billion (US$788.5
million) in the nine months ended September 30, 2011 from Rp.5,008.0 billion in the nine months ended
September 30, 2010, while average interest rates on Bank Sinarmas’ Rupiah-denominated loans, based on
monthly averages, remained relatively flat at 10.7% in the nine months ended September 30, 2011,
compared to 11.1% in the nine months ended September 30, 2010. The average volume of U.S. dollardenominated loans also increased 22.4% to the U.S. dollar equivalent of Rp.907.5 billion (US$102.9 million)
in the nine months ended September 30, 2011 from the U.S. dollar equivalent of Rp.741.3 billion in the nine
months ended September 30, 2010. The average rate on U.S. dollar-denominated loans also increased to
4.7% from 4.0%. The increase in average loans outstanding made by Bank Sinarmas was attributable to an
increase in its consumer loans and corporate loans in the nine months ended September 30, 2011, compared
to the same period in 2010, principally reflecting an increase in loans to customers in its core markets of
Java and Sumatra and also to an increase in loans to related parties. Loans to related parties increased 67.3%
to Rp.1,436.0 billion (US$162.8 million) as of September 30, 2011 from Rp.858.3 billion as of September
30, 2010. Most of these loans are fully cash collateralized. See “Business—Banking—Bank
Sinarmas—Lending—Related Party Funding Arrangements” and “Related Party Transactions—Loans
Provided to Related Parties”.
The increase in interest income and profit sharing was also attributable to a lesser extent to an increase
in interest income from securities, which increased 70.9% to Rp.137.6 billion (US$15.6 million) in the nine
months ended September 30, 2011 from Rp.80.5 billion in the nine months ended September 30, 2010,
driven mainly by higher average yields earned on such securities, based on monthly averages, which
increased to 12.3% in the nine months ended September 30, 2011 from 7.1% in the nine months ended
September 30, 2010, partially offset by lower average balances held in the securities portfolio.
2010 Compared to 2009. Bank Sinarmas’ interest income and profit sharing increased 17.1% to
Rp.916.1 billion (US$103.8 million) in 2010 from Rp.782.4 billion in 2009, principally as a result of an
increase in interest income from loans to customers, partially offset by a decrease in interest income from
securities.
Interest income from loans to customers increased 21.8% to Rp.792.3 billion (US$89.8 million) in
2010 from Rp.650.5 billion in 2009, principally as a result of an increase in the average volume of total
loans outstanding, which increased 37.5% to Rp.6,025.7 billion (US$683.0 million) in 2010 from Rp.4,382.3
billion in 2009, partially offset by lower average rates, based on monthly averages, earned on loans. This
increase was mainly attributable to a 36.4% increase in total average Rupiah-denominated loans outstanding,
made by Bank Sinarmas, which increased to Rp.5,258.8 billion (US$596.0 million) in 2010 from Rp.3,855.7
billion in 2009 and 45.5% increase in total average U.S. dollar-denominated loans outstanding, which
increased to Rp.766.9 billion (US$86.9 million) in 2010 from Rp.526.6 billion in 2009. This growth
reflected the continued growth in its customer base, principally corporate, commercial and retail customers,
reflecting growth in working capital facilities to small businesses and loans extended to multifinance
companies, as well as an increase in interest rates on loans made by Bank Sinarmas. Average interest rates
on Rupiah-denominated loans, based on the monthly averages during the year, decreased to 14.3% in 2010
from 15.9% in 2009 and average interest rates on U.S. dollar-denominated loans decreased to 5.6% in 2010
from 7.4% in 2009. Loans to related parties also contributed to the growth in volume of loans, which
increased 7.1% to Rp.794.9 billion (US$90.1 million) as of December 31, 2010 from Rp.741.9 billion as of
December 31, 2009. See “Related Party Transactions—Loans Provided to Related Parties”.
Interest from securities decreased 9.2% from Rp.123.0 billion in 2009 to Rp.111.7 billion (US$12.7
million) in 2010 as a result of lower average yields earned on both Rupiah and U.S. dollar-denominated
securities for the period, partially offset by a higher total average Rupiah and U.S. dollar balances held in
the securities portfolio in the nine months ended September 30, 2011 as compared to the same period in
2010.
2009 Compared to 2008. Bank Sinarmas’ interest income and profit sharing increased 30.2% to
Rp.782.4 billion in 2009 from Rp.601.0 billion in 2008, principally as a result of an increase in interest
income from loans to customers, and to a lesser extent, an increase in interest income from securities,
placements with other banks and the introduction of securities purchased under agreements to resell.
Interest income from loans to customers increased 30.6% to Rp.650.5 billion in 2009 from Rp.497.9
billion in 2008, principally as a result of an increase in average Rupiah and U.S. dollar-denominated loans
outstanding made by Bank Sinarmas, based on monthly averages. The average balance of Rupiahdenominated loans increased to Rp.3,855.7 billion in 2009 from Rp.3,417.3 billion in 2008 and the average
balance of U.S. dollar-denominated loans increased to the U.S. dollar equivalent of Rp.526.6 billion in 2009
from the U.S. dollar equivalent of Rp.211.9 billion in 2008. Loans to related parties contributed to this
growth in volume of loans, which increased to Rp.741.9 billion as of December 31, 2009 from Rp.83.4
billion as of December 31, 2008. See “Related Party Transactions—Loans Provided to Related Parties”. The
increase was also due to higher average interest rates earned on Rupiah-denominated loans and U.S. dollardenominated loans in 2009. Average interest rates on Rupiah-denominated loans, based on the monthly
averages, increased to 15.9% in 2009 from 14.2% in 2008 while average interest rates on U.S. dollardenominated loans, based on monthly averages, increased to 7.4% in 2009 from 6.7% in 2008.
Interest income from securities increased 52.2% to Rp.123.0 billion in 2009 from Rp.80.8 billion in
2008, driven principally by higher average rates, based on monthly averages, earned on securities, which
increased significantly to 11.8% in 2009 from 2.0% in 2008, partially offset by a drop in the average
balance of the securities portfolio to Rp.142.2 billion in 2009 from Rp.503.4 billion in 2008.
160
Interest Expense and Profit Sharing
The following table sets forth Bank Sinarmas’ interest expense and profit sharing by type of liability
for the periods indicated.
Nine Months Ended
September 30,
Year Ended December 31,
2008
2009
Rp.
Rp.
.
.
.
.
.
338.8
25.9
16.9
27.0
—
374.5
45.5
4.3
31.0
—
376.2
59.5
4.2
38.5
—
42.6
6.8
0.5
4.4
—
. .
. .
7.2
10.0
1.3
13.8
1.3
17.9
Total interest expense and profit
sharing . . . . . . . . . . . . . . . . . .
425.8
470.4
497.6
Time deposits . . . . . . . . . . . . . .
Savings deposits . . . . . . . . . . . .
Deposits from other banks . . . . . .
Demand deposits . . . . . . . . . . . .
Securities. . . . . . . . . . . . . . . . .
Securities sold under agreements to
repurchase . . . . . . . . . . . . . .
Premium on Government guarantee
.
.
.
.
.
2010
2010
2010
2011
2011
Rp.
US$
262.6
42.9
4.6
27.3
—
464.0
60.6
0.7
26.9
—
52.6
6.9
0.1
3.0
—
0.1
2.0
1.3
12.1
—
19.9
—
2.3
56.4
350.8
572.1
64.9
Rp.
US$
Rp.
(Rp. in billions, US$ in millions)
Nine Months Ended September 30, 2011 Compared to Nine Months Ended September 30, 2010. Bank
Sinarmas’ interest expense increased 63.1% to Rp.572.1 billion (US$64.9 million) in the nine months ended
September 30, 2011 from Rp.350.8 billion in the nine months ended September 30, 2010, principally
attributable to an increase in the average volume of customer Rupiah time and savings deposits. Average
rates paid on Rupiah-denominated time deposits increased, while average rates on Rupiah-denominated
current and savings accounts remained relatively flat in the nine months ended September 30, 2011,
compared to the same period in 2010. Average rates paid on foreign currency-denominated deposits
decreased slightly in the nine months ended September 30, 2011, compared to the same period in 2010.
Time deposits. Interest expense on time deposits increased 76.7% to Rp.464.1 billion (US$52.6
million) in the nine months ended September 30, 2011 from Rp.262.6 billion in the nine months ended
September 30, 2010, principally as a result of a significant increase in the average amount of customer
Rupiah-denominated time deposits and deposits on call held by Bank Sinarmas in the nine months
ended September 30, 2011 compared to the same period in 2010, as well as an increase in average
interest rates on Rupiah-denominated time deposits and deposits on call. In the nine months ended
September 30, 2011 and nine months ended September 30, 2010, based on the monthly average, time
deposits average interest rate increased to 6.6% from 6.0% and deposits on call average interest rate
slightly increased to 4.8% from 4.5%, respectively. The average volume of foreign currencydenominated time deposits decreased to the U.S. dollar equivalent of Rp.1,293.8 billion (US$146.6
million) in the nine months ended September 30, 2011 from Rp.1,537.4 billion in the nine months
ended September 30, 2010, while average rates, based on monthly averages, of foreign currencydenominated time deposits remained relatively flat at 2.0% and 2.1%, respectively. On the contrary,
there was a slight increased in the average volume of foreign currency-denominated deposits on call,
to Rp.245.0 billion (US$27.8 million) in the nine months ended September 30, 2011 from Rp.124.3
billion in the nine months ended September 30, 2010, while average rates, based on monthly averages,
of foreign currency-denominated deposits on call remained flat at 0.1%. The significant increase in
interest expense in Rupiah-denominated time deposits reflected increased marketing and promotional
gift offers by Bank Sinarmas to attract time deposit customers. Bank Sinarmas grew both related and
third party time deposits, which increased to Rp.5,023.2 billion (US$569.3 million) and Rp.5,323.7
billion (US$603.4 million), respectively, as of September 30, 2011, from Rp.3,763.6 billion and
Rp2,346.1 billion, respectively, as of September 30, 2010.
Savings deposits. Interest expense on savings deposits increased 41.3% to Rp.60.6 billion (US$6.9
million) in the nine months ended September 30, 2011 from Rp.42.9 billion in the nine months ended
September 30, 2010, principally as a result of an increase in the average volume of third party Rupiahdenominated savings deposit accounts placed with Bank Sinarmas, while average interest rates, based
on monthly averages, on Rupiah-denominated savings deposits, remained relatively constant.
Demand deposits. Interest expense on demand deposits decreased 1.5% to Rp.26.9 billion (US$3.0
million) in the nine months ended September 30, 2011 from Rp.27.3 billion in the nine months ended
September 30, 2010, principally as a result of a decrease in foreign currency-denominated average
rates, based on monthly averages, while Rupiah-denominated current account average rates remained
flat. This was partially offset by slightly higher average balances of current accounts, which was
Rp.2,207.9 billion (US$250.2 million) in the nine months ended September 30, 2011 from Rp.2,031.2
billion in the nine months ended September 30, 2010.
Deposits from other banks. Interest expense on deposits from other banks fell 85.9% to Rp.0.7 billion
(US$0.1 million) in the nine months ended September 30, 2011 from Rp.4.6 billion in the nine months
ended September 30, 2010, principally because Bank Sinarmas did not take any new placements with
other banks in the nine months ended September 30, 2011.
Premium on Government guarantee. Premium on Government guarantee increased 64.5% to Rp.19.9
billion (US$2.3 million) in the nine months ended September 30, 2011 from Rp.12.1 billion in the nine
months ended September 30, 2010, principally reflecting an increase in premiums on guarantees paid
by Bank Sinarmas in relation to guarantees of private bank obligations in line with the increase in
deposits placed with Bank Sinarmas.
2010 Compared to 2009. Bank Sinarmas’ total interest expense increased 5.8% to Rp.497.6 billion
(US$56.4 million) in 2010 from Rp.470.4 billion in 2009, principally as a result of increases in interest
expense on savings deposits and demand deposits and an increase in premiums on Government guarantees.
Time deposits. Interest expense on time deposits increased only slightly by 0.5% to Rp.376.2 billion
(US$42.6 million) in 2010 from Rp.374.5 billion in 2009. The average volume on both Rupiah and
foreign currency-denominated time deposits placed by customers with Bank Sinarmas, based on a
monthly average, increased to Rp.5,225.1 billion (US$592.2 million) in 2010 from Rp.3,882.8 billion
in 2009, mostly offset by lower average interest rates, based on monthly averages, which fell to 6.5%
in 2010 from 8.4% in 2009. On the other hand, the average volume on both Rupiah and foreign
currency-denominated deposits on call, based on a monthly average, decreased to Rp.743.0 billion
(US$84.2 million) in 2010 from Rp.759.3 billion in 2009. Decrease in these average volumes were in
line with lower average interest rates, based on monthly averages, which fell to 4.9% in 2010 from
6.2% in 2009.
Savings deposits. Interest expense on savings deposits increased 30.8% to Rp.59.5 billion (US$6.7
million) in 2010 from Rp.45.5 billion in 2009, principally as a result of an increase in the average
volume of Rupiah-denominated savings deposits placed with Bank Sinarmas in 2010, partially offset
by lower average interest rates paid on Rupiah-denominated savings deposits in 2010 compared with
2009, which fell to 5.3% in 2010 from 5.8% in 2009.
Demand deposits. Interest expense on demand deposits increased 24.2% to Rp.38.5 billion (US$4.4
million) in 2010 from Rp.31.0 billion in 2009, principally as a result of an increase in average Rupiah
and foreign currency-denominated demand deposits placed with Bank Sinarmas in 2010 while average
rates on foreign currency-denominated demand deposits remained relatively constant at 0.7% and
average rates on Rupiah-denominated deposits decreased to 2.9% in 2010 from 3.6% in 2009.
Deposits from other banks. Interest expense on deposits from other banks remained relatively constant
at Rp.4.2 billion (US$0.5 million) in 2010 compared to Rp.4.3 billion in 2009.
Premium on Government guarantee. Premiums on Government guarantee increased 29.7% to Rp.17.9
billion (US$2.0 million) in 2010 from Rp.13.8 billion in 2009, reflecting an increase in premiums on
guarantees paid by Bank Sinarmas in relation to guarantees of private bank obligations in line with the
increase in deposits placed with Bank Sinarmas.
2009 Compared to 2008. Total interest expense increased 10.5% to Rp.470.4 billion in 2009 from
Rp.425.8 billion in 2008, principally as a result of increases in interest expense incurred by Bank Sinarmas
on customer time and savings deposits accounts, partially offset by lower average interest rates paid to
customers due to the economic conditions during this period.
Time deposits. Interest expense on time deposits increased 10.5% to Rp.374.5 billion in 2009 from
Rp.338.8 billion in 2008, principally as a result of an increase in the average volume of foreign
currency-denominated time deposits as well as an increase in the average volume of Rupiahdenominated deposits on call placed by customers in Bank Sinarmas in 2009 and higher average interest
rates, based on a monthly average, paid on Rupiah-denominated time deposits, which increased to
10.1% in 2009 from 9.4% in 2008. These increases were partially offset by a decrease in the
average volume of Rupiah-denominated time deposits outstanding and a decrease in the average
volume of foreign currency-denominated deposits on call, as well as lower average rates paid in
foreign currency-denominated time deposits and deposits on call, which decreased to 2.9% in 2009
from 3.8% in 2008 and to 0.6% in 2009 from 2.4% in 2010, respectively.
Savings deposits. Interest expense on savings deposits increased 75.7% to Rp.45.5 billion in 2009 from
Rp.25.9 billion in 2008, principally as a result of an increase in the volume of Rupiah-denominated
savings deposits placed with Bank Sinarmas in 2009, partially offset by lower average interest rates
paid on Rupiah-denominated savings deposits, which fell to 5.8% in 2009 from 7.1% in 2008.
Demand deposits. Interest expense on demand deposits increased 14.8% to Rp.31.0 billion in 2009
from Rp.27.0 billion in 2008, principally as a result of an increase in volume of both Rupiah and
foreign currency-denominated demand deposits placed with Bank Sinarmas, partially offset by lower
average interest rates paid on both Rupiah and foreign currency-denominated demand deposits.
Deposits from other banks. Interest expense on deposits from other banks decreased 74.6% to Rp.4.3
billion in 2009 from Rp.16.9 billion in 2008, principally because Bank Sinarmas accepted fewer
placements of deposits from other banks during the height of the global financial crisis.
Premium on Government guarantee. Premiums on Government guarantee increased 38.0% to Rp.13.8
billion in 2009 from Rp.10.0 billion in 2008, reflecting an increase in premiums on guarantees paid by
Bank Sinarmas in relation to guarantees of private bank obligations following an increase in deposits
placed with Bank Sinarmas.
See also “Volume and Rate Analysis” above for further details of changes in Bank Sinarmas’ interest
expense by changes in volume and rate.
Interest Revenue — Net
As a result of the foregoing, Bank Sinarmas’ interest revenue — net increased 14.3% to Rp.369.7
billion (US$41.9 million) in the nine months ended September 30, 2011 from Rp.323.5 billion in the nine
months ended September 30, 2010. Bank Sinarmas’ interest revenue — net increased 34.1% to Rp.418.5
billion (US$47.4 million) in 2010 from Rp.312.0 billion in 2009, which was a 78.0% increase from interest
revenue — net of Rp.175.3 billion in 2008.
Net Interest Margin
Nine Months Ended September 30, 2011 Compared to Nine Months Ended September 30, 2010. Bank
Sinarmas’ net interest margin decreased to 4.3% in the nine months ended September 30, 2011 from 5.3% in
the nine months ended September 30, 2010, reflecting an increase in average volume of customer deposits.
2010 Compared to 2009. Bank Sinarmas’ net interest margin increased to 4.9% in 2010 from 4.8% in
2009, reflecting the ability of the Bank to reduce its cost of funding.
2009 Compared to 2008. Bank Sinarmas’ net interest margin increased to 4.8% in 2009 from 3.4% in
2008, largely reflecting higher net interest income.
Other Operating Expenses — Net
Other Operating Revenues
Nine Months Ended September 30, 2011 Compared to Nine Months Ended September 30, 2010. Bank
Sinarmas’ other operating revenues increased 23.3% to Rp.63.1 billion (US$7.2 million) in the nine months
ended September 30, 2011 from Rp.51.1 billion in the nine months ended September 30, 2010, principally as
a result of an increase in fees and commissions as a result of increased fees and commissions earned on
trade finance and remittance guarantee fees, driven principally by growth in the Bank’s commercial and
corporate customer base, an increase in net gain on increase in fair value of trading securities and an
increase in net gain on foreign exchange as a result of the strengthening of the Rupiah against the U.S.
dollar. The increase in fees and commissions was partially offset by lower bancassurance commissions due
to the implementation of a new regulation which requires banks to disclose commissions paid to them on
bancassurance products.
2010 Compared to 2009. Bank Sinarmas’ other operating revenues increased 19.6% to Rp.81.0 billion
(US$9.2 million) in 2010 from Rp.67.7 billion in 2009, principally as a result of an increase in fees and
commissions related principally to higher bancassurance sales, as the volume of insurance products sold
through the Bank increased, and an increase in net gain on increase in fair value of trading securities,
reflecting significantly higher realized gains on the sale of securities, which increased Rp.9.9 billion (US$1.1
million) in 2010 from Rp.0.5 billion in 2009, as a result of the Bank increasing the volume of securities sold
to reallocate funds to the loan portfolio, as well as improved market conditions. The increase in other
operating revenues was partially offset by a decrease in net gain on foreign exchange as a result of the
depreciation of the Rupiah against the U.S. dollar.
2009 Compared to 2008. Bank Sinarmas’ other operating revenues increased 36.5% to Rp.67.7 billion
in 2009 from Rp.49.6 billion in 2008, principally as a result of an increase in fees and commissions related
to strong bancassurance sales, on office openings and other service fees, an increase in net gain on increase
in fair value of trading securities, reflecting higher realized and unrealized gains on the increase in fair value
of securities, principally as a result of improving market conditions in 2009 and an increase in net gain on
foreign exchange as a result of the strengthening of the Rupiah against the U.S. dollar.
Other Operating Expenses
Nine Months Ended September 30, 2011 Compared to Nine Months Ended September 30, 2010. Bank
Sinarmas’ other operating expenses increased 19.1% to Rp.331.1 billion (US$37.5 million) in the nine
months ended September 30, 2011 from Rp.278.0 billion in the nine months ended September 30, 2010,
principally attributable to increases in general and administrative expenses and personnel expenses as a
result of increased headcount and salary increments, as well as higher training and education expenses,
communication expenses and promotional expenses, as the Bank grew its branch network. The number of
staff increased from 2,335 as of September 30, 2010 to 3,014 as of September 30, 2011. The increase was
partially offset by a decrease in impairment losses on financial assets as a result of improvement in the
quality of Bank Sinarmas’ loan portfolio.
2010 Compared to 2009. Bank Sinarmas’ other operating expenses increased 16.1% to Rp.358.5 billion
(US$40.6 million) in 2010 from Rp.308.9 billion in 2009. General and administrative expenses increased
principally due to increased training and education expenses, printing and stationary costs, communication
expenses and vehicle and transportation expense, consistent with growth in the branch network, and higher
personnel expenses increased principally as a result of increased headcount, salary increments, and higher
incentive compensation and sales commissions. The number of staff increased to 2,460 as of December 31,
2010 from 2,041 as of December 31, 2009. The increase was partially offset by a decrease in impairment
losses on financial assets as the quality of the loan portfolio continued to improve.
2009 Compared to 2008. Bank Sinarmas’ other operating expenses increased 50.5% to Rp.308.9 billion
in 2009 from Rp.205.2 billion in 2008, largely reflecting the growth in the branch network. General and
administrative expenses increased due to increased training and education expenses, maintenance costs,
printing and stationary costs, communication expenses and vehicle and transportation costs, and personnel
expenses increased principally due to an increase in headcount and annual salary increments. The number of
staff at Bank Sinarmas increased to 2,041 as of December 31, 2009 from 1,691 as of December 31, 2008.
The Bank also recorded an increase in impairment losses on financial assets in 2009, reflecting the negative
impact of the global financial crisis on the loan portfolio.
Other Operating Expenses — Net
As a result of the foregoing, Bank Sinarmas’ net other operating expenses increased 18.1% to Rp.268.0
billion (US$30.4 million) in the nine months ended September 30, 2011 from Rp.226.9 billion in the nine
months ended September 30, 2010. Bank Sinarmas’ net other operating expenses increased 15.0% to
Rp.277.5 billion (US$31.5 million) in 2010 from Rp.241.2 billion in 2009, which was a 55.0% increase
from net operating expenses of Rp.155.6 billion in 2008.
Income from Operations
As a result of the foregoing, Bank Sinarmas’ income from operations increased 5.4% to Rp.101.7
billion (US$11.5 million) in the nine months ended September 30, 2011 from Rp.96.5 billion in the nine
months ended September 30, 2010. Bank Sinarmas’ income from operations increased 99.0% to Rp.140.9
billion (US$16.0 million) in 2010 from Rp.70.8 billion in 2009, which was a 260.5% increase from income
before operations of Rp.19.6 billion in 2008.
Net Income
For the reasons described above, Bank Sinarmas’ net income decreased 4.4% to Rp.73.4 billion
(US$8.3 million) in the nine months ended September 30, 2011, from Rp.76.8 billion in the nine months
ended September 30, 2010. In 2010, Bank Sinarmas’ net income increased 108.7% to Rp.101.8 billion
(US$11.5 million), compared to Rp.48.8 billion in 2009, which was a 279.5% increase from Rp.12.9 billion
in 2008.
Total Consolidated Shareholders’ Equity
As of September 30, 2011, total shareholders’ equity of the Company, comprising equity attributable to
the equity holders of the Company and equity attributable to non-controlling interests in the net assets of our
subsidiaries, was Rp.13,990.5 billion (US$1,585.7 million), an increase of 165.9% from total shareholders’
equity of the Company of Rp.5,261.0 billion (US$596.3 million) as of December 31, 2010. The increase in
total shareholders’ equity of the Company as of September 30, 2011 was principally the result of the
increase in net income and the share subscription of a 50% ownership interest in Sinarmas MSIG Life. As of
September 30, 2011, total equity attributable to non-controlling interests in the net assets of our subsidiaries
was Rp.4,842.3 billion (US$548.8 million), compared to Rp.200.4 billion (US$22.7 million) as of December
31, 2010. The increase in total equity attributable to non-controlling interests as of September 30, 2011 was
principally the result inclusion of MSIG’s interest following its share subscription in Sinarmas MSIG Life.
Total shareholders’ equity of the Company was Rp.5,261.0 billion (US$596.3 million) as of December 31,
2010, which was a 40.6% increase from total shareholders’ equity of the Company of Rp.3,597.5 billion as
of December 31, 2009. The increase in total shareholders’ equity of the Company in 2010 was mainly
attributable to an increase in retained earnings. Total shareholders’ equity of the Company increased 30.0%
as of December 31, 2009 from total shareholders’ equity of the Company of Rp.2,767.1 billion as of December
31, 2008, mainly due to an increase in retained earnings as well as an increase in capital stock as a result
of the exercise of outstanding warrants.
Liquidity and Capital Resources
Our liquidity and capital resources are managed at the subsidiary, joint venture and associated
company level and not on a consolidated basis. In managing liquidity, our Group companies monitor and
maintain a level of cash and cash equivalents deemed adequate to finance their operations and to mitigate
the effects of fluctuations in cash flows. They also regularly evaluate projected and actual cash flows,
including loan maturity profiles, and assess conditions in the financial markets for opportunities to obtain
optimal funding sources. For a more detailed discussion of factors affecting our liquidity, see “Risk
Factors—Risks Relating to Our Overall Business”, “—Risks Relating to Our Insurance Businesses” and
“—Risks Relating to Our Banking and Multifinance Businesses”.
SMMA
We are principally a holding company and we do not conduct significant business operations at the
Company level. At the holding company level, our primary sources of funding are cash from limited
operating activities, gains and returns on investments, dividends from our subsidiaries and associated
companies and issuances of equity. Accordingly, we depend on dividends and other distributions and
payments from our subsidiaries and associated companies for our cash flow. See “Risk Factors—Risks
Relating to Ownership of the Shares—The ability of our Company to pay dividends on our Shares and to
meet our obligations depends on dividends and other distributions and payments from and among our
operating subsidiaries, which are subject to contractual, regulatory and other limitations.”. Furthermore, the
payment of dividends and other distributions and payments from our subsidiaries and associated companies
is regulated by applicable insurance, banking, securities, foreign exchange and tax laws, rules and
regulations.
The Company has raised capital through right issues and issues of warrants in the past, including in
June 2003 and June 2005. In June 2008, the Company undertook another rights issue, issuing 966,427,608
Series B shares with a par value of Rp.100 per Share at an issue price of Rp.100 per Share, with
1,449,641,412 free Series IV warrants attached to such shares. Each Series IV warrant is exercisable into
one Series B share. The Series IV warrants are exercisable into shares from January 6, 2009 to July 9, 2013
at an exercise price of Rp.500 per Share. The Company received proceeds from the rights issue amounting to
Rp.96.5 billion. As of September 30, 2011, 1,020,635,101 Series IV warrants remained unexercised, of which
98.97% were held directly or indirectly by our controlling shareholder. As of December 31, 2011,
1,012,350,274 Series IV warrants remained unexercised, of which 99.74% were held, directly or indirectly
by our controlling shareholder.
At the Company level, our cash inflows and existing cash balances are used to make investments or
acquire shares in our subsidiaries and associated companies, and to pay dividends that may be declared and
payable to our shareholders. In 2009, we acquired 16.66% of the shares in Sinarmas MSIG Life from PT
Sinarindo Gerbangmas and PT Sinar Mas Tunggal (both related parties) for Rp.8.7 billion, and we made
capital injections of Rp.100.0 billion in Bank Sinarmas and Rp.22.0 billion in other subsidiaries and
associated companies. For the nine months ended September 30, 2011, we made a Rp.120.0 billion capital
injection in Sinar Mas Multifinance and Rp.25.0 billion in other subsidiaries and associated companies.
Insurance
The principal source of funds generated by our insurance operations are written premiums, policy fees,
investment income – net of costs, and proceeds from the sale or maturity of investments. The major use of
our insurance funds are:
•
to provide life insurance policy benefits, settle surrenders and withdrawals, pay short-term
accident and health claims and provide for profit-sharing for participating policyholders;
•
to pay insurance claims and related expenses on our various non-life insurance products; and
•
to fund investments in new products and processes and to fund other operating costs.
We generate a significant cash flow from our insurance operations as a result of most premiums and
policy fees being received in advance of the time when policy benefits or claim payments are required. Our
positive operating cash flows, along with that portion of our investment assets that are held in cash and
liquid securities, have historically met the liquidity requirements of our insurance operations, as evidenced
by the growth of our investment portfolio.
In the insurance industry, liquidity generally refers to the ability of an insurance company to generate
adequate amounts of cash from its normal operations, including its investments, in order to meet its financial
commitments, which are principally obligations under its insurance policies. Our life insurance business may
face liquidity pressure in the form of unexpected cash demands that could arise from an increase in the level
of policyholders surrendering policies. In addition, Sinarmas MSIG Life’s ability to sell investments in a
sizeable volume without significantly affecting the market prices of our investments may be limited.
Sinarmas MSIG Life monitors and manages the level of surrenders in order to minimize such liquidity risk,
including through the application of a discretionary charge of up to 20% in the case of its Stable Link
policy. For more information, see “Business—Life Insurance—Sinarmas MSIG Life—Risk Management”.
The liquidity of our non-life insurance operations is affected by the frequency and severity of losses
under our non-life insurance policies, as well as by the persistency of non-life insurance products. Asuransi
Sinar Mas may face liquidity pressure in the form of unexpected cash demands that could arise from an
increase in the level of claims. It monitors the level of claims and utilizes reinsurance in order to minimize
such liquidity risk. Future catastrophic events, the timing and effect of which are inherently unpredictable,
may create increased liquidity requirements for our non-life operations. For liquidity risk management,
Asuransi Sinar Mas management monitors the required cash and cash equivalents required to fund the
company’s liabilities and operations. The management team also carries out a cash flow projection and
manages premium receivables. For more information, see “Business—Non-Life Insurance—Asuransi Sinar
Mas—Risk Management”.
The liquidity requirements of our insurance operations are met on both a short-term and long-term
basis by insurance premiums, net investment income and cash received on the sale or maturity of
investments. Highly liquid, high quality Government bonds and other liquid investment grade securities are
held, which can be liquidated to meet cash needs. As of September 30, 2011, the cash and cash equivalents
of Sinarmas MSIG Life were Rp.33.9 billion (US$3.8 million). As of September 30, 2011, Sinarmas MSIG
Life’s investments in fixed income securities had a fair value of Rp.579.6 billion (US$65.7 million). As of
September 30, 2011, the cash and cash equivalents of Asuransi Sinar Mas were Rp.30.6 billion (US$3.5
million). As of September 30, 2011, Asuransi Sinar Mas’ investments in fixed income securities had a fair
value of Rp.28.6 billion (US$3.2 million). In addition, our insurance businesses have back-up funding
available through the Company and its other subsidiaries.
Banking
In relation to our banking business segment, Bank Sinarmas maintains its liquidity by keeping a level of
liquid assets in such amounts that is considered sufficient based on anticipated withdrawal of deposits to be
made by customers, and controlling any excess of matured liabilities over matured assets of each period. In
addition, a branch cash limit is also set to enable the branch to meet its short-term obligations in the form of
withdrawal of third party funds and to avoid idle cash.
Bank Sinarmas’ principal source of funding is deposits from customers and deposits from other banks,
and, to a lesser extent, securities sold under repurchase agreements and securities issued, which includes
subordinated debt, commercial paper, structured notes and equity. The principal use of funds by Bank
Sinarmas comprises the advance of loans to customers, liquid reserve deposits placed with Bank Indonesia
(which generally exceed the minimum requirements of Bank Indonesia) in order to manage significant
withdrawals of deposits by its customers, placing deposits with other banks, payment of interest expense on
deposits and borrowings, and the payment of operational expenses.
Bank Sinarmas seeks to generate liquidity by offering competitive interest rates on its deposit accounts
and other marketing promotions to attract further deposits, borrowing from the inter-bank market or through
borrowings or by selling securities in its securities portfolio. Where it has excess liquidity, it may revise
downward interest rates on deposits to lower deposit levels, place deposits with other banks and seek to
pursue lending opportunities.
In December 2010, Bank Sinarmas undertook an initial public offering of its shares and issued 1.6
billion new shares at an offering price of Rp.150 per share, attached with 1,920 million Series I warrants in
a ratio of six new Series I warrants for every five new shares purchased. The Series I warrants entitle the
holder to purchase one new share in Bank Sinarmas at an exercise price of Rp.150 per share from June 13,
2011 to December 31, 2015. Immediately following the initial public offering, our equity interest in Bank
Sinarmas decreased to 70.43%.
Cash Flows
The following table sets out a condensed consolidated statement of our cash flows for the periods
indicated.
Nine Months Ended
September 30,
Year Ended December 31,
Cash flows from operating activities:
Operating cash flows before changes
in operating assets and liabilities .
Changes in operating assets and
liabilities . . . . . . . . . . . . . . . .
Income tax paid . . . . . . . . . . . . .
Net cash provided by operating
activities. . . . . . . . . . . . . . .
Net cash used in investing activities . .
Net cash provided by financing
activities. . . . . . . . . . . . . . . . . .
Net increase in cash and cash
equivalents . . . . . . . . . . . . . . . .
Cash and cash equivalents at end of
period . . . . . . . . . . . . . . . . . . .
(1)
2008
2009(1)
2010(1)
2010(1)
Rp.
Rp.
535.0
704.2
2,819.4
319.5
(289.8)
(29.2)
614.6
(41.6)
(1,935.0)
(64.9)
(219.3)
(7.2)
216.0
(242.1)
1,277.2
(221.1)
819.5
(324.7)
269.2
195.8
243.1
935.7
2010
Rp.
US$
Rp.
(Rp. in billions, US$ in millions)
2,099.8
2011
2011
Rp.
US$
2,699.2
305.9
(535.3)
(45.0)
(2,690.0)
(59.3)
(304.9)
(6.7)
93.0
(36.8)
1,519.5
(266.5)
(50.1)
(324.4)
(5.7)
(36.8)
364.1
41.2
113.2
7,644.8
866.5
1,251.9
858.9
97.3
1,366.2
7,270.3
824.0
2,033.1
2,858.4
323.9
3,323.2
10,114.1
1,146.3
Effective January 1, 2010, for the purpose of the consolidated statement of cash flows, cash and cash equivalents include cash,
demand deposits with Bank Indonesia, demand deposits with other banks, and placement with other banks with original maturity
of three months or less from the acquisition date. Prior to January 1, 2010, for the purpose of the consolidated statement of cash
flows, cash and cash equivalents include cash, demand deposits with Bank Indonesia, and demand deposit with other banks with
no restriction. These changes were due to the withdrawal of PSAK 31 “Accounting for Banks” in 2010 which was applied by
Bank Sinarmas. Accordingly, for comparative purposes, the consolidated statement of cash flows for the year ended December 31,
2009 and 2008 have been restated. See Note 63 to our consolidated financial statements for details of the adjustments between the
original cash flows and the restated cash flows.
Cash Flow from Operating Activities
Our principal sources of consolidated cash flow from operating activities include our insurance
underwriting income received and expenses paid, interest income received and interest paid, income received
from financing activities, stock brokerage, underwriting and investment management income received and
expenses paid, net gains or loss on foreign exchange, other operating income received, operating expenses
paid and changes in operating assets and liabilities. Operating assets include short-term investments,
segregated funds net assets − unit link, loans, consumer financing receivables, factoring receivables and
other assets and operating liabilities include deposits and deposits from other banks, securities sold under
agreements to repurchase, premiums received in advance, securities agent payable and other liabilities.
In the nine months ended September 30, 2011, we generated operating cash flows before changes in
operating assets and liabilities of Rp.2,699.2 billion (US$305.9 million) and changes in operating assets and
liabilities of negative Rp.2,690.0 billion (US$304.9 million). Cash flows from operating activities consisted
principally of Rp.11,366.1 billion (US$1,288.2 million) of insurance underwriting income received and
Rp.1,060.3 billion (US$120.2 million) of interest income received, offset by Rp.9,009.0 billion (US$1,021.1
million) in insurance underwriting expenses paid and Rp.2,690.0 billion (US$304.9 million) in net change in
operating assets and liabilities. Changes in operating assets and liabilities were principally a result of a
Rp.1,762.1 billion (US$199.7 million) decrease in segregated funds net assets − unit link, a Rp.2,145.9
billion (US$243.2 million) increase in loans and a Rp.5.1 billion (US$0.6 million) increase securities sold
under agreements to repurchase, partially offset by a Rp.3,800.9 billion (US$430.8 million) increase in
deposits and deposit from other banks and a Rp.1,762.0 billion (US$199.7 million) decrease in segregated
funds net assets − unit link. As a result, we recorded net cash used in operating activities of Rp.50.1 billion
(US$5.7 million).
In 2010, we generated operating cash flows before changes in operating assets and liabilities of
Rp.2,819.4 billion (US$319.6 million) and changes in operating assets and liabilities of negative Rp.1,935.0
billion (US$219.3 million). Cash flows from operating activities consisted principally of Rp.10,652.1 billion
(US$1,207.3 million) of insurance underwriting income received and Rp.1,037.2 billion (US$117.6 million)
of interest income received, partially offset by Rp.8,145.1 billion (US$923.2 million) in insurance
underwriting expenses paid and Rp.1,935.0 billion (US$219.3 million) in net change in operating assets and
liabilities. Changes in operating assets and liabilities were principally a result of a Rp.810.4 billion (US$91.9
million) increase in short-term investments, a Rp.2,913.4 billion (US$330.2 million) increase in deposits and
deposits from other banks, a Rp.1,660.9 billion (US$188.2 million) increase in loans, partially offset by a
Rp.2,913.4 billion (US$330.2 million) decrease in increase in deposits and deposit from other banks and a
Rp.810.4 billion (US$91.8 million) decrease in short-term investments. As a result, we recorded net cash
provided by operating activities of Rp.819.5 billion (US$92.8 million).
In 2009, we generated operating cash flows before changes in operating assets and liabilities of
Rp.704.2 billion and changes in operating assets and liabilities of Rp.614.6 billion. Cash flows from
operating activities consisted principally of Rp.8,218.6 billion of insurance underwriting income received,
Rp.853.3 billion of interest income received and Rp.614.6 billion in net changes in operating assets and
liabilities, partially offset by Rp.7,577.1 billion in insurance underwriting expenses paid. Changes in
operating assets and liabilities were principally a result of a Rp.2,369.2 billion decrease in short-term
investments and a Rp.1,831.6 billion increase in deposits and deposit from other banks, partially offset by a
Rp.2,641.4 billion increase in segregated funds net assets − unit link and a Rp.1,162.4 billion increase in
loans. As a result, we recorded net cash provided by operating activities of Rp.1,277.2 billion.
In 2008, we generated operating cash flows before changes in operating assets and liabilities of
Rp.535.0 billion and changes in operating assets and liabilities of negative Rp.289.8 billion. Cash flows from
operating activities consisted principally of Rp.5,931.9 billion of insurance underwriting income received and
Rp.607.0 billion of interest income received, partially offset by Rp.5,671.4 billion in insurance
underwriting expenses paid and Rp.289.8 billion in net change in operating assets and liabilities. Changes in
operating assets and liabilities were principally a result of a Rp.1,200.6 billion increase in loans and a
Rp.516.1 billion decrease in security agent payable, partially offset by a Rp.1,217.2 billion decrease in shortterm investments. As a result, we recorded net cash provided by operating activities of Rp.215.9 billion.
Cash Flow Used in Investing Activities
Cash flows used in investing activities principally comprises cash used to acquire property and
equipment and cash used to acquire investment shares in our associated companies, and cash flows from
investing activities principally comprises proceeds from sale of investment and proceeds from sale of
property and equipment. In the nine months ended September 30, 2011, net cash flows used in investing
activities of Rp.324.4 billion (US$36.8 million) were primarily for acquisitions of property and equipment
and acquisitions of investment in shares.
In 2010, net cash flows used in investing activities of Rp.324.7 billion (US$36.8 million) were
primarily for acquisitions of property and equipment and acquisitions of investment in shares.
In 2009, net cash flows used in investing activities of Rp.221.1 billion were primarily for acquisitions
of property and equipment and additions to property under build, operate and transfer.
In 2008, net cash flows used in investing activities of Rp.242.1 billion were primarily for acquisitions
of property and equipment and additions to property under build, operate and transfer.
Cash Flow Provided by Financing Activities
Cash flows provided by financing activities include proceeds from issuance of shares by our
subsidiaries to external parties, proceeds from additional issuances of capital stock from conversion of
warrants and proceeds from loans received. Cash flows used in financing activities include payments of
interest on loans payable. In the nine months ended September 30, 2011, our net cash flows provided by
financing activities of Rp.7,644.9 billion (US$866.5 million) were principally from proceeds from the
issuance of shares by Sinarmas MSIG Life in relation to the investment of MSIG into Sinarmas MSIG Life
in the amount of Rp.7.0 trillion (US$793.4 million).
In 2010, our net cash flows provided by financing activities of Rp.364.1 billion (US$41.3 million)
were principally from proceeds from issuance of shares by Bank Sinarmas and proceeds from loans received
by Sinar Mas Multifinance from various financial institutions.
In 2009, our net cash flows from financing activities of Rp.195.8 billion were principally from
proceeds from additional issuances of capital stock from conversion of our Series IV warrants.
In 2008, our net cash flows from financing activities of Rp.269.2 billion were principally from
proceeds from additional issuances of capital stock from conversion of our Series IV warrants.
Commitments and Capital Expenditures
Contractual Commitments
The Group has various contractual obligations under which it is obligated to make future payments.
The following table summarizes the Group’s contractual obligations, other than liabilities for insurance
policies, as of September 30, 2011.
Payments Due by Period
Total
Less than
1 Year
1 to 2
Years
2 to 5
Years
More
than 5
Years
(Rp. in billions)
Description of Contractual Obligations:(1)
Bank borrowings(2) . . . . . . . . . . . . . . . . . . .
Securities sold under agreements to repurchase(3).
Capital lease obligations . . . . . . . . . . . . . . . .
Operating lease obligations . . . . . . . . . . . . . .
Other liabilities(4) . . . . . . . . . . . . . . . . . . . .
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
886.9
37.2
—
—
357.8
875.4
37.2
—
—
357.8
7.8
—
—
—
—
3.7
—
—
—
—
—
—
—
—
—
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,281.9
1,270.4
7.8
3.7
—
(1)
Provisions for liability for future policy benefits, unearned premiums and estimated own retention claims have been excluded due
to significant uncertainties in actual future cash flows.
(2)
Comprises amounts under various facility agreements for working capital entered into by Sinar Mas Multifinance and AB
Multifinance. For more information, see “Material Agreements—Sinar Mas Multifinance and AB Multifinance Working Capital
Facility Agreements”.
(3)
Comprises amounts of securities sold under agreements to repurchase by Sinarmas Sekuritas.
(4)
Comprises principally of miscellaneous operating liabilities of Asuransi Sinar Mas.
Indebtedness
We do not have any indebtedness outstanding at the holding company level. Our subsidiaries have
obtained bank loans from time to time. Our total outstanding consolidated current and non-current
indebtedness amounted to Rp.302.8 billion as of December 31, 2008, Rp.348.9 billion as of December 31,
2009, Rp.512.3 billion (US$58.1 million) as of December 31, 2010 and Rp.886.4 billion (US$100.5 million)
as of September 30, 2011, which was principally attributable to loans incurred by Sinar Mas Multifinance.
Commitments and Contingent Liabilities
Bank Sinarmas also has commitments and contingent liabilities arising from unused loan commitments
granted to customers and agreements to provide letters of credit to customers. These commitments can either
be made for a fixed period, or have no specific maturity but are cancellable by us subject to notice
requirements. Our contingent liabilities consist of past due interest revenues and bank guarantees issued.
These commitments and contingent liabilities amounted to Rp.131.9 billion (US$14.9 million) and Rp.330.3
billion (US$37.4 million), respectively, as of September 30, 2011, Rp.152.5 billion (US$17.3 million) and
Rp.305.2 billion (US$34.6 million), respectively, as of December 31, 2010, and Rp.460.9 billion and Rp.269.5
billion, respectively, as of December 31, 2009 and Rp.77.2 billion and Rp.168.7 billion, respectively, as of
December 31, 2008. See Note 59 and Note 55 to our consolidated financial statements for further details.
Off-Balance Sheet Arrangements
As of September 30, 2011, other than commitments and contingent liabilities of Bank Sinarmas
disclosed in our consolidated financial statements, we did not have any other off-balance sheet arrangements.
Capital Expenditures
For the year ended December 31, 2010 and the nine months ended September 30, 2011, we incurred
capital expenditures of Rp.216.9 billion (US$24.5 million) and Rp.311.8 billion (US$35.3 million) consisting
of Rp.173.5 billion (US$19.7 million) and Rp.289.6 billion (US$32.8 million) for property, plant and
equipment, which mainly comprise expenditure on expanding our banking, life insurance, non-life insurance
and multifinance branches and outlets.
We expect to incur planned capital expenditures of approximately Rp.1,273.1 billion in 2012, which
mainly comprises expenditure on expanding our banking, life insurance, non-life insurance and multifinance
branches and outlets. We anticipate that the funds needed for such capital expenditures will come from
capital contributions. The following table sets forth planned capital expenditures of each of SMMA and our
key subsidiaries and joint ventures for the periods indicated.
2012
(Rp. in billions)
Property, plant and equipment:(1)
SMMA . . . . . . . . . . . . . . . .
Sinarmas MSIG Life . . . . . . . .
Asuransi Sinar Mas . . . . . . . . .
Sinarmas Sekuritas . . . . . . . . .
Bank Sinarmas . . . . . . . . . . . .
Sinar Mas Multifinance . . . . . .
Other Group members . . . . . . .
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—
29.0
20.0
19.2
590.0
278.8(2)
336.1
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,273.1
(1)
Includes both amounts to purchase and amounts to lease land.
(2)
Sinar Mas Multifinance plans to use its capital expenditures primarily towards the purchase of properties for its branches and for
lease to other subsidiaries of the Group to expand their respective office networks.
Our capital expenditure plans are subject to changes based upon the execution of the business plans of
our key subsidiaries, the progress of our capital projects, our financial performance, market conditions, our
outlook for future business conditions and relevant Governmental approvals needed.
Capital Management
Capital Adequacy
Certain of our subsidiaries and joint ventures are required by Indonesian regulations to maintain
various capital adequacy and solvency ratios or margins. The table below shows the composition of our
capital adequacy and solvency ratios or margins at the relevant subsidiary. These ratios and margins are
determined in accordance with the requirements of Bank Indonesia, in the case of our banking subsidiary,
and the Ministry of Finance, in the case of our insurance subsidiaries.
As of December 31,
2008
Rp.
2009
2010
As of September 30,
2010
2010
2011
Rp.
Rp.
US$
Rp.
Rp.
(Rp. in billions, US$ in millions, except percentages)
2011
US$
Sinarmas MSIG Life
Solvency Margin:
Admitted assets . . . . . . . . . . . . .
Liabilities (except subordinated
loans) . . . . . . . . . . . . . . . . . .
6,085.6
4,330.1
3,960.9
448.9
4,023.4
15,410.1
(5,453.3)
(3,496.5)
(2,669.3)
(302.5)
(3,016.5)
(7,282.3)
(825.4)
Total solvency margin . . . . . . . .
Total minimum solvency margin . . .
632.3
(326.0)
833.6
(275.8)
1,291.6
(275.4)
146.4
(31.2)
1,006.9
(290.7)
8,127.8
(810.5)
921.2
(91.9)
Excess of solvency margin . . . . . .
Solvency ratio margin attained . . . .
306.3
193.9%
557.9
302.3%
1,016.2
469.0%
115.2
469.0%
716.2
346.4%
1,746.6
7,317.3
829.3
1,002.8% 1,002.8%
The improvement in Sinarmas MSIG Life’s solvency ratio in 2009 and 2010 was primarily a result of
the shift in the amount of endowment products with guaranteed returns, to unit link products, which reduced
benefit liabilities payable. The increase in Sinarmas MSIG Life’s solvency ratio in the nine months ended
September 30, 2011 was primarily due to the share subscription of MSIG. See “Business—Life Insurance—
Sinarmas MSIG Life—Products”.
As of December 31,
2008
2009
Rp.
As of September 30,
2010
2010
2010
2011
Rp.
Rp.
US$
Rp.
Rp.
(Rp. in billions, US$ in millions, except percentages)
2011
US$
Asuransi Sinar Mas
Solvency Margin:
Admitted assets . . . . . . . . . . . . .
Liabilities (except subordinated
loans) . . . . . . . . . . . . . . . . . .
1,692.8
2,054.9
2,765.6
313.5
2,564.4
3,279.4
371.7
(1,127.6)
(1,336.7)
(1,600.5)
(181.4)
(1,575.2)
(1,945.7)
(220.5)
Total solvency margin . . . . . . . . .
Total minimum solvency margin . . . .
565.2
(243.9)
718.2
(275.5)
1,165.1
(344.9)
132.1
(39.2)
989.2
(319.2)
1,333.7
(438.4)
151.2
(49.7)
Excess of solvency margin . . . . . . . .
Solvency ratio margin attained. . . . . .
321.3
231.7%
442.7
260.7%
820.2
337.8%
93.0
337.8%
670.0
309.9%
895.3
304.2%
101.5
304.2%
The improvement in Asuransi Sinar Mas’ solvency ratio margin in 2009 and 2010 was primarily a
result of an increase in admitted assets due to a shift in asset allocation to increase the proportion of assets
that qualify as admitted assets, such as more highly rated bonds. The slight decrease in Asuransi Sinar Mas’
solvency ratio margin as of September 30, 2011 compared to September 30, 2010 was as a result of a shift
of investments into more equities in the nine months ended September 30, 2011, which increased deducting
factors even though admitted assets increased in the same period.
As of December 31,
2008
Rp.
Bank Sinarmas
Capital Stock Component:
Core Capital (A):
Paid-up capital . . . . . . . . . . . . . . . . . .
Additional paid-in capital . . . . . . . . . . . .
General reserve . . . . . . . . . . . . . . . . . .
Unappropriated retained earnings after tax(1)
Net income after tax during the year
(50%)(1) . . . . . . . . . . . . . . . . . . . . .
2009
2010
As of September 30,
2010
2010
2011
2011
Rp.
Rp.
US$
Rp.
Rp.
US$
(Rp. in billions, US$ in millions, except percentages)
.
.
.
.
425.0
—
2.0
28.6
525.0
—
2.5
45.7
728.1
75.3
3.0
54.8
82.5
8.5
0.3
6.2
568.1
—
3.0
51.2
907.9
165.2
3.5
159.6
103.0
18.7
0.3
18.1
.
6.4
24.4
50.9
5.8
38.4
36.7
4.2
Total core capital . . . . . . . . . . . . . . . .
Supplementary Capital (B):
Allowance for possible losses on earning assets
(general reserve), maximum of 1.25% of risk
weighted assets . . . . . . . . . . . . . . . . . . .
462.0
597.6
912.1
103.4
660.7
1,272.9
144.3
44.3
51.1
62.0
7.0
64.3
72.2
8.2
Total core and supplementary capital (A + B) . . .
506.3
648.7
974.1
110.4
725.0
1,345.1
152.5
Risk Weighted Assets:
Credit risk after considering specific risk. . . . . 3,987.5
Market risk . . . . . . . . . . . . . . . . . . . . . . .
15.2
Operational risk . . . . . . . . . . . . . . . . . . . .
—
4,648.9
38.0
—
6,529.9
54.4
322.3
740.1
6.2
36.5
5,147.1
8.6
322.3
8,647.1
73.2
749.0
980.1
8.3
84.9
Total risk weighted assets for credit, market
and operational risk . . . . . . . . . . . . . . . 4,002.7
4,686.9
6,906.5
782.8
5,477.9
9,469.3
1,073.3
As of December 31,
Core Capital Ratio. . . . . . . . . . . . . . . . . . .
Capital Adequacy Ratio (“CAR”):
CAR with credit risk . . . . . . . . . . . . . . . . .
CAR with credit and market risk. . . . . . . . .
CAR with credit and operational risk . . . . . .
CAR with credit, operational and market risk .
Minimum Capital Adequacy
Ratio . . . . . . . . . . . . . . . . . . . . . . . . . .
(1)
As of September 30,
2008
2009
2010
2010
2010
2011
2011
Rp.
Rp.
Rp.
US$
(%)
Rp.
Rp.
US$
.
11.5
12.8
13.2
13.2
12.1
13.4
13.4
.
.
.
.
12.7
12.6
n.a.
n.a.
14.0
13.8
n.a.
n.a.
14.9
14.8
14.2
14.1
14.9
14.8
14.2
14.1
14.1
14.1
13.3
13.2
15.6
15.4
14.3
14.2
15.6
15.4
14.3
14.2
.
8.0
8.0
8.0
8.0
8.0
8.0
8.0
Excludes deferred taxes.
Quantitative and Qualitative Disclosure about Market Risk
Market risk is the exposure created by potential changes in market prices and rates. We are exposed to
market risk arising principally through the operations of subsidiaries and joint ventures, which hold financial
investments. Some of the significant market risks our Group faces include interest rate risk, foreign
exchange risk, liquidity risk and market price risk. Market risk is monitored and managed by our
subsidiaries and joint ventures, and not at a holding company level. See “Risk Factors—Risks Relating to
Our Overall Business—Our risk management policies and procedures and internal controls may not
adequately address unidentified or unanticipated risks, which could adversely affect our business”.
Interest Rate Risk
Interest rate risk is the potential loss arising from movements in market interest rates as opposed to the
position or transaction of the Company and its subsidiaries and joint ventures. Our exposure to interest rate
risk predominantly arises in our insurance and securities businesses, from investments in long-term fixed
income debt securities, and in our banking business, from loans to customers and funding from deposits that
Bank Sinarmas receives from customers, all of which are exposed to fluctuations in interest rates.
Interest rate risk also arises from our insurance contracts with guaranteed terms. Although the
significiant proportion of our guarantee terms tend to be short tenures of around 3 months, these products
carry the risk that interest income and capital redemptions from the financial assets backing the liabilities is
insufficient to fund the guaranteed benefits payable as interest rates rise and fall. For other insurance
products such as our unit link products, interest rate risk is significantly reduced due to the non-guaranteed
nature of additional policyholder benefits.
A sustained period of lower interest rates would generally reduce the investment yield of our
investment portfolio over time as higher yielding investments mature or are redeemed and the proceeds
therefrom are reinvested in new investments with lower yields, affecting our profitability. Conversely, if
interest rates were to increase, surrenders and withdrawals of insurance policies may increase as
policyholders seek other investments with higher perceived returns, and may result in cash outflows
requiring our life insurance business to sell investment assets at a time when the prices of those assets are
adversely affected by the increase in market interest rates, which may result in realized investment losses. In
addition, increase in market interest rates generally lead to lower sales of our motor vehicle insurance
products as fewer vehicles are purchased in a higher interest rate environment. Market interest rates and
other determinants of the relative attractiveness of our products as compared to other financial products may
also affect our insurance premium income.
We manage our interest rate risk by generally investing in fixed income assets and mutual funds with
fixed income investments in the same currencies as those of our liabilities, as well as investing in financial
instruments with tenors that broadly match the duration of our liabilities. In addition we also monitor closely
and adjust the guaranteed or targeted returns on our insurance products on an ongoing basis to account for
any decline in interest rates.
See Note 60 to our consolidated financial statements for a table showing our balance sheet exposures
to interest rate risk as of September 30, 2011 and December 31, 2010.
Foreign Currency Risk
Foreign currency risk is the risk that the carrying value or future cash flows of a financial instrument
will fluctuate due to changes in currency exchange rates of the Rupiah against foreign currencies. Our
subsidiaries and joint ventures manage this risk by generally investing in assets denominated in currencies
that match their liabilities at a ratio of 100%, as required by applicable regulations.
In relation to our banking business, the policy in managing exchange rate risk is based on a Bank
Indonesia regulation regarding limits on net open positions. Bank Indonesia sets a limit on net open
positions on all foreign currencies at a maximum of 20% of capital. The management of net open position is
centralized and under the responsibility of Bank Sinarmas’ Treasury division, which combines the daily net
open position of all branches. For managing Bank Sinarmas’ trading book position, Bank Sinarmas applies
policies and limits to minimize the potential losses arising from trading book and hedges its foreign exchange
exposure through the use of derivative instruments such as forward and spot contracts.
In relation to our insurance businesses, foreign exchange rate risk arises with assets and liabilities
denominated in non-functional currencies. Sinarmas MSIG Life and Asuransi Sinar Mas generally invest in
assets denominated in U.S. dollar to match their U.S. dollar liabilities to avoid currency mismatches.
See Note 60 to our consolidated financial statements for a table showing our consolidated monetary
assets and liabilities as of September 30, 2011 and December 31, 2010.
Equity Market Price Risk
Market price risk is the risk of fluctuations in the value of financial instruments as a result of changes
in market price. Investments as of December 31, 2010 and September 30, 2011 accounted for 19.6% and
25.2%, respectively, of our total assets. These investments are classified as trading securities and securities
available for sale, which will affect our results of operations and shareholders’ equity if there are any
changes in the market price of these securities.
For yield enhancement purposes, our insurance and securities businesses invest in equities. Investment
in equity securities and in mutual funds which invest in equity securities expose us to changes in stock
prices. To manage this risk, our subsidiaries and joint ventures set and comply with set investment limits
and guidelines and monitor closely the movements in stock prices.
MATERIAL AGREEMENTS
Sinarmas MSIG Life Joint Venture
Prior to July 1, 2011, the Company owned 99.99% of the shares in Sinarmas MSIG Life, formerly known
as PT Asuransi Jiwa Sinarmas, and PT Shinta Utama owned 0.01% of Sinarmas MSIG Life. On July 1, 2011, PT
Shinta Utama transferred its shares of Sinarmas MSIG Life to the Company and Sinarmas MSIG Life issued MSIG
52,500 shares, representing 50.0% of the enlarged share capital. MSIG subscribed for, and paid in full, the
subscription price of Rp.7.0 trillion.
The business of Sinarmas MSIG Life is to engage exclusively in the business of conventional and Sharia
life insurance services and products.
Board of Commissioners. The board of commissioners is to act as a supervisory body for Sinarmas MSIG
Life. The Company has the right to nominate and appoint the president commissioner. Each shareholder has the
right to nominate an equal number of individuals as members of the board of commissioners. In addition, the
shareholders are to jointly appoint one independent commissioner. Commissioners are appointed for terms of two
years and are eligible for re-election immediately following the expiry of their previous term. A commissioner can
only be removed by the shareholder that nominated the commissioner. The board of commissioners meet weekly
unless a meeting is otherwise called or requested by a commissioner. A quorum exists if more than 50% of the
commissioners are present and resolutions require an affirmative vote of more than three commissioners present or
represented at a meeting.
Board of Directors. The board of directors is responsible for the overall management and operations of
Sinarmas MSIG Life, subject to its articles of association and prevailing laws. The existing president, Ms. Ivena
Widjaja, is to continue to act in her role as president director until a professional president director has been
appointed by the shareholders. Further, each shareholder is to nominate one candidate to be elected a vice president
director, for a total of two vice president directors. The remaining members of the board of directors are to be
professional individuals nominated based on professional reputation and ability, and are not to represent either
shareholder. Directors are appointed for terms of two years and are eligible for re-election immediately following
the expiry of their previous term. Each shareholder has the right to remove any director, except the vice president
directors. Under the prevailing Insurance Law, the Board of Directors of Sinarmas MSIG Life cannot comprise
50.0% or more foreign nationals.
Board Committees. Sinarmas MSIG Life will form eight board committees to provide input to the board of
directors or board of commissioners, as applicable. The board of directors and/or board of commissioners, as
applicable, are to supervise the duties and responsibilities of the committees. The committees may comprise
members of the board of directors or other persons appointed by the board of directors. Each vice president director
chairs four board committees. The vice president director nominated by the Company is to chair the (i) compliance
and good corporate governance committee, (ii) information technology and steering committee, (iii) investment
committee and (iv) nomination and remuneration committee. The vice president director nominated by MSIG is to
chair the (i) risk management committee, (ii) audit committee, (iii) product development committee and (iv)
distribution channel management committee.
Dividends. Sinarmas MSIG Life will distribute profits on the basis of prudent financial management
principles, following consideration by the shareholders in a general meeting of shareholders, Subject to capital
adequacy and solvency margins, unless otherwise agreed by the Company and MSIG, Sinarmas MSIG Life expects
to distribute 30% of its annual profits as dividends to the shareholders.
Business Plan. The board of directors will formulate an annual business plan, which is based on a rolling
five-year business plan. The annual business plan will be submitted to the shareholders for their input and adoption.
Other. The parties will not compete with Sinarmas MSIG Life in Indonesia. The parties have also agreed
to various transfer provisions in respect of the shares in Sinarmas MSIG Life. It is intended that Sinarmas MSIG
Life will conduct a public offering on the IDX or other internationally recognized stock exchange on May 1, 2016,
or on any period as may be agreed by the Company and MSIG and subject to market condition.
Mega Life Joint Venture
Although there is no written joint venture agreement between us and PT Mega Corpora with respect to
Mega Life, certain terms governing the rights and obligations of the parties with respect to Mega Life are set out in
its articles of association, which provide the following:
Business
The business of Mega Life is to engage exclusively in the business of conventional and Sharia principlebased life insurance services and products. It does so by engaging in life, health and personal accident insurance,
Sharia governed insurance, and annuities and pension fund management, as governed by the prevailing law.
Management
Board of Commissioners. The board of commissioners acts as a supervisory body for Mega Life in
accordance with its articles of association. The parties agree, as set out in Mega Life’s article of association, that the
shareholders, through the general meeting of shareholders, have the right to appoint and remove members of the
board of commissioners. Commissioners are appointed for terms of five years and can be removed at any time. The
board of commissioners meet when called or requested by a commissioner or by a written request of shareholders
whose aggregate ownership comprises of at least 10% of total shares outstanding. A quorum exists if at least 50%
of the commissioners are present and resolutions require an affirmative vote of more than 50% of the
commissioners present or represented at a meeting.
Board of Directors. The board of directors is responsible for the overall management and operations of
Mega Life, subject to its articles of association and prevailing laws. The parties agree, as set out in Mega Life’s
article of association, that the shareholders, through the general meeting of shareholders, have the right to appoint
and remove members of the board of directors. Directors are appointed for terms of five years and can be removed
at any time.
The president director can represent the board of directors and act for and on behalf of Mega Life. If the
president director is not available, any director may act on the president director’s behalf and represent the board of
directors and act for and on behalf of Mega Life. Approval from the board of commissioners is required in order to
lend or borrow money on behalf of Mega Life, establish new businesses or enter into joint ventures, buy and
relinquish ownership of fixed assets or subsidiaries and to hypothecate Mega Life’s movable assets. Approval from
the general meeting of shareholders is required in order to bind Mega Life as a guarantor of any obligations.
The board of directors meet when called or requested by a commissioner or by a written request of
shareholders whose aggregate ownership comprises of at least 10% of total shares outstanding. A quorum exists if
at least 50% of the directors are present and resolutions require an affirmative vote of more than 50% of the
directors present or represented at a meeting.
As of December 31, 2011, we did not have a representative on the board of directors of Mega Life.
Dividends
Mega Life is required to distribute profits following consideration by the shareholders in a general meeting
of shareholders. It can also make interim dividend distributions before the end of the current financial year by
observing the prevailing regulations governing limited liability companies.
Issuance and Transfer of Shares
The Company and PT Mega Corpora each hold a 50.0% interest in Mega Life. The issuance of new shares
is required to be conducted in accordance with Indonesian law and the mechanisms set out in Mega Life’s articles
of association. Share issuances have to be approved by the general meeting of shareholders. Shareholders whose
names are recorded in the register are entitled to pre-emptive rights to acquire the shares to be issued, in the amount
proportional to their share ownership. Shareholders intending to sell their shares must first make a written offer to
other shareholders, detailing the price and conditions for the sale. Such share transfers must then be approved by the
general meeting of shareholders.
Sinar Mas Multifinance and AB Multifinance Working Capital Facility Agreements
Sinar Mas Multifinance has entered into working capital facility agreements with various banks, including
a loan facility from Bank BNI of up to Rp.292.3 billion, a loan facility from Bank Panin of up to Rp.249.0 billion, a
loan facility from Bank Capital of up to Rp.100.0 billion, a loan facility from Bank Victoria of up to Rp.100.0
billion and a loan facility from CIMB Bank of up to Rp.50.0 billion.
Sinar Mas Multifinance funds its lending through short-term (generally under one year) revolving loan
facilities for its working capital. As of September 30, 2011, Sinar Mas Multifinance had total outstanding
indebtedness of approximately Rp.791.2 billion (US$89.7 million).
AB Multifinance has also entered into working capital facility agreements with two banks, which include a
revolving loan facility from ICBC Bank of up to Rp.69.1 billion and a loan facility from Bank Victoria of up to
Rp.26.1 billion.
These banking facilities are used to fund AB Multifinance’s working capital and to purchase heavy
equipments for its leasing business. As of September 30, 2011, AB Multifinance had a total outstanding
indebtedness of approximately Rp.95.1 billion (US$10.8 million).
Interest
The principal amounts outstanding under the working capital facilities bear interest either at a fixed rate or
at a floating rate calculated by reference to the Jakarta Interbank Offer Rate JIBOR. Fixed and floating interest rates
are subject to adjustment from time to time in the lenders’ discretion. Interest payments are generally payable
monthly and must be made on each payment date as provided in the particular facility agreement.
Covenants and undertakings
Under the working capital facilities, Sinar Mas Multifinance and AB Multifinance have agreed, among
other things, to:
(a) use the proceeds from the borrowings as designated;
(b) comply with the payment obligations;
(c) maintain SMMA’s ownership interest of Sinar Mas Multifinance and AB Multifinance at 51.0% or
higher;
(d) refrain from making dividend payments, limit dividend payments to less than 50.0% of net profit, or
seek lenders’ consent before making any dividend payments;
(e) maintain a minimum level of certain ratios of debt to equity, bad debt and security coverage;
(f) maintain adequate insurance coverage for their assets;
(g) refrain from changing their articles of association or the composition of their shareholders and their
board of director’s without obtaining consent from lenders;
(h) provide financial information or access to financial information to the lenders;
(i) seek lenders’ consent before incurring additional debt, except when done in the ordinary course of
business;
(j) seek written consent from the lenders on assignment of their obligations to a third party;
(k) seek written consent from lenders before pledging their assets or agreeing to guarantee third party’s
obligations, except in the ordinary course of business;
(l) refrain from providing loans to or paying back loans of any affiliates, except when done in the
ordinary course of business;
(m) notify the lenders of important events which may significantly affect their ability to make repayment
under the facility agreements; and
(n) seek written consent from the lenders on mergers, consolidations, acquisition, major investments,
disposal of any substantial assets and other similar events that would have a material impact on their
capability to repay the relevant loans.
Events of default
The working capital facilities contain certain customary events of default, including, among other things,
non-payment, misrepresentation, insolvency, breaches of the terms of the facility agreements, cross-default, and any
events or circumstances that result in a material adverse change in the business, ownership or financial condition of
Sinar Mas Multifinance or AB Multifinance, as applicable. The lenders are entitled to terminate their respective
agreements and/or demand immediate repayment of all or part of their loans and any accrued interest upon the
occurrence of an event of default.
Security
Various account receivables of Sinar Mas Multifinance and AB Multifinance have been provided as
collateral.
Build, Operate and Transfer Agreement between SMMA and Asuransi Sinar Mas
On June 5, 2007, SMMA entered into a Build, Operate and Transfer Agreement with Asuransi Sinar Mas.
Pursuant to the terms of the agreement, SMMA has agreed to build an office building on land owned by
Asuransi Sinar Mas in Jakarta. Pursuant to the terms of the agreement, Asuransi Sinar Mas remains the owner of
the land and SMMA is given the rights to manage and operate the office building for a 99-year period, including
the right to lease out spaces in the building and to receive rent from third party tenants and Asuransi Sinar Mas
for their occupancy. At the end of the 99-year period, SMMA will transfer its rights to the building to Asuransi
Sinar Mas.
RISK FACTORS
Risks Relating to Our Overall Business
Our results of operations and financial condition are inherently subject to market fluctuations and
general economic conditions, and continuing difficult conditions in the global financial markets and the
general economy may materially and adversely affect our business and profitability while governmental
actions to stabilize the financial markets and stimulate the economy may not achieve the intended effects.
We are a financial services group comprising insurance, banking and other financial service companies,
and, as such, our results of operations and financial condition are inherently subject to market fluctuations
and general economic conditions. Since early 2008, global financial markets have experienced and may
continue to experience volatility and liquidity disruptions, which have resulted in the consolidation, failure
or near failure of a number of institutions in the banking and insurance industries in Europe, the United
States and elsewhere. The market uncertainty that started from the U.S. residential market further expanded
to other markets such as those for leveraged finance, collateralized debt obligations, other structured
products and sovereign debt. In September and October 2008, liquidity and credit concerns and volatility in
the global credit and financial markets increased significantly with the bankruptcy or acquisition of, and
government assistance to, several major U.S. and European financial institutions, including the bankruptcy
filing of Lehman Brothers. These developments resulted in reduced liquidity, greater volatility, widening of
credit spreads and a lack of price transparency in the global credit and financial markets.
Although there were signs of economic recovery in the United States and other major economies, this
recovery was fragile and partially attributable to the effects of various government economic stimulus
efforts. The sustainability of the recovery is uncertain, particularly as the effects of these various government
stimulus programs subside. On August 5, 2011, S&P downgraded the long-term credit rating of the United
States from “AAA” to “AA+” with a negative outlook, which has caused further loss of investor confidence
and increased volatility in global financial markets. In Europe, the sovereign debt crisis in Greece, Ireland,
Spain, Portugal and other peripheral Eurozone countries that emerged in late 2009 intensified despite
concerted actions and aid from other European Union countries, leading to fears of contagion and turmoil in
financial markets. The sovereign ratings of these countries have been downgraded by the major international
rating agencies, and there is concern that the crisis will spread to the entire Eurozone. In May 2010,
November 2010 and May 2011, the Eurozone and IMF approved bailout loans to Greece, Ireland and
Portugal, respectively. In July 2011, the European Union granted Greece a tentative second bailout loan in
exchange for further austerity measures. The crisis has resulted in a wave of anti-austerity protests and
strikes in Greece and Italy, sell-offs in global markets and changes in leadership in Greece and Italy. In
addition, in January 2012, Standard & Poor’s downgraded the sovereign ratings of various other European
Union countries, including France and Austria, two of the guarantors of the Eurozone’s rescue fund, the
European Financial Stability Facility (“EFSF”). As a result of such downgrades, Standard & Poor’s has also
downgraded the issuer credit rating of the EFSF.
The European sovereign debt crisis could deteriorate further, and spread from peripheral countries to
core economies in the European Union. Prospects remain uncertain and such countries may be unable to
restore fiscal stability or refinance sovereign debt. Additional European countries may succumb to similar
crises. The consequences of these developments, together with any failure to resolve the sovereign debt
crises, may adversely affect the global economy and have potentially significant negative consequences for
the stability of the broader financial markets.
Moreover, concerns about the U.S. and European economies, triggered by uncertainty as to the ability
of certain European countries to repay their sovereign debt, have caused unstable market conditions. In the
United States, the unemployment rate remains high and the housing market has yet to recover. In Asia and
other emerging markets, some countries are expecting increasing inflationary pressure as a consequence of
liberal monetary policy or excessive foreign fund inflow or both. Geopolitical instability in various parts of
the world, including in North Africa, the Middle East and Asia, could also contribute to economic instability
in those and other regions.
The effects of deteriorating economic conditions and resulting economic pressure on our customers and
business, a general lack of confidence in the financial markets and fears of a further worsening of the
economy could have a material and adverse effect on our business, financial condition, results of operations
and prospects.
Our business is highly dependent on the general economic and market conditions in Indonesia. A
slowdown in economic growth or financial market turbulence in Indonesia could adversely affect our
operations, asset quality and growth and cause our business to suffer.
Substantially all of our business is located in Indonesia. Accordingly, our financial performance,
business growth and portfolio quality are highly dependent on economic and market conditions and
consumer confidence in Indonesia. As the Indonesian economy and capital markets are still not fully
developed, market conditions in Indonesia may change suddenly and dramatically, which could have a
material and adverse effect on our results of operations and financial condition. The economic environment
in Indonesia may be significantly impacted by a variety of internal and external factors, including
Government fiscal and monetary policy, economic developments throughout Asia and in the U.S., Europe
and other markets. In light of the interconnectedness of the Indonesian economy to other economies, the
Indonesian economy is highly influenced by economic and market conditions in other countries. On
November 10, 2011, Bank Indonesia lowered the Bank Indonesia reference interest rate (“BI Rate”) by 50
basis points to 6.00%, shortly after it had lowered the BI Rate from 6.75% to 6.50% on October 11, 2011.
Earlier in the year, on February 4, 2011 Bank Indonesia had increased the BI Rate from 6.50% to 6.75%.
Ultimately, a loss of investor confidence in the financial systems of emerging and other markets, or
other factors, including the deterioration of the global economic situation, may cause increased volatility in
the Indonesian financial markets and a slowdown in economic growth or negative economic growth in
Indonesia. Any such increased volatility or slowdown or negative growth could have a material adverse
effect on our business, financial condition, results of operations and prospects. In particular, concerns over
inflation, energy costs, geopolitical issues, the availability and cost of credit, unemployment, consumer
confidence, declining asset values, capital market volatility and liquidity issues have created difficult
operating conditions for the segments or sectors in which our subsidiaries operate in the past and could
create difficult operating conditions in the future. Difficult operating conditions could reduce the demand for
our products and services, reduce the returns from our investment activities and otherwise materially,
adversely affect us, including in the following ways:
• Insurance policy surrenders. An economic downturn in Indonesia could lead to an increase in
the amount of insurance policy surrenders and withdrawals, and may also lead to additional
defaults by Indonesian borrowers, which could have a material adverse effect on our insurance,
banking, securities and multifinance businesses.
• Decreased demand for our products and services. An economic downturn or other adverse
events may result in higher unemployment levels, lower household income, decreased corporate
earnings and reduced business investment and consumer spending, which could in turn
significantly reduce the demand for our products and services, including insurance policies,
investment products, securities brokerage services, and banking services. In addition, our ability
to sell certain investment products may be materially and adversely affected by excessive
volatility in global capital markets.
• Losses from bonds. An economic downturn or other adverse events may result in financial
difficulties or default of issuers of bonds held in our investment and securities portfolios and
mutual funds in which we and our subsidiaries invest. In addition, credit spread and benchmark
interest rate variations could also reduce the fair value of these bonds. Under these
circumstances, we may have to impair these bonds or recognize losses realized upon their sale.
• Equity price declines. We may suffer declines in the value of equity securities held in our and
our subsidiaries’ investment portfolios or in the portfolios of mutual funds in which we or our
subsidiaries invest as a result of adverse conditions in certain capital markets. Equity price
declines will reduce the fair value of our investments and may require us to make impairment
charges, or cause us to recognize losses realized on their sale.
• Loan portfolio defaults and delinquencies. We may suffer losses due to delinquencies or
defaults on loans and other financing arrangements made by our banking and multifinance
subsidiaries.
• Counterparty default. Our counterparties could fail to discharge their obligations to us or we
may be unable to secure the products or services of counterparties.
For instance, economic and market conditions in Indonesia and globally have continued to remain
challenging through the fourth quarter of 2011. As a result, our outlook with respect to our future
consolidated financial results and the financial results of our principal subsidiaries remains uncertain, and the
financial information for the Group and its subsidiaries for the nine months ended September 30, 2011 may
not necessarily be indicative of, and may differ materially from, actual results for the full year ended
December 31, 2011. Given the recent market volatility and global economic conditions and the resulting
pressure on our customers and business and other factors, there may be an adverse impact on our net income
as a result of a decline in net income of certain of our subsidiaries.
The resulting economic pressure on our customers and operations in Indonesia, a general lack of
confidence in the financial markets and fears of a further worsening of the economy could materially and
adversely affect our business, financial condition, results of operations and prospects.
We face challenges in achieving the goals of our business strategies, and we may not be successful in
implementing our strategies and business initiatives.
In recent years, we have experienced a significant growth in our business. We seek to pursue strategies
that we believe would enhance our value, such as focusing on enhancing our products and services
distribution, through the rapid expansion of our network by means of opening new branches and outlets,
increasing the distribution synergies between our subsidiaries and pursuing alternative distribution channels
such as our “One Million Partners” campaign. See “Business—Strategies”. We aim to achieve synergies
across our various business lines, such as cross-selling products and services, sharing resources between
business lines, such as access to our insurance businesses’ policy databases through a web-based portal,
sharing knowledge, such as Asuransi Sinar Mas providing motor value rates to Sinar Mas Multifinance for
assessing collateral value, coordination of investment and business strategies through management and
realizing growth opportunities through customer referrals. We also plan on improving our information
technology platforms to support future growth, as well as increase in employee training in order to improve
productivity and competitiveness. In addition, each of our subsidiaries has their own business strategies and
initiatives they intend to pursue and which may result in significant changes in their business. For instance,
Sinarmas MSIG Life adopted a new business plan in December 2011 as a result of the investment made by
MSIG. See “Business—Life Insurance — Sinarmas MSIG Life”.
Our ability, and the ability of our subsidiaries, to implement such strategies will depend on a variety of
factors, some of which are beyond our control, including regulatory constraints, increased competition from
domestic as well as foreign competitors and the general market conditions in Indonesia. While we believe
our business strategies and the business strategies and initiatives of our subsidiaries will help us achieve our
strategic goals, we and our subsidiaries may not be able to successfully carry out such strategies or our
strategies may not yield the desired results.
We are exposed to new or increased risks as we expand the range of our products and services and the
geographic scope of our business.
We are expanding our distribution channels and our range of products and services across our various
business lines as part of our business strategy. Some of the risks associated with our new services and
businesses may be types with which we have no or only limited experience. As a result, our risk
management systems may prove to be insufficient and may not be effective in all cases or to the degree
required, which may have a material adverse effect on our business. In addition, we, and our subsidiaries,
may not be able to adequately develop, invest in and implement systems to manage new products and
services and distribution channels. We may also incur substantial expenses necessary to address regulatory
requirements in connection with the opening of new branches, licensing of agents, enhanced consumer
protections, expenses for improvements to information technology systems and employee training.
In addition, growth in new geographic areas within Indonesia forms a part of our strategy. Regional
expansion of our business and our strategy to further expand our presence across Indonesia increases our
risk profile and exposure to asset quality problems. For instance, we generally face greater risks of default
on our consumer loans in Java as compared to Sumatra or Kalimantan whose populations tend to be more
affluent as a result of the growth in the mining industry. Furthermore, we may grow our business outside of
Indonesia which would further increase our exposure to risks of adverse developments in such regions, such
as in Timor Leste. Our expansion also exposes us to the compliance risks and the credit and market risks
specific to the regions in which we operate. We cannot assure you that such regional expansion will not
have a material adverse effect on our business, financial condition, results of operations and prospects, or
that our credit and provisioning policies will be adequate in relation to such risks.
We may not be able to manage our growth successfully.
We have expanded our business operations in recent years. We expect our future growth to place
significant demands on our management, operations and other resources. Challenges we may face in
supporting future growth include:
• continuing to improve our managerial, risk, technical and operational knowledge and allocation
of resources, and to implement an effective management information system;
• continuing to recruit and train managerial, accounting, internal audit, technical, sales, trading and
other staff to satisfy our business requirements;
• increasing our marketing and sales activities;
• maintaining a sufficient capital base;
• controlling costs;
• obtaining sufficient financial resources to fund our ongoing operations and our future growth;
• managing relationships with a greater number of customers, suppliers, contractors, service
providers, lenders, joint venture partners and other third parties;
• strengthening our internal control and compliance functions to ensure that we are able to
continue to comply with our legal, regulatory and contractual obligations and reduce our
operational and compliance risks; and
• preserving a uniform culture, values and work environment in our operations across business
lines.
We cannot assure you that we will not experience issues such as capital constraints, operational
difficulties or our difficulties in training an increasing number of personnel to manage and operate
expanding businesses. If we are unable to successfully manage the impact of our growth on our operational
and managerial resources and control systems, our reputation could suffer, which could have an adverse
effect on our business, financial condition, results of operations and prospects.
Realized and unrealized losses on our investments may have a material adverse effect on our business,
financial condition, results of operations and prospects.
A substantial portion of our consolidated assets consists of investments. For the year ended December
31, 2010 and the nine months ended September 30, 2011, short-term investments, excluding segregated
funds, accounted for approximately 28.9% and 35.1%, respectively, of our total assets. Our investment
returns, and thus our profitability, may be materially and adversely affected by conditions affecting our
investments, including the performance and volatility of capital markets, asset values, interest rates, currency
exchange rates, credit and liquidity conditions, and macroeconomic and geopolitical conditions. In particular,
our ability to earn a profit on our products, such as our endowment life insurance products, depends in part
on the returns on investments supporting our obligations under these products, and the value of such
investments may fluctuate substantially. Any significant deterioration in one or more of these factors could
reduce the value of, and the income generated by, our investment portfolio and could have a material
adverse effect on our business, financial condition, results of operations and prospects. A decline in the
investment portfolios of our subsidiaries could result in a decrease of our operating profit, which would have
a material adverse effect on our business, financial condition and results of operations.
Interest rate volatility could significantly affect our financial condition and results of operations.
A significant portion of our assets consists of, and a significant portion of our revenue is derived from,
assets that are monetary in nature. As a result, we are subject to significant risk from changes in interest
rates which may materially and adversely affect the profitability of our insurance subsidiaries.
During periods of rising interest rates, although the increased investment yield may increase the returns
on our investment portfolio, surrenders and withdrawals of policies may increase as policyholders seek
investments with higher perceived returns. This process could lead to a cash outflow from our insurance
business. These surrenders and withdrawals may result in cash payments to policyholders which may require
the sale of invested assets at a time when the prices of those assets are adversely affected by the increase in
market interest rates, potentially resulting in realized investment losses, which would result in a decrease in
total invested assets and a decrease in net income. A large portion of our guaranteed life insurance
obligations have a shorter duration than that of our interest-bearing assets. If the current interest rate
environment shifts to a rising interest rate environment and we experience an increase in policy surrender
claims or our policyholders do not renew or rollover short duration policies, we may have to liquidate
longer-dated securities prior to maturity, which could expose us to significant losses realized upon the sale
of such securities. It will also make it difficult for us to effectively match our assets to our liabilities and
may reduce the spread we earn.
Conversely, declining yields would reduce the investment income on assets backing shareholders’
equity. Most of our life insurance policies expose us to the risk that changes in interest rates may reduce our
“spread”, or the difference between the amounts that we are required to pay under those products and the
amount of investment return we are able to earn on the investments intended to support our obligations
under these products. The process of pricing our products often entails making assumptions about interest
rates. If actual interest rates are lower than the interest rates we assumed during the product pricing, there
may be a decline in our spread from these and other spread products, which could have a material and
adverse effect on our financial condition and results of operations. For instance, during periods of declining
interest rates, our average investment yield will decline as maturing investments, as well as bonds and loans
that are redeemed or repaid in order to take advantage of the lower interest rate environment, are replaced
with new investments with lower yields and coupon payments. As a result, the decline in interest rates
would reduce our return on investments, which could materially reduce our profitability, regardless of
whether such investments are used to support particular insurance policy obligations.
Changes in interest rates could also adversely impact the solvency levels and capital position of our
insurance subsidiaries. Insurance companies are generally required by applicable law to maintain their
solvency at a level in excess of statutory minimum standards, and changing interest rates could adversely
impact our ability to comply with these standards.
Bank Sinarmas and our multifinance subsidiaries are also subject to fluctuations in market interest
rates as a result of mismatches in the duration and reporting of assets and liabilities. The ability of an
Indonesian bank to manage interest rate risk is limited by the effect of the Government’s guaranteed interest
rate, which may not reflect the rate applied in the market. These interest rate fluctuations are neither
predictable nor controllable and may have a material adverse impact on the operations and financial
condition of Indonesian banks and non-bank lending institutions such as Bank Sinarmas and our
multifinance subsidiaries.
In addition, the profitability of our banking business is dependent to a large extent on net interest
income. Changes in market interest rates, changes in relationships between short-term and long-term market
interest rates or changes in the relationships between different interest rate indices may affect the interest
rate charged on interest-earning assets differently from the interest rate paid on interest-bearing liabilities.
For the nine months ended September 30, 2011, the average monthly balance of total Rupiah interest-earning
assets of Bank Sinarmas was Rp.10,183.9 billion (US$1,154.2 million) while its corresponding average
monthly balance of total Rupiah interest-bearing liabilities was Rp.9,600.9 billion (US$1,088.2 million). Any
difference that results in an increase in interest expenses relative to interest income will reduce net interest
income as the proceeds from such prepayments would be reinvested at lower rates.
As a result, our financial condition and results of operations may be materially and adversely affected
by changes in interest rates.
The concentration of corporate bonds or equity securities in domestic issuers and any other particular
asset class, market or segment of the economy in our investment portfolio may increase our risk of
suffering investment losses.
Our life and non-life insurance subsidiaries’ investment portfolios comprise principally units in
domestic mutual funds, and we also hold significant amounts of equity securities and corporate bonds of
domestic issuers with a significant exposure to the domestic financing sector. Our securities subsidiary’s
investments for its proprietary business comprises primarily equity securities of the 45 largest listed
companies in Indonesia. As a result, as a group, we have significant exposure to the Indonesian domestic
equity market and the domestic economy as a whole. From time to time, we also hold significant equity
concentrations in particular issuers. For instance, as of September 30, 2011, we and our subsidiaries held
Rp.502.6 billion (US$57.0 million) of shares in PT Bank Negara Indonesia (Persero) Tbk, which represented
20.5% of total equity shares held as short-term investment, or 3.4% of total securities held as short-term
investment. As of September 30, 2011, we also held Rp.411.3 billion (US$46.6 million) of shares in PT
Bumi Resources Tbk or 16.8% of total equity shares and 2.8% of total securities as short-term investments.
In addition, as of September 30, 2011, approximately 7.7% of total investments of limited participation
mutual funds (Reksa Dana Penyertaan Terbatas) (“RDPT funds”) through which our life and non-life
insurance subsidiaries invest comprised shares of PT Bumi Resources Tbk. See “Business—Life Insurance
— Sinarmas MSIG Life—Investment Framework and Management—Mutual Funds”. From time to time, we
also hold debt concentrations in particular issuers, such as Rp.29.7 billion (US$3.4 million) of bonds in PT
Bank Pan Indonesia Tbk as of September 30, 2011.
Events or developments that have a negative effect on any particular issuer, industry, asset class, group of
related industries, country or geographic region may have a greater negative effect on our investment portfolio
to the extent that our portfolio is concentrated. These types of concentrations in our investment portfolio
increase the risk that, in the event we experience a significant loss in any of these investments, our business,
financial condition, results of operations and prospects would be materially and adversely affected.
Our risk management policies and procedures and internal controls may not adequately address
unidentified or unanticipated risks, which could adversely affect our business.
We and our subsidiaries are exposed to market, credit, insurance, liquidity, foreign exchange rates and other
related risks. Risk management is only performed at the subsidiary level. We do not monitor risk at the holding
company level and do not have a risk management framework or risk management policies that apply across the
Group. We also do not have internal controls or internal control procedures which apply across all members of
the Group. Without a risk management policy or system at the holding company level, we may be unable to
effectively manage concentration risk on a Group basis, which could result in concentration risk in a particular
asset class, issuer, industry, geography or otherwise. Moreover, a lack of risk management and internal control
systems and procedures at the holding company level may adversely affect our ability to record, process and
report financial and other data in an accurate and timely manner as well as adversely impact our ability to
identify any reporting errors and non-compliance with rules and regulations. Any failure to manage such risks
effectively could materially and adversely affect our overall business, results of operations, financial condition
and prospects.
Although each of our insurance, securities and banking subsidiaries has implemented risk management policies
and procedures, certain areas within our subsidiaries’ risk management and internal control systems are
relatively weak and require constant monitoring, maintenance and continual improvements by senior
management and staff. Additionally, in light of the continuing evolution and expansion of our operations and
expansion into new geographical regions in Indonesia, policies and procedures designed to identify, monitor and
manage risks may not be fully effective. Any failure to address any internal control matters and other
deficiencies could also result in investigations and disciplinary actions or even prosecution being taken against
us, our subsidiaries or our employees and have a material adverse effect on our business, financial condition and
results of operations.
Risk management systems are partially dependent upon our ability to properly identify, and mark-tomarket,
changes in the value of financial instruments caused by changes in market prices or rates, which we may be
unable to do. Our earnings are dependent upon the effectiveness of our management of migrations in credit
quality and risk concentrations, management of equity and interest rate exposure, the accuracy of our valuation
models and our critical accounting estimates and the adequacy of our allowances for loan losses. Management of
these risks requires, among other things, policies and procedures to properly record and verify large numbers of
transactions and events. However, our policies and procedures or those of our subsidiaries may not be fully
effective or sufficient to manage such risks. Moreover, the publicly available information which we evaluate and
on which our risk management procedures depend may not be accurate, which could adversely affect our
anticipation of risks.
To the extent our assessments, assumptions or estimates prove inaccurate or not predictive of actual results, we
could suffer higher than anticipated losses and enhanced regulatory scrutiny. In addition, to the extent that we
determine that we should implement a risk management system at the holding company level or adopt internal
controls at the holding company level, or our subsidiaries decide to improve or enhance their internal controls,
we may incur unanticipated expenses in implementing and integrating these changes, which could have a
material adverse effect on our business, financial condition, results of operations and prospects.
We conduct a significant amount of business, including banking, insurance, factoring and leasing
transactions, with, and hold investments in securities of, related parties, and we cannot assure you that our
business or financial results would not be adversely affected if the terms of such arrangements are
withdrawn or changed in the future to our detriment or transactions we or our subsidiaries or joint
ventures enter into with related parties in the future will be done on terms no less favorable than those
which would be extended to unrelated third parties.
We conduct a significant amount of business with companies in the Sinar Mas Group, which are controlled by
the Widjaja family, of which our principal shareholder and President Commissioner is a member. See “Related
Party Transactions” for further information on the Sinar Mas Group. Our transactions with related parties
during the years ended December 30, 2008, 2009 and 2010 and the nine months ended September 30, 2011
include, but were not limited to, the following:
•
a significant portion of Bank Sinarmas’ loan portfolio comprises loans made to related parties,
some of which are fully cash collateralized, and as of December 31, 2008, 2009 and 2010 and September
30, 2011, loans made to related parties comprised Rp.83.4 billion, Rp.741.9 billion, Rp.794.9 billion
(US$90.1 million) and Rp.1,436.0 billion (US$162.8 million), representing 2.0%, 13.7%, 11.3% and
15.7%, respectively, of Bank Sinarmas’ total loans. See “Related Party Transactions—Present and
Ongoing Related Party Transactions—Loans Provided to Related Parties”. Loans to related parties
generated interest income and profit sharing for the years ended December 31, 2008, 2009 and 2010 and
for the nine months ended September 30, 2011 of Rp.9.9 billion, Rp.21.2 billion, Rp.59.4 billion (US$6.7
million) and Rp.43.5 billion (US$4.9 million), representing 1.6%, 2.7%, 6.5% and 4.6%, respectively, of
Bank Sinarmas’ total interest income and profit sharing;
•
a significant portion of Bank Sinarmas’ deposits and deposits from banks comprises deposits and
deposits from banks from related parties, and as of December 31, 2008, 2009 and 2010 and September 30,
2011, deposits and deposits from banks from related parties comprised Rp.1,689.5 billion, Rp.2,999.8
billion, Rp.4,457.5 billion (US$505.2 million) and Rp.5,478.0 billion (US$620.9 million), representing
31.5%, 42.4%, 43.8% and 38.7%, respectively, of Bank Sinarmas’ total deposits and deposits from banks.
See “Related Party Transactions—Present and Ongoing Related Party Transactions—Deposits from
Related Parties and Related Banks”. Interest expenses and profit sharing paid by Bank Sinarmas on
deposits from related parties for the years ended December 31, 2008, 2009 and 2010 and for the nine
months ended September 30, 2011 amounted to Rp.111.3 billion, Rp.175.5 billion, Rp.192.0 billion
(US$21.8 million) and Rp.223.9 billion (US$25.4 million), representing 26.1%, 37.3%, 38.6% and 39.1%,
respectively, of Bank Sinarmas’ total interest expense and profit sharing;
•
a significant amount of our insurance and reinsurance business, primarily non-life insurance, is
conducted with related parties such as PT Kali Besar Raya Utama, PT Indah Kiat Pulp & Paper
Tbk and PT Cakrawala Mega Indah, and as of December 31, 2008, 2009 and 2010 and September
30, 2011, premium and reinsurance receivables from related parties comprised Rp.110.0 billion,
Rp.151.3 billion, Rp.44.1 billion (US$5.0 million) and Rp.110.1 billion (US$12.5 million),
representing 24.6%, 34.8%, 12.5% and 27.0%, respectively, of our total premium and reinsurance
receivables. See “Related Party Transactions—Present and Ongoing Related Party Transactions—
Premium and Reinsurance Receivables”;
•
our multifinance subsidiaries, Sinar Mas Multifinance and AB Multifinance, provide finance
leasing services to our related parties such as PT Graha Dinamika Sejahtera, PT Citra Cemerlang, PT
Buana Mas Intitrans and PT Ciptatrans Abadi, and as of December 31, 2008, 2009 and 2010 and
September 30, 2011, Rp.57.9 billion, Rp.110.5 billion, Rp.172.8 billion (US$19.6 million) and Rp.139.6
billion (US$15.9 million), respectively, of our outstanding net investments in finance leases were from
related parties. See “Related Party Transactions—Present and Ongoing Related Party Transactions—
Finance Leases Receivables”. Such finance leases generated consolidated finance lease income of Rp.6.1
billion, Rp.16.5 billion, Rp.22.8 billion (US$2.6
million) and Rp.17.6 billion (US$2.0 million), or 46.9%, 69.8%, 81.9% and 95.3%, respectively, of
our total consolidated finance lease income; and
•
our multifinance subsidiaries also provide factoring services to our related parties such as PT
Cakrawala Mega Indah, Jimmy Widjaja, and PT Rolimex Kimia Nusamas, and as of December 31, 2008,
2009 and 2010 and September 30, 2011, factoring receivables from related parties comprised Rp.22.2
billion, Rp.21.1 billion, Rp.65.6 billion (US$7.3 million) and Rp.116.4 billion (US$13.2 million),
representing 30.5%, 30.0%, 35.0% and 33.8%, respectively, of our outstanding factoring receivables. See
“Related Party Transactions—Present and Ongoing Related Party Transactions—Factoring Receivables”.
Such factoring receivables generated consolidated factoring income of Rp.14.2 billion, Rp.9.8 billion,
Rp.10.7 billion (US$1.2 million) and Rp.7.2 billion (US$0.8 million), or 49.1%, 21.4%, 36.3% and 20.9%,
respectively, of our total consolidated factoring income.
In addition, we and other members of the SMMA Group have held, and may continue to hold from time to time,
debt and equity securities issued by members of the Sinar Mas Group and vice versa. For example, as of
December 31, 2011, 275,750,000 shares, representing 4.43% of the total number of outstanding shares issued by
the Company, were owned by a limited participation mutual fund managed by Sinarmas Sekuritas. Members of
the Sinar Mas Group also have held, and may continue to hold from time to time, debt and equity securities
issued by members of the SMMA Group and/or the Sinar Mas Group. For example, as of December 1, 2011,
1,590,229,292 shares, representing 25.55% of the total number of outstanding shares, issued by the Company,
were held by companies directly and indirectly controlled by other members of the Widjaja family (excluding
Indra Widjaja, his spouse and his children), but none of these holders individually holds more than 5% of the
outstanding shares of the Company. See “Related Party Transactions” for further details. Such holdings are
subject to rules and regulations promulgated by Bapepam-LK on conflicts of interest, but we cannot assure you
that the interests of such holders will be aligned with your interests.
As a result, we have significant exposure to our related parties. If there are any financial difficulties encountered
by one or more related parties or situations which arise such that related parties may choose to not repay their
loans, withdraw their deposits, not pay their premiums or payables due to us or otherwise not honor terms of
arrangements with them, our financial condition and results of operations, may be materially and adversely
affected. In addition, there can be no assurance that our financial results would not be adversely affected if the
terms of such arrangements are withdrawn or changed in the future to our detriment. If the terms of such
arrangements are withdrawn or changed, or if we or our subsidiaries enter into transactions with related parties
in the future which are on terms more favorable than those which would be extended to unrelated third parties,
our business, financial condition, results of operations and prospects may be materially and adversely affected.
Our insurance, banking and securities businesses are highly regulated in Indonesia, and are becoming
increasingly so, and we may be subject to regulations in other jurisdictions as we expand internationally,
and we may not be able to adequately comply or anticipate new legal or regulatory changes.
As a participant in the insurance, banking, securities and financial services industries, we are subject to extensive
regulation and face the risk of significant intervention by regulatory authorities in Indonesia. Bank Indonesia, the
Ministry of Finance, Bapepam-LK, and other regulators regularly review the operations of our subsidiaries, and
there can be no guarantee that any regulator will agree with our internal assessments of asset quality, provisions,
risk management, capital adequacy, solvency margin, management functioning, as well as other measures of the
safety and soundness of our operations or compliance with applicable laws, regulations or regulatory policies.
Such extensive review and scrutiny increases the possibility that we will face adverse legal or regulatory
actions. Regulators may find that we or our directors or commissioners or those of our subsidiaries are not in
compliance with applicable laws, regulations or regulatory policies, or with the regulators’ revised
interpretations of such laws, regulations or regulatory policies, and may take formal or
informal actions against us or our directors or commissioners. For example, some of our commissioners and
directors did not pass a fit and proper test under bank regulations and were prohibited from actively managing,
including holding a board of commissioners or board of directors position in, any bank in Indonesia for a period
of two to five years in 1999. If taken, such formal or informal actions might force us to make additional
provisions for our non-performing assets, increase our reserves and/or risk-based capital, divest our assets,
adopt new compliance programs or policies, remove personnel, reduce dividend or executive compensation or
undertake other changes to our business operations. Any of these changes, if required, could reduce our
profitability by restricting our operations, imposing new costs or harming our reputation.
Furthermore, in the aftermath of both the 1997 and 2008 financial crises, financial regulators in Indonesia have
intensified their review and scrutiny of many Indonesian financial institutions and financial service providers and
increasingly viewing such institutions and providers as presenting a higher risk profile than in the past, in a range
of areas. This has led to changes in the laws, regulations and regulatory policies of Indonesia. On October 27,
2011, Indonesia’s parliament approved Law No. 21 of 2011 regarding the Financial Services Authority (Otoritas
Jasa Keuangan or “OJK”) taking over supervision of banks from Bank Indonesia starting from the end of 2013
and taking over supervision of brokerages and insurance firms from Bapepam-LK starting from the end of 2012.
Our ability to predict how the OJK will operate is limited and we cannot assure you that the OJK will adopt the
same interpretations as Bank Indonesia and/or Bapepam-LK on various laws, regulations or policies affecting us.
Changes in laws, regulations or regulatory policies, including changes in the interpretation or application of such
laws, regulations and regulatory policies, may restrict our business activities, adversely affect the products and
services we offer the value of our assets or our business in general, and require us to incur increased expense and
to devote considerable time to such compliance efforts. Such changes may include changes with respect to
capital requirements, solvency requirements, leverage and liquidity ratios, risk management, cross-border capital
flows, local lending obligations, management compensation, consumer protection and risk management, among
other areas. Changes in laws, regulations and regulatory policies, or the interpretation or application thereof,
have and we expect will continue to lead to enhanced regulatory oversight and scrutiny and increased
compliance costs. Additionally, as we grow our business outside of Indonesia, we may be subject to foreign
regulatory oversight and be required to comply with foreign laws and applicable regulations in such
jurisdictions. For instance, Bank Sinarmas plans to open a branch in Hong Kong, Special Administrative Region
of the People’s Republic of China (“Hong Kong”), and Asuransi Sinar Mas currently operates in one foreign
jurisdiction through its subsidiary in Timor Leste. We or our subsidiaries may also decide to expand operations
to other foreign jurisdictions in the future.
Failure to comply with applicable regulations, suspected or perceived failures and media reports, and ensuing
inquiries or investigations by regulatory and enforcement authorities may result in regulatory action including
financial penalties and restrictions on or suspension of the related business operations. If we fail to manage our
legal and regulatory risk, our businesses could suffer, our reputation could be harmed and we would be subject
to additional legal and regulatory risks. This could, in turn, increase the size and number of claims and damages
asserted against us or subject us to regulatory investigations, enforcement actions or other proceedings, or lead to
increased regulatory or supervisory concerns. We may also be required to spend additional time and resources
on any remedial measures. Any of the above would have a material adverse effect on our business, financial
condition, results of operations and prospects.
We require various approvals, licenses and permits from governmental authorities to operate our business,
and the failure to obtain or maintain these approvals, licenses and permits could adversely affect us.
Many aspects of our business depend upon obtaining and maintaining the necessary approvals, licenses or
permits from government authorities, such as the Ministry of Finance, Bapepam-LK and Bank Indonesia. Our
subsidiaries and joint ventures require various licenses and approvals in order to operate. While our subsidiaries
and joint ventures do not possess all such licenses and approvals, we are currently in possession of all material
licenses. However, we cannot assure you that we or our subsidiaries, joint ventures and/or associate companies
will be able to renew or secure all required licenses that we currently hold or which
may be required in the future, or that we or our subsidiaries, joint ventures and/or associate companies will not
receive sanctions arising from the failure to renew or secure any required licenses. Failure to obtain certain
licenses may expose us to sanctions such as temporary closure of the relevant operations, fines or imprisonment.
We are required to comply with the relevant regulatory requirements prescribed by regulatory authorities when
applying for approvals, licenses or permits for conducting new businesses or offering new products or services.
Our expansion plans are also contingent upon obtaining relevant licenses and permits. As Indonesia’s legal
system and financial services industry continue to evolve, changes in the relevant laws and regulations or in
their interpretation or enforcement may make it difficult for us to comply with regulatory requirements. If we
cannot comply with such regulatory requirements, we may not be able to obtain or maintain the necessary
approvals, licenses or permits from the relevant regulatory authorities.
For instance, Asuransi Sinar Mas is currently awaiting approval from Bapepam-LK for seven of its 44
bancassurance arrangements.
Any failure to renew or secure any required licenses or approvals or exposure to any sanctions as a result of
a failure to obtain certain licenses or approvals could materially affect our business, financial condition,
results of operations and prospects.
The composition of the Company’s board of directors and Bank Sinarmas’ board of commissioners is
currently not in full compliance with certain regulatory requirements and their respective constitutional
documents, which may subject us and Bank Sinarmas to sanctions, which range from a warning letter to
suspension of trading of their respective shares on the IDX.
The composition of the Company’s board of directors and Bank Sinarmas’ board of commissioners is currently
not consistent with certain regulatory requirements and certain provisions of the Company’s and Bank Sinarmas’
respective constitutional documents relating to the composition of directors and commissioners. Under IDX
listing regulations, the Company is required to have at least one non-affiliated director on its board of directors.
As of the date of this document, the Company has no nonaffiliated director on its board of directors, and,
therefore, the Company is not in compliance with this IDX listing regulation. While there are no specific
penalties or sanctions expressly provided for non-compliance with this requirement, and to date, we have not
received any warning letter or notice of non-compliance from the IDX since our Shares were listed on the IDX,
the IDX may generally impose sanctions on a listed company that violates IDX regulations. Such sanctions may
include, among others, a monetary fine, a written warning, or a temporary suspension from trading of the Shares.
Such a suspension could have a material adverse effect on the market price of the Shares and may adversely
impact the Company’s ability to raise capital in the future.
In addition, BI regulation requires Bank Sinarmas to have at least two independent commissioners. As of the
date of this document, as a result of the recent resignation of one independent commissioner, Bank Sinarmas
only has two members comprising its board of commissioners, consisting of one President Commissioner and
one independent commissioner. Bank Sinarmas is currently in the process of appointing one additional
independent commissioner to comply with the BI regulation. To date, Bank Sinarmas has not received any
warning letter from BI with regard to the absence of one independent commissioner. However, there can be no
assurance that Bank Sinarmas will not be subject to various possible administrative sanctions imposed by BI as
a result, which may include warning letters, decrease of its soundness rating, prohibition from participating in
clearing activities, freezing of certain business activities and termination of management until the independent
commissioner is appointed pursuant to applicable laws and BI regulations. If any of the above sanctions is so
implemented by BI, it could have a material adverse effect on Bank Sinarmas and our business, financial
condition, results of operations and prospects.
Furthermore, each of the Company’s and Bank Sinarmas’ articles of association requires that the Company’s
board of directors and Bank Sinarmas’ board of commissioners consist of at least three members. As of the date
of this document, the Company has two directors and Bank Sinarmas has two commissioners, respectively. See
“Management—Bank Sinarmas—Board of Commissioners”. Under
Indonesian company law, in the event of loss caused, among others, by non-compliance with the Company’s
and Bank Sinarmas’ articles of association, each of the Company’s and Bank Sinarmas’ shareholders may
recover damages connected with this breach and may seek injunctive relief requiring each of the Company and
the Bank Sinarmas to remedy the breach. Such actions, regardless of whether they are ultimately successful,
could have a material adverse effect on the Company’s and Bank Sinarmas’ business, financial condition,
results of operations and prospects.
Increases in the amount of allowances and impairments taken on our loans and other financial
instruments could have a material adverse effect on our financial condition and results of operations.
We determine the amount of allowances and impairments taken in respect of our loans and other financial
instruments in accordance with Indonesian PSAK and applicable regulations. Determination of the amount of
allowances and impairments taken varies by type of instrument and is based upon our periodic evaluation and
assessment of known and inherent risks associated with the respective asset classes. Effective from January 1,
2010, determination of the amount of allowances and impairments taken in respect of loans extended by Bank
Sinarmas is based on objective evidence of impairment as a result of events occurring after the initial recognition
of the asset that has an impact on estimated future cash flows which will affect the manner in which we impair
such loans going forward. For other financial instruments, provisions will be made if there is objective evidence
of impairment. These evaluations and assessments are revised as conditions change and new information
becomes available. The determination of the amount of allowances and impairments to be taken on our
investment assets may require complex and subjective judgments. We cannot assure you that our management’s
best estimates reflect actual losses that we will ultimately incur on these financial instruments, that historical
trends will be indicative of future impairments or allowances or that we will not be required under future
accounting standards or applicable regulations to change the amounts of allowances and impairments of our
investments.
Certain of our businesses depend on cross-selling between our subsidiaries and joint ventures to increase
revenues.
If we fail to maintain or experience significant disruptions with respect to our cross-selling arrangements, in
particular our bancassurance arrangements, our competitiveness may be affected and we may not be able to
replace lost premium volumes, which may have a material adverse effect on our results of operations.
We rely on our cross selling efforts between our subsidiaries and joint ventures to increase our revenues. For
example, Sinarmas MSIG Life business maintains a strong bancassurance relationship with Bank Sinarmas
accounting for approximately 80.9% and 75.6% of gross premiums for the year ended December 31, 2010 and
the nine months ended September 30, 2011, respectively. Additionally, our multifinance business also maintains
a significant relationship with Bank Sinarmas and contributed approximately 20.0% of Bank Sinarmas’ loan
portfolio as of September 30, 2011. We cannot assure you, however, that our cross-selling activities will
continue to be successful in the future. Regulations governing cross-selling only allow us to use basic
information we have about our customers for cross-selling purposes to the extent we have received written
consent from the respective customer. In some cases, the requirements of the regulations are unclear, allowing a
high level of discretion on the part of the regulators empowered to oversee and review our cross-selling
activities, and licensing is required for certain cross-selling activities. If we are deemed to have violated any
regulations, we may be required to cease our cross-selling activities, which may have a material adverse effect
on our business and prospects.
If our subsidiaries or joint ventures fail to maintain or further strengthen their existing relationships with other
segments of our Group, our competitiveness may be materially and adversely affected and our business,
financial condition, results of operations and prospects may be materially and adversely impacted.
Our actual financial performance may vary materially from the financial information contained in this
document.
The historical financial information contained in this document may not be a reliable indicator of future results
and our future results could vary materially from this historical financial information. For instance, our life
insurance operating profit can be volatile from year to year, and this may also result in some volatility in our
consolidated profit. See “Management’s Discussion and Analysis of Financial Condition and Results of
Operations—Factors Affecting Our Financial Condition and Results of Operations”.
Moreover, the historical audited financial information contained in this document reflects our previous 100%
effective ownership interest in Sinarmas MSIG Life. On July 1, 2011, MSIG completed its acquisition of a 50%
ownership interest in Sinarmas MSIG Life for a total consideration of Rp.7.0 trillion (US$793.4 million).
Because we continue to control Sinarmas MSIG Life through a majority of the board of directors and board of
commissioners of Sinarmas MSIG Life, we continue to consolidate the financial statements of Sinarmas MSIG
Life in our consolidated financial statements as of and for the nine months ended September 30, 2011, but
reflected the impact of the dilution in ownership interest as a result of MSIG’s 50.0% ownership interest in
Sinarmas MSIG Life from July 1, 2011 in the amount of Rp.2,775.2 billion (US$314.5 million) under “Other
equity components—Gain on change in ownership interest in subsidiaries and associates”. See Note 1c. to our
consolidated financial statements. As a result, our consolidated financial statements for the nine months ended
September 30, 2011 are not directly comparable with our consolidated financial statements for the nine months
ended September 30, 2010 or prior periods and our full year 2011 consolidated financial statements will not be
directly comparable with our full year 2010 consolidated financial statements.
Going forward, for so long as we continue to control Sinarmas MSIG Life through a majority of the board of
commissioners and board of directors of Sinarmas MSIG Life, we will fully consolidate the future financial
statements of Sinarmas MSIG Life in our future consolidated financial statements, but make the relevant
deduction for minority interest to reflect MSIG’s 50.0% interest. The impact of the reduction of our ownership
in Sinarmas MSIG Life will only be fully recognized in our consolidated financial statements for the financial
year commencing January 1, 2012.
Pursuant to the terms of our shareholder agreement with MSIG, each of us and MSIG has the right to nominate
an equal number of individuals as members of the board of commissioners. In addition, each of us and MSIG
has the right to nominate a candidate for vice president director, with the other directors, including the president
director, to be nominated based on professional reputation and ability. Although either shareholder can
recommend candidates, such professional directors shall not represent either us or MSIG. See “Material
Agreements—Sinarmas MSIG Life Joint Venture”.
Currently, the president director of Sinarmas MSIG Life is our nominee. To the extent we cease to control a
majority of the board of directors and board of commissioners of Sinarmas MSIG Life in the future, or we
otherwise determine we no longer control it, whether under the terms of the shareholder agreement or as a result
of a public offering of Sinarmas MSIG Life or a sell-down of part or all of our interest in Sinarmas MSIG Life
or otherwise, we may be required to treat our 50.0% ownership interest in Sinarmas MSIG Life as an interest in
a joint venture, rather than a subsidiary, to reflect the nature of control. Accordingly, we would be required to
account for Sinarmas MSIG Life on a proportionate consolidation basis by taking 50.0%, corresponding to the
percentage of equity that we own or control, of each of the assets, liabilities, revenues and expenses of Sinarmas
MSIG Life and combining these with the assets, liabilities, revenues and expenses of the Company on a line-byline basis after elimination of intragroup transactions. To the extent we are required to apply proportionate
consolidation in respect of our interest in Sinarmas MSIG Life, this would have a material effect on our
consolidated balance sheet, income statement and cash flows and would make such future consolidated financial
statements not directly comparable with our historical consolidated financial statements.
New Indonesian accounting pronouncements may significantly affect our financial statements for the year
ending December 31, 2012 and future years, and may materially and adversely affect our reported net profits
and shareholders’ equity, among other things.
Pursuant to new accounting standards which take effect on January 1, 2012, including PSAK 60 (“Financial
Instruments”) and PSAK 62 (“Insurance Contracts”) we will be required to provide enhanced disclosure in
respect of investments and insurance contracts, and, in the case of PSAK 62, we may be required to report items,
such as premium income from insurance contracts of our life business, and for our non-life business, we may be
required to provide reserves for long-term policies in a manner which could be materially different from the
manner in which we report our premium income currently. Such changes may have a material effect on our
results of operations. The relevant authorities have yet to issue detailed guidance to implement the new
accounting standards, and insurance companies may be required to make retrospective adjustments to their
historical financial statements in accordance with such detailed guidance.
The full implementation of these new accounting standards may have a significant impact on the reporting of
our financial statements, including our reported revenues. Therefore, our results of operations and financial
position reflected in our financial statements to be included in our annual report for the year ending December
31, 2012 and the financial statements of our life and non-life insurance businesses for the year ending
December 31, 2012 may differ materially from those reflected in the financial statements, even though some of
these financial statements may relate to the same fiscal years.
It is difficult for us to evaluate the precise impact of these new accounting standards on our financial reporting
generally, or our financial statements for the year ending December 31, 2012 or any prior years, pending the
issuance of detailed implementation guidance for the insurance sector. Moreover, it is unclear how these new
accounting standards and the implementing rules may impact the reporting of our premium income, our
financial instruments, our investments, or Sinarmas MSIG Life’s embedded value or affect the trading prices
of our Shares. For more information on new accounting standards, see “Management’s Discussion and
Analysis of Financial Condition and Results of Operations—Recent Accounting Pronouncements”.
We operate in highly competitive markets, and we may be unable to compete successfully.
All of our businesses operate in highly competitive markets. Our competitors include insurance companies,
commercial banks, multifinance companies, mutual fund companies, asset management companies, securities
and investment banks and other financial services providers. Some of our competitors have resources greater
than our own and some of them may have recently experienced higher growth, achieved better profitability and
increased their market share. Some of our competitors are foreign, which in some cases, enables them to
provide products and services that we, as a domestic financial services company, cannot provide. Some foreign
companies may be able to gain rapid competitive advantages by forming alliances and joint ventures with other
Indonesian companies and by employing products and skills developed in their home markets. New entrants
may also adopt pricing strategies that are more aggressive than local companies, including our subsidiaries. In
addition, changes in Indonesian regulations may lead to greater availability and variety of financial investments
products. These products may be more attractive to the public and adversely affect the sale of some of our
products.
We compete across all of our business lines on the basis of a number of factors, including price, products and
services, innovation, transaction execution capability, distribution channels and network, reputation, perceived
financial strength, experience, knowledge of our staff, employee and agency compensation and geographic
scope. In addition, we also compete for professionals and other skilled employees in every aspect of our
business. We cannot assure you that we will be able to maintain our competitive position or compete
successfully with other domestic and foreign institutions or that any increased competition will not have a
material adverse effect on any of our principal businesses, by, among other things:
•
•
•
•
•
•
reducing our market share;
decreasing our margins and spreads;
reducing the growth of our customer base;
increasing our policy acquisition costs;
increasing our operating expenses, such as sales and marketing expenses; and
increased turnover of management and sales personnel.
Any of the above would have a material adverse effect on our business, financial condition, results of
operations and prospects.
Government bonds and other Government obligations represent a significant portion of our consolidated
assets, which may affect our results of operations, financial condition and capitalization.
As of December 31, 2010 and September 30, 2011, we held Government bonds and other Government
obligations representing 4.2% and 2.7%, respectively of our total consolidated assets. Any delay or default in the
payment of interest or principal by the Government when due, or any downgrades in the rating of such
Government bonds, will have a material adverse effect on our financial condition, liquidity and results of
operations. Moreover, government or regulatory actions with respect to our Government bonds and other
Government obligations could also adversely affect our financial performance, results of operations and
capitalization. Bank Indonesia currently assigns a risk-weighting of zero to our Government bonds and other
governmental obligations for regulatory capital purposes. If future regulatory capital requirements were to result
in a non-zero risk weighting to Government bonds or other Government obligations, our risk-weighted assets
would increase, our capital adequacy ratio would decrease, our banking subsidiary’s ability to grow our loan
portfolio could be limited and our risk of becoming undercapitalized would increase, which could have a
material adverse effect on our capitalization, financial condition, liquidity and results of operations. Furthermore,
our banking subsidiary might be required to raise additional equity capital, potentially causing us to experience
dilution in the value of our shares, or reduce dividend payments, to support our loan growth or for other reasons.
There can be no assurance that the Government credit rating, and therefore the value of our holding of
Government bonds, will not decline in the future. Consequently, any significant reduction in the value or
liquidity of our Government bonds or any change in the rules applicable to our Government bonds, depending on
the level and direction of interest rates at the time, could have a material adverse effect on our financial
condition, liquidity and results of operations.
Changes in taxation on our business or differences in application or interpretation of tax laws and
regulations by the government may materially and adversely affect our business, financial condition and
results of operations.
Our business and operations are subject to Indonesian tax laws and regulations of Indonesia. Changes in tax
laws, tax regulations or interpretations of such laws or regulations may have a material adverse effect on our
business, financial condition and results of operations. Such changes also could materially reduce the sales of
certain of our products, which currently benefit from favorable tax treatment. For example, by 2014, tax relief
on bond investments will be reduced or eliminated, which may adversely affect demand for our unit link
investment products and investment related products. In addition, an increase in corporate tax rates could
increase the amounts of tax that we pay. We cannot predict whether any new tax laws or regulations affecting
corporate income taxes or banking, securities, investment or insurance products will be enacted, what the
specific terms of any such laws or regulations will be or whether, if at all, any laws or regulations would have a
material adverse effect on our business, financial condition and results of operations.
Tax regulators may apply or interpret tax laws and regulations in ways or take positions that differ from those
we or our subsidiaries apply or have applied in preparing tax filings or audits, which can result
in tax assessments against us or our subsidiaries for significantly higher tax liabilities than tax amounts we or
our subsidiaries have estimated or paid. We cannot ensure that regulators will apply or interpret existing or
new tax laws and regulations or take positions that do not differ or are not inconsistent with those we or our
subsidiaries take in preparing our tax filings or audits, which could result in additional tax liabilities, interest
and penalties assessed on us or our subsidiaries which in turn could have a material adverse effect on our
business, financial condition and results of operations.
Our business relies on our information technology systems and significant security breaches in our
computer system and network infrastructure or system failures could harm our relationships with
customers or adversely affect our provision of services to customers and materially and adversely impact
our business.
In all aspects of our business, we are highly dependant on information technology systems to deliver services to
and perform high volumes of transactions across numerous and diverse markets and products on behalf of our
customers, some of them are highly time sensitive and confidential, as well as for back-office operations. We
therefore depend on the capacity and reliability of the electronic and information technology systems
supporting our operations and the proper functioning of financial control, accounting and other data processing
system is critical to our businesses and to our ability to compete effectively.
We have encountered and may encounter, in the future, service disruptions owing to failures of these
information technology systems. For instance, our securities subsidiary, Sinarmas Sekuritas, has suffered
breakdowns in its online trading platform in the past. Information technology systems are subject to damage or
incapacitation as a result of quality problems, human error, natural disasters, power loss, sabotage, computer
viruses, acts of terrorism and similar events. In addition, we may not be prepared to address all contingencies
that could arise in the event of a major disruption of services.
Physical or electronic break-ins, security breaches and other disruptive problems caused by our increased use of
the internet or power disruptions could also affect the security of information stored in and transmitted through
the computer systems and network infrastructure of our subsidiaries. Although our subsidiaries have
implemented security technology and operational procedures, including firewalls and password encryption
technologies designed to minimize the risk of security breaches, we cannot assure you that these security
measures will be successful. Neither we nor our operating subsidiaries generally have backup data centers or
offsite communication networks that could be used in the event of catastrophe or failures of the primary
systems. A significant breakdown in internal controls, or failure of security measures or back-up systems could
significantly affect our operations, result in enhanced regulatory scrutiny and have a material adverse effect on
our business, financial condition, results of operations and prospects.
We handle personal and confidential information obtained from our individual and corporate customers in
relation to our insurance, banking, securities, multifinance and other businesses. The controls we have
implemented to protect the confidentiality of personal information may not be effective in preventing
unauthorized disclosure of personal information. Leakage of personal information could expose us to lawsuits,
administrative actions or sanctions, additional expenses associated with making necessary changes to our
systems, and reputational harm, thereby materially and adversely affecting our business, financial condition,
results of operations and prospects.
Fraud or other misconduct or the failure to be licensed by employees, agents or third parties could
subject us to losses and regulatory sanctions.
Our business operations are based on a high volume of transactions. We are exposed to potential losses resulting
from fraud and other misconduct by our employees and agents. Our employees and agents may bind us to
transactions that present unacceptable risks, hide from us and from our customers unauthorized activities,
improperly use confidential information or otherwise abuse customer confidences, write insurance policies
greater than authorized policy limits and engage in unauthorized or excessive trading to the detriment of us or
customers. Agents and third parties may engage in fraudulent activities, including
misappropriation of funds, fraudulent use of bank accounts or the use of false identities to open accounts for
money laundering, tax evasion or other illegal purposes. For instance, in 2008, a stockbroker who managed an
equity portfolio for Asuransi Sinar Mas appropriated the portfolio which resulted in a significant loss. See
“Management’s Discussion and Analysis of Financial Condition and Results of Operations—Results of
Operations of Asuransi Sinar Mas—Investment Income—2009 Compared to 2008”. Third parties could also use
stolen or forged ATM cards, and we may be required to indemnify victims of such fraud for related losses. Our
multifinance employees may falsely assess collateral values of automobiles or motorcycles.
Moreover, a substantial number of the agents of our insurance and securities businesses do not currently hold
licenses to sell insurance or securities products, respectively. We may be subject to regulatory sanctions, fines
and other adverse actions by the Government for engaging unlicensed agents to market and sell our products.
Also, the agency force of our insurance and securities businesses could be adversely impacted by improper
activities when selling products, mishandling of customer complaints, and changing regulations, particularly by
unlicensed agents.
In the broad range of businesses in which we engage, fraud and other misconduct are difficult to prevent or
detect, and we may not be able to recover the losses caused by these activities. Our reputation could be
adversely affected by fraud committed by employees, agents, customers or outsiders, or by our perceived
inability to properly manage fraud-related risks and our inability or perceived inability to manage these risks
could lead to enhanced regulatory oversight and scrutiny.
The occurrence of any of the above could materially and adversely affect our business, financial
condition, results of operations and prospects.
Our liquidity, financial results and business may be adversely affected by an inability to raise capital
sufficient for our needs, either through an inability to increase customer deposits, access the equity and debt
capital markets or sell assets, or by our requirements to meet certain capital adequacy and solvency ratios.
Liquidity is essential to our financial services business, particularly our businesses that involve investing,
lending or market-making. In addition, our banking, securities and insurance businesses are also subject to
capital requirements and minimum solvency margins, respectively, as determined by the regulators. Our
liquidity or the liquidity of our subsidiaries may be impaired by an inability to increase customer deposits, access
the short-term and long-term debt markets and equity markets due to tight market conditions or lack of demand
for our securities or otherwise, an inability to sell assets at market price or at all, unforeseen outflows of cash or
collateral or our requirements to meet capital adequacy and solvency ratios. This situation may arise due to
circumstances that we may be unable to control, such as a general market disruption or an operational problem
that affects us or our counterparties, or even by the perception among market participants that we, or other
market participants, are experiencing greater liquidity risk. Furthermore, our ability to sell assets may be
impaired if other market participants are seeking to sell similar assets at the same time, as is likely to occur in a
liquidity stress or other market crisis. If our available funding is limited or we are forced to fund our operations
at a higher cost, these conditions may require us to curtail our business activities and increase our cost of
funding, both of which could reduce our profitability.
We may seek opportunities for growth through acquisitions, joint ventures, investments, distribution
arrangements and partnerships, which may not be successful.
We may seek opportunities for growth through acquisitions, joint ventures, investments, distribution
arrangements and partnerships. There can be no assurance that we will not actively pursue such transactions and
initiatives or that any of these efforts will be successful. Any future acquisitions, mergers, joint ventures,
investments may involve a number of risks, including the possibility of a deterioration of asset quality, financial
impact of employee related liabilities, diversion of our management’s attention required to integrate the acquired
business and the failure to retain key acquired personnel, customers and clients, leverage synergies or rationalize
operations, or develop the skills required for new businesses and markets, or
unknown and known liabilities including any ongoing litigation, claims or disputes concerning such
acquisition, merger, or joint venture, our shareholders, share capital or our legal and regulatory compliance
obligations or practices, some or all of which could have an adverse effect on our business. We cannot assure
you that we will be able to successfully integrate or implement these initiatives or that we will be able to
identify successful initiatives in the future. A failure to successfully identify or undertake future initiatives, or
an inability to successful implement or integrate such initiatives or businesses, could have a material adverse
effect on our business, financial condition, results of operations and prospects.
We may decide to expand internationally in the future which may subject us to risks associated with
international operations.
Presently, our operations are primarily located in Indonesia. In the future, however, we may decide to expand
our operations to overseas markets. In expanding our businesses internationally, we may enter into markets in
which we have limited or no experience. For instance, Bank Sinarmas plans to open a branch in Hong Kong by
2012. We may not be able to attract a sufficient number of customers due to our limited presence in these
markets. Furthermore, we may fail to anticipate competitive conditions in new markets that are different from
those in our existing markets. In addition, such expansion may increasingly subject us to the risks inherent in
conducting business internationally, including but not limited to:
•
economic instability and recessions in the markets we enter in addition to global economic
instability and recessions;
•
local approval or license
requirements;
•
obligations to comply with foreign laws and other regulatory
requirements;
•
potential adverse tax consequences;
•
political instability;
•
changes in tariffs;
•
difficulties in administering foreign operations generally;
•
increased risk of exposure to foreign exchange losses;
•
inability to enforce contractual or legal rights; and
•
difficulties in recruiting and retaining qualified personnel.
In particular, despite our efforts to comply with all applicable regulations in all the jurisdictions in which we may
operate in the future, there may be incidences of our failure to comply with the regulations in certain
jurisdictions. Overseas regulators may bring administrative or judicial proceedings against us or our employees,
representatives, agents and third party service providers. If we are unable to manage the risks resulting from any
expansion outside Indonesia, our business, reputation, financial condition and results of operations may be
adversely affected.
Our business depends on the accuracy and completeness of information about customers, obligors and
counterparties.
In deciding whether to insure potential customers, to extend credit, or enter into other transactions with
customers and counterparties, we may rely on information furnished to us by or on behalf of customers, obligors
and counterparties, including financial statements and other financial information, as well as individual health
screening results for life and health insurance. We may also rely on certain representations as to the accuracy and
completeness of that information and, with respect to financial statements, on reports
of independent auditors. For example, in deciding whether to extend credit, we may assume that a customer’s
audited financial statements conform to generally accepted accounting principles and present fairly, in all
material respects, the financial condition, results of operations and cash flows of the customer. When we extend
personal loans to individuals, we assume that the individual has made an accurate disclosure of his/her financial
position. In deciding whether to insure, we may assume that the medical report of the potential customer is
accurate and is a fair representation of the person’s health condition. Our business, financial condition, results
of operations and prospects could be negatively affected by relying on financial statements that do not comply
with generally accepted accounting principles or other information that is materially misleading.
An actual or perceived reduction in our financial strength, or a downgrade in the credit ratings of our
subsidiaries, could have a negative effect on us, and could increase deposit withdrawals and insurance
policy surrenders and withdrawals, reduce our assets under management (“AUM”), damage our business
relationships and negatively impact new sales of our products and services.
Depositors, policyholders and customers’ confidence in the financial strength of our bank, insurance and other
financial services subsidiaries, as well as in the financial services and insurance industries generally, is an
important factor affecting our business. Any actual or perceived reduction in our financial strength, or that of
any of our subsidiaries, whether due to a credit rating downgrade, a reduction in our solvency margin, or some
other factor, could materially and adversely affect our business because any such development may, among
other things:
•
increase the number of deposit withdrawals and insurance policy surrenders and withdrawals;
•
damage our relationship with our creditors, our customers and the distributors of our products,
such as brokers for our non-life insurance products;
•
negatively impact new sales of our products;
•
require us to reduce prices for many of our products and services to remain competitive;
•
adversely impact our ability to obtain reinsurance of our insurance liabilities on acceptable terms;
and
•
increase our cost of funds as well as affect our ability to obtain financing on a timely basis.
We cannot assure you that we or our subsidiaries will not experience reductions in financial strength, actual or
perceived, or downgrades in credit ratings in the future and which could adversely affect our capital position
or our business, financial condition, results of operations and prospects.
Our insurance coverage may not adequately protect us against business interruptions and other major
disruptions to or damages of any of our properties, natural disasters and any resulting losses.
Certain of our subsidiaries maintain insurance policies which we believe are in line with industry practice and in
amounts which we believe to be commercially reasonable. However, we do not maintain insurance at the
Company level and not all of our subsidiaries have the same level or scope of insurance coverage. We and our
subsidiaries may become subject to liabilities or losses including liabilities or losses resulting from business
interruptions or other major disruptions to or damages of any properties, against which we have not insured
adequately, or at all, or cannot insure. Our business could also be materially and adversely affected by natural
disasters which we have not insured against. Our insurance policies contain certain exclusions and limitations
on coverage, which may result in our claims not being honored to the extent of losses or damages suffered by
us. In addition, our insurance policies may not continue to be available at economically acceptable premiums, or
at all. The occurrence of a significant adverse event, the damages from which are not fully covered or honored
by such insurers, could have a material adverse effect on our business, financial condition, results of operations
and prospects.
Moreover, several of our subsidiaries maintain their insurance policies with our non-life insurance subsidiary,
Asuransi Sinar Mas. Although Asuransi Sinar Mas reinsures a significant portion of these insurance policies,
any liabilities or losses suffered by our insured subsidiaries and recovered from Asuransi Sinar Mas may
conversely materially affect our results of operations.
Damage to our reputation or brand names may have an adverse effect on our business.
Maintaining our reputation is vital to our ability to attract and maintain customers, investors, employees,
distributors and agents. Our reputation could be damaged through a variety of circumstances, including, among
others, employee or agent fraud or other misconduct, systems failures, compliance failures, adverse litigation
judgments or regulatory decisions, or unfavorable outcomes of governmental inspections. Negative media
coverage of us or the insurance, banking, or financial services industry, even if inaccurate or not applicable to
us, may have a materially adverse effect on our brand image and may undermine customers’ confidence, thereby
affecting our business and results of operations. Actions by the financial services industry or the insurance
industry generally or by certain members in the industry can also adversely affect customers’ confidence in the
industries in which we operate. These reputational harms could lead to a decreased customer base, reduced
revenues and higher operating costs and materially and adversely affect our business, financial condition, results
of operations and prospects.
Furthermore, the Sinar Mas Group is a large Indonesia conglomerate which holds significant interests in
diverse industry sectors, including pulp and paper, agribusiness and food, financial services (through us) and
real estate. As the “Sinarmas” brand is also used by other members of the Sinar Mas Group, if any of these
entities take any action that damages the “Sinarmas” brand name, or any negative publicity is associated with
any of these entities, our reputation, business, growth prospects, results of operations and financial condition
may be adversely affected.
We are dependent on the experience and expertise of our key management personnel and failure to retain
such personnel or any inability to attract and retain talented professionals may materially and adversely
affect our business, results of operations, financial condition and prospects.
We depend on the vision, expertise, experience and managerial skills of our commissioners and directors, the
commissioners and directors of our principal subsidiaries and other members of their management teams,
particularly our President Commissioner and controlling shareholder, Indra Widjaja, who has been important to
the success of our business. We cannot assure you that we will be able to retain the services of our
commissioners, directors and other members of our management team, and, as a result, if for any reason one or
more of the management personnel cease to be involved in our management, our business, results of operations,
financial condition and prospects may be materially and adversely affected. Moreover, we do not maintain “key
person” insurance coverage on any such persons.
In addition, our business is growing more complex as our market share and product lines expand. Our
continued success depends in part on the continued service of key members of our management team and the
management of our subsidiaries and our ability to continue to attract, train, motivate and retain highly qualified
professionals is a key element of our strategy and we believe it to be a significant source of competitive
advantage.
The success of our business depends on the availability of skilled management, both at our head office and at
each of our subsidiaries and on our ability to attract and train young professionals. If we or one of our
subsidiaries fail to staff operations appropriately, or lose one or more key senior executives or qualified young
professionals and fail to replace them in a satisfactory and timely manner, our business, financial condition,
results of operations and prospects, including our control and operational risks, may be adversely affected.
Likewise, if we fail to attract and appropriately train, motivate and retain young professionals or other talent, our
business may likewise be affected.
We rely substantially on the agency force and marketing personnel of our multifinance businesses for sales
and distribution and any inability to effectively recruit, train and retain qualified agents will hinder
productivity and growth.
Our multifinance businesses depend to a significant extent on agents and marketing personnel as points of sale.
We may not always be successful in attracting agents and marketing personnel, and we cannot assure you that
our strategy or initiatives to retain and attract agents and marketing personnel will succeed. We have experienced
low productivity of our multifinance agents and marketing personnel, who in some cases lack training and
management oversight. Competition from other companies may also force us to increase the compensation of
our agents and marketing personnel, which would increase operating costs and reduce our profitability. If we are
unsuccessful in attracting and retaining agents and marketing personnel, our multifinance business may be
negatively affected, which could have a material adverse effect on our financial condition and results of
operations. Additionally, misconducts committed by our agents and marketing personnel could result in
violations of law, regulatory sanctions and/or serious reputational or financial harm to us. For more information,
see “—Risks Relating to Our Overall Business—Fraud or other misconduct or the failure to be licensed by
employees, agents or third parties could subject us to losses and regulatory sanctions”.
Substantial legal liability or significant regulatory action against us could materially and adversely affect
our results of operations or financial condition, or cause us significant reputational harm and seriously
harm our business prospects.
We face a significant risk of litigation, regulatory investigations and similar actions in the ordinary course of our
businesses, including potential liabilities under securities or other laws and the risk of lawsuits and other legal
actions relating to sales or underwriting practices, product design, materially false or misleading disclosures
made in relation to securities, insurance claims payments and procedures, denial or delay of insurance benefits,
breaches of fiduciary or other duties, advice provided to clients in corporate transactions, and possible disputes
over the terms and conditions of complex trading arrangements. Any such action may include claims for
substantial or unspecified compensatory and punitive damages, as well as civil, regulatory or criminal
proceedings against our directors, officers or employees, and the probability and amount of liability, if any, may
remain unknown for significant periods of time. We are also subject to various regulatory inquiries, such as
information requests and books and records examinations, from regulators and other authorities in the
geographical markets in which we operate.
Currently, we are a party to a number of legal proceedings or lawsuits arising from the ordinary course of our
business. A substantial liability arising from a lawsuit judgment or a significant regulatory action against us or a
disruption in our business arising from adverse adjudications in proceedings against our directors, officers or
employees could have a material adverse effect on our liquidity, and on our business, financial condition, results
of operations and prospects. Moreover, even if we ultimately prevail in the litigation, regulatory action or
investigation, we could suffer significant harm to our reputation, which could materially affect our prospects and
future growth, including our ability to attract new customers, retain current customers and recruit and retain
employees and agents.
We may not be able to identify money laundering activities or other illegal or improper activities fully or on
a timely basis, which could expose us to additional liability and adversely affect our business.
We are required to comply with applicable anti-money laundering, counter financing of terrorism and other
regulations in Indonesia. These laws and regulations, require us, among other things, to adopt and enforce “know
your customer” policies and procedures and to report suspicious transactions to the applicable regulatory
authorities in Indonesia. While we have adopted policies and procedures aimed at detecting and preventing the
use of our networks for money-laundering activities and by terrorists and terrorist-related organizations and
individuals generally, such policies and procedures may not completely eliminate instances where our networks
may be used by other parties to engage in money laundering and other illegal or improper activities due to, in
part, the short history of these policies and procedures. To the extent we may
fail to fully comply with applicable laws and regulations, the relevant Government agencies to which we
report have the power and authority to impose fines and other penalties on us, which may adversely affect our
business and reputation.
We face foreign exchange risks due to mismatches between our assets and liabilities.
As of September 30, 2011, we had U.S. dollar and other non-Rupiah-denominated loans of Rp.1,556.4 billion
(US$176.4 million) and U.S. dollar and other non-Rupiah-denominated customer deposits and deposits from
banks of Rp.2,691.6 billion (US$305.1 million). Bank Sinarmas’ aggregate net open position in foreign
currencies was 5.0% of foreign capital as of September 30, 2011, which did not exceed the 20.0% limit of the
previous month end position of our total Tier I and Tier II capital established by Bank Indonesia regulations. For
the years ended December 31, 2009 and December 31, 2010 and the nine months ended September 30, 2011, the
Group had loss on foreign exchange — net of Rp.193.5 billion, Rp.53.3 billion and Rp.12.6 billion, respectively.
To the extent that it is unable to adequately match its investment assets in the same currency, it may be required
to exchange Rupiah to cover any net open foreign currency positions. If the Rupiah depreciates significantly at
any time when we have a significant net open position in foreign currencies, such depreciation could cause us to
suffer losses, reduce our capital adequacy ratio and require us to seek additional capital or breach Bank
Indonesia capital adequacy regulations. There can be no assurance that any additional required capital would be
available to us at such time on acceptable terms or at all.
Risks Relating to Our Insurance Businesses
We may be exposed to risks as a result of the sale of a 50% ownership interest in Asuransi Jiwa
Sinarmas.
In July 2011, MSIG acquired a 50% ownership interest in Sinarmas MSIG Life. Strategic partnerships, such as
Sinarmas MSIG Life, involve special risks associated with the possibility that our partner may:
•
have economic or business interests or goals that are inconsistent with ours;
•
take actions or omit to take any actions contrary to our instructions or requests or contrary to our
policies or objectives or good corporate governance practices or the law;
•
be unable or unwilling to fulfill their obligations under the relevant agreements;
•
have disputes with us as to the scope of their responsibilities; and/or
•
have financial difficulties.
Any disagreement we may have with our partners which leads to a deadlock situation could adversely affect
our business, financial condition, results of operations and prospects.
Each of us and MSIG has the right to nominate an equal number of individuals as members of the board of
commissioners. In addition, each of us and MSIG has the right to nominate a candidate for vice president
director, with the other directors, including the president director will be nominated based on professional
reputation and ability. Although as of the date of this document, we continue to control Sinarmas MSIG Life
through a majority of the board of directors and board of commissioners, we cannot assure you that we will
continue to maintain such control in the future, such as in the case of a public offering of Sinarmas MSIG
Life. See “Material Agreements—Sinarmas MSIG Life Joint Venture—Other”. For the impact this may have
on our financial statements, see “—Risks Relating to Our Overall Business—Our actual financial
performance may vary materially from the financial information contained in this document.”.
Concentrated surrenders may materially and adversely affect our cash flows, results of operations and
financial condition.
Under normal circumstances, it is generally possible for insurance companies to estimate the overall amount of
surrenders in a given period. However, the occurrence of unforeseen events that have significant impact, such as
sharp declines in customer incomes due to a severe deterioration in economic conditions, radical changes in
relevant Governmental policies, loss of customer confidence in the insurance industry due to the weakening of
the financial strength of one or more insurance companies, or the severe weakening of the financial strength of
our insurance subsidiaries, may trigger massive surrenders of insurance policies. If this were to occur, our
insurance businesses would have to dispose of their investment assets, possibly at unfavorable prices, in order to
make the significant amount of surrender payments, which could materially and adversely affect our cash flows,
results of operations and financial condition.
Our insurance businesses comprise a significant part of our business and make a significant contribution to
our consolidated operating results, and any reduction in future rates of growth or level of profitability of our
insurance businesses will adversely affect our results of operations and financial condition.
Our life insurance and non-life insurance businesses conducted through our insurance subsidiaries and joint
ventures primarily comprise unit link life insurance products, endowment products and non-life insurance
products. The rate of growth of the insurance, investment and pension industries in Indonesia may not be as high
or as sustainable as we anticipate. While our insurance businesses have experienced rapid growth in recent years,
the insurance industry in Indonesia may not continue to expand. In addition, a low penetration rate in the market
does not necessarily mean that a market has growth potential or that we will succeed in increasing further
penetration into the Indonesian market. The growth and development of the life insurance and non-life insurance
businesses in Indonesia is subject to a number of industry trends and uncertainties that are beyond our control.
Any slowdown in the growth of our insurance businesses could have an adverse impact on our business,
financial condition, results of operations and prospects.
We may be unable to match closely the duration of our assets and liabilities, which could increase our
exposure to interest rate risk.
Matching the duration of our assets to their related liabilities reduces our exposure to changes in interest rates.
However, we are exposed to a significant risk of duration mismatch between our product offerings whose
maturity profiles tend to be short-term, compared with long-term investment assets available to us. Our ability to
match the duration and yield of our investment assets and insurance policy liabilities may be restricted by
consumer preferences, as well as applicable insurance laws, rules and regulations. In addition, we may not have
access to short-duration investment assets offering an appropriate yield to match our short-duration investment
policy liabilities. Moreover, we do not hedge our interest rate risk through financial derivative products. If we
are unable to match closely the duration of our assets and liabilities, we will be exposed to interest rate changes,
which may materially and adversely affect our financial condition and results of operations. For example, in the
case of a rising interest rate market, we may be required to liquidate assets prior to the stated maturity in order to
pay out on customer policy surrenders, which could result in significant realized losses on such securities.
The premiums of our life insurance business and to a lesser extent, of our non-life insurance business, are
substantially invested in RDPT funds which do not mark-to-market their underlying investments and whose
net asset values may not reflect the fair market value of underlying investments at any given time, which
may result in us overpaying policyholders and having inadequate reserves in a sudden decline of asset prices
and expose us to risks of mis-selling, and require us to find alternative investments which may not provide
similar returns or flexibility if such RDPT funds are no longer available.
Most of the investments of insurance premiums and Sinarmas MSIG Life’s own investment and some of the
investments of Asuransi Sinar Mas are in RDPT funds which are not required to mark-to-market their
investments. Under Bapepam-LK regulations, RDPT funds are permitted to determine the fair value of their
fixed income investments using an amortized acquisition price method so long as the debt securities are held
until maturity. For equity investments, RDPT funds are permitted to use any valuation method so long as such
method is agreed with the fund participants in advance in the governing collective investment contract which is
registered with Bapepam−LK. The equity RDPT funds and mixed debt and equity RDPT funds in which
Sinarmas MSIG Life invests determine the fair value of their equity investments using a historical share price
method which takes into account historical price-to-equity ratios discounted by an appropriate discount rate to
arrive at a fair value of the shares and the equity RDPT funds in which Asuransi Sinar Mas invests use a
discounted cash flow method. The fixed income RDPT funds and mixed debt and equity RDPT funds in which
Sinarmas MSIG Life invests hold their debt securities to maturity and therefore value their fixed income
holdings by amortizing the acquisition price of the debt securities, and the fixed income RDPT funds in which
Asuransi Sinar Mas invest determine fair value by reference to the bond reference price set by KSEI. As a result,
the net asset value of the RDPT funds in which Sinarmas MSIG Life and Asuransi Sinar Mas invest insurance
premiums may not reflect the fair market value of such investments at any given time, and may not reflect a
decrease in value should there be a sudden drop in underlying asset prices. Sinarmas MSIG Life and Asuransi
Sinar Mas monitor the mark-to-market value of underlying investments held in RDPT funds based on monthly
reports it receives from the custodian of these RDPT funds.
However, to the extent that there is a time lag or timing difference between when Sinarmas MSIG Life pays out
on a unit link insurance product based on the then applicable net asset value of the related segregated asset
investments in RDPT funds, and the re-adjustment of the net asset value of the RDPT funds to give effect to the
decline in prices of the underlying investments held within such RDPT funds, this may result in Sinarmas MSIG
Life’s overpaying unit link policyholders due to such valuation mismatch. This may also result in inadequate
reserves in the case of significant surrenders in response to any such declining asset prices as the fair value of
units of mutual funds upon redemption may not necessarily reflect their fair market value in the case of
surrenders of policies prior to the maturity of the underlying holdings. This may also expose us to claims of misselling for claims by our unit link policyholders who receive less returns than anticipated based on the expected
net asset value, which in turn may harm our reputation and subject us to additional legal and regulatory risks.
Moreover, we expect that RDPT funds through which our life insurance business, and to a lesser extent, our
non-life insurance business, invests premiums may not be available as an investment vehicle for our insurance
businesses as a result of future changes to Ministry of Finance regulations. This would require our insurance
businesses to phase out the use of RDPT funds and invest investment assets either directly or through other
vehicles that would require them to mark-to-market their investments. We may not be able to find comparable
investments or investment vehicles which provide similar flexibility, or returns. We may also experience greater
fluctuations in the value of our investment portfolio following any phase-out of RDPT funds as a result of markto-market accounting. We may also be subject to more tax if we invest in bonds directly, as we are currently
subject to 5% tax on capital gains on units of mutual funds and 15% on interest and capital gains from bonds.
The occurrence of any of the above may have a material adverse effect on our business, results of
operations, financial condition and prospects.
Changes in our life insurance product mix may result in significant fluctuations of gross written
premiums.
In the nine months ended September 30, 2011, 47.1% of our life insurance premium income was attributable to
endowment products, compared to 7.5% in 2010. In addition, most of the policies sold by Sinarmas MSIG Life
have historically been single premium products. Following the investment by MSIG in Sinarmas MSIG Life,
we expect that Sinarmas MSIG Life will expand its product mix, with an increasing proportion of regular
premium products. A change in the product mix and source of premium income will expose the company to
changes in its product structure and may result in fluctuations in gross written premium income and investment
income in future periods.
Pricing and setting reserves for our life insurance products are based on assumptions and estimates as to
future claims liabilities and for non-life products based on their historical risk and loss profile, and
differences in actual experience from the assumptions used in pricing and setting reserves for our insurance
products may materially adversely affect our business, financial condition, results of operations and
prospects.
The results of operations of our insurance businesses and their earnings depend significantly on the extent to
which actual benefits and claims results are consistent with the assumptions and estimates used in setting the
prices for products and establishing the liabilities for obligations for technical provisions and claims, such as
assumptions and estimates regarding expected investment return, loss ratio, expense ratio, mortality, morbidity
and lapse and surrender rates. We price our products based on assumptions and estimates which we derive
from our historical experience data, past and current market conditions and the relevant regulations. If actual
market conditions following the launch of our products are significantly less favorable than our assumptions
and estimates used in pricing, the distribution and profitability of our products may be materially and adversely
affected, which may, in turn, materially and adversely affect our results of operations and financial condition.
The process of establishing reserves for our insurance products is a difficult and complex exercise involving
many variable and subjective judgments. Due to the nature of the underlying risks and the high degree of
uncertainty associated with the determination of the liabilities for unpaid benefits and claims, we cannot
precisely determine the amount that we will ultimately pay to settle these liabilities. To the extent that actual
claims experience is less favorable than the underlying assumptions used in establishing such liabilities and
reserves originally established prove to be inadequate, we will incur additional expenses in the form of claims
and payments to the extent the actual amounts exceed the estimated amounts, or we may be required to increase
our reserves for future policy benefits, resulting in additional expenses in the period during which the reserves
are established or re-estimated, which may have a material adverse effect on our results of operations and
financial condition.
Compliance with solvency and risk-based capital requirements may force our insurance businesses to
raise additional capital, change our business strategy or reduce our growth.
Insurance companies are generally required by applicable law to maintain their solvency at a level in excess of
statutory minimum standards, which are designed to monitor capital adequacy and to protect policyholders.
Our insurance businesses are affected primarily by the solvency margins they are required to maintain, which
is in turn affected by the volume and type of new insurance policies they sell, the composition of their in-force
insurance policies and by regulations on the determination of statutory reserves. Their solvency is also affected
by a number of other factors, including the profit margin of their products, returns on their assets and
investments, interest rates, underwriting and acquisition costs, policyholder and shareholder dividends and the
failure of reinsurers to meet their reinsurance obligations.
Our insurance businesses’ solvency margin ratios are sensitive to capital market conditions (including the level
of interest rates, the level of equity markets and foreign exchange impacts) as well as a variety of other factors.
Regulatory capital requirements may increase, possibly significantly, during periods of declining equity markets
and/or lower interest rates. The regulatory framework in Indonesia currently utilize a risk-based capital regime.
Any of the factors described above will affect the solvency ratio that we maintain at any time.
Risk-based capital calculation is a method developed to measure the minimum amounts of capital that an
insurance company needs to support its overall business operation. Under the prevailing solvency requirement
in Indonesia, any insurance and reinsurance companies must meet the minimum solvency requirement at any
time, namely the company’s assets in excess of its liabilities must be at least 120% of the total financial risk of
loss that may arise as a result of deviations in the management of its assets and liabilities. If an insurance or
reinsurance company fails to meet the minimum solvency requirement of 120% but still meets a solvency level
of at least 100%, it is given an opportunity to make adjustments within a
certain period of time to meet the minimum solvency requirement. In addition, an insurance company that has
Sharia principal based businesses must meet the minimum solvency requirements of its Tabarru funds, namely
the assets of the company in excess of its liability must be at least 30.0% of the total financial risk of loss that
may arise as a result of deviations in the management of its assets and liabilities by 2014.
Risk of loss that may arise as a result of deviations in the management of such companies’ assets and liabilities
consists of: (i) companies’ failures in managing assets; (ii) discrepancies between the estimations of assets and
liabilities flow; (iii) discrepancies between the value of the assets and liabilities in each currency type; (iv)
discrepancies between the burden of claims that actually occurred and the estimated expense claims; (v)
premiums inadequacies due to discrepancies between the investment returns assumed in the determination of
premiums and investment results obtained; and (vi) inabilities of reinsurers to meet their obligation to pay
claims.
Regulators have broad discretion in interpreting, applying and enforcing their rules and regulations with respect
to solvency and regulatory capital requirements and, during periods of extreme financial market turmoil of the
type we have experienced over the past three years, regulators may become more conservative in their
interpretation, application and enforcement of these rules. This may involve imposing increased reserving
requirements for certain types of risks, greater liquidity requirements, higher discounts on certain assets or asset
classes, more conservative calculation methodologies or taking other similar measures which may significantly
increase regulatory capital and solvency requirements.
Compliance with changing solvency and risk-based capital requirements entails costs to our insurance
businesses. In order to comply with applicable solvency and risk-based capital requirements, our insurance
businesses may need to raise or inject additional capital to meet their solvency and risk-based capital
requirements, which may be dilutive to their shareholders, including us. We may also need to change our
business strategy, including the types of products we sell and how we manage our capital. Finally, compliance
with solvency and risk-based capital requirements may require us to slow the growth of our business.
A failure of any of our insurance subsidiary, joint venture or our associated company, Mega Life, to meet their
regulatory capital requirements and/or a reduction in the level of their regulatory capital that may negatively
impact their competitive position or raising of new capital by the insurance companies which could result in
dilution of the Company’s shareholding may result in the Company having to inject significant amounts of new
capital into its insurance subsidiaries which could have a material adverse effect on our business, liquidity
position, results of operations, financial condition and credit ratings.
The operating results of our insurance subsidiaries may be materially adversely affected by the occurrence
of catastrophic events, such as natural or man-made disasters, and by the consequences of emerging risks
such as pandemic diseases and global warming, all of which are unpredictable by nature.
Both our life and non-life insurance businesses expose us to risks arising from catastrophic events, which are
unpredictable by nature. Catastrophes can be caused by various natural hazards including earthquakes,
hurricanes, typhoons, volcanic eruptions, floods, severe weather, fires and explosions. Catastrophes can also be
man-made, such as terrorist attacks, wars and industrial or engineering accidents. Doing business in Indonesia
may expose us to more risks relating to catastrophes compared to other countries because it is located in an
earthquake zone and is subject to significant geological risk that could lead to economic loss. For instance, in
2009, we experienced an increase in claims following earthquakes in parts of Indonesia. Additionally, Indonesia
is also prone to occurrences of political, social unrests, and terrorist attacks. For more information, see “—Risks
Relating to Indonesia”. Our non-life insurance business also participates in the Asia Catastrophe Pool, a club of
insurance providers based in Asia, through which insurers agree to participate in a fund to provide financial
support for catastrophe events in the region, and may in the future participate in other club deals internationally,
which expose it to risks relating to catastrophes in other countries. See “Business—Non-Life Insurance—
Asuransi Sinar Mas—Asia Catastrophe Pool”. For example, through its participation in the Asian catastrophe
pool, our non-life insurance business
is expected to have maximum claims exposure of up to US$1.5 million as a result of the earthquake in the
Tohoku region of Japan in March 2011.
The occurrence of any such events may adversely affect our business in respect of both life and nonlife
insurance. Catastrophes could also result in losses in our investment portfolios, due to, among other things, the
failure of our counterparties to perform or significant volatility or disruption in the financial markets, and could
in turn adversely affect our profitability. In addition, health epidemic or pandemic such as severe acute
respiratory syndrome or SARS, the H5N1 strain of bird flu and Influenza A (H1N1) could have a material
adverse effect on our life insurance business, its operating results and liquidity due to increased mortality and
morbidity rates. The emergence of new types of liability and growing uncertainties about the size of maximum
potential losses, which have become harder to assess and to predict on the basis of past events, presents major
challenges for the insurance sector over the coming years and could adversely affect our insurance businesses
and operating results due to potential increases in claims. For more information regarding catastrophes in
Indonesia, see “—Risks Relating to Indonesia” below.
The frequency and severity of catastrophes are inherently unpredictable. We establish reserves based on our
assessment of our catastrophic risk portfolio. However, we cannot assure you that such reserves will be
sufficient to pay for all related claims. Although we carry some reinsurance pursuant to surplus treaty and stop
loss treaty arrangements to reduce our catastrophe loss exposures in our non-life insurance business, due to
limitations in the underwriting capacity and terms of conditions of the reinsurance market as well as difficulties
in assessing our exposures to catastrophes, this reinsurance may not be sufficient to protect us adequately against
losses. As a result, one or more catastrophic events could materially reduce our profits and cash flows across our
life and non-life businesses and harm our business, financial condition and results of operations.
Reinsurance may not be adequate to protect us against losses and we may be unable to utilize
reinsurance successfully.
In the normal course of business, our insurance businesses seek to reduce losses that may arise from
catastrophes or other events that cause unfavorable underwriting results through reinsurance. The ability of our
insurance businesses to obtain external reinsurance on a timely basis and at a reasonable cost is subject to a
number of factors, many of which may be beyond their control. In particular, certain risks that our insurance
businesses are subject to, such as epidemics or catastrophic events, are difficult to reinsure. If our insurance
businesses are unable to renew any expiring external coverage or obtain acceptable new external reinsurance
coverage, their net risk exposure could increase or, if they are unwilling to bear an increase in net risk
exposure, their overall underwriting capacity and the amount of risk they are able to underwrite would
decrease. To the extent that our insurance businesses are unable to utilize external reinsurance successfully, our
business, financial condition, results of operations and prospects may be materially and adversely affected.
In addition, although a reinsurer would be liable to our insurance businesses for the risk transferred pursuant to a
reinsurance arrangement, such an arrangement does not discharge our insurance businesses’ primary liability to
their policyholders. As a result, we are exposed to credit risk with respect to reinsurers in all lines of our
insurance business. In particular, a default by one or more of our reinsurers under the reinsurance arrangements
would increase the financial losses arising out of a risk we have insured, which would reduce our profitability
and may have a material adverse effect on our liquidity position. We cannot assure you that our reinsurers will
always be able to meet their obligations under reinsurance arrangements of our insurance businesses on a timely
basis, if at all. If our reinsurers fail to pay our insurance subsidiaries on a timely basis, or at all, our business,
financial condition, results of operations and prospects may be materially and adversely affected.
The embedded value information we present for Sinarmas MSIG Life is based on several assumptions
and may vary significantly as those assumptions change.
We have disclosed information regarding the embedded value of Sinarmas MSIG Life, including the value of
new business, under “Embedded Value”. These measures are based on a discounted cash flow valuation using
commonly applied actuarial methodologies comprising the sum of the value of in-force business and the value
of the adjusted shareholders’ funds. Guidelines with respect to the preparation and presentation of embedded
value are still evolving, however, and there is no single adopted standard for any of the form, determination or
presentation of the embedded value of an insurance company. The calculation of embedded value involves many
assumptions, many of which are beyond the control of Sinarmas MSIG Life or us, and actual experience may
vary materially from those assumed. Further, the embedded value information was prepared as of December 31,
2010 based on the product mix and projected cash flows as of such date. No update has been made to reflect the
MSIG investment of Rp.7.0 trillion in July 2011 or changes in the product mix and market conditions, and
therefore the embedded value information would differ from embedded value information if it were to be
prepared as of a more recent date. Moreover, because of the technical complexity involved in embedded value
calculations and the fact that embedded value estimates vary materially as key assumptions are changed, undue
reliance should not be placed on them.
Our insurance businesses are subject to changing market trends and other uncertainties, which may
impact our results of operations.
The insurance market as well as our customers’ preferences are constantly evolving. As a result, we must
continually respond to changes in the market and customer preferences to remain competitive, grow our
insurance businesses and maintain market share. In recent years, competition in the non-life insurance business
has intensified, particularly with respect to fire and property insurance. Periods of intense price competition due
to excessive underwriting capacity, periods of shortages of underwriting capacity permitting more favorable
rates, consequent fluctuations in underwriting results and the occurrence of other losses characterize the current
market conditions. We also face many risks when introducing new products. Our new products may fail to
achieve market acceptance, which could harm our insurance businesses.
Our new products may also be rendered obsolete or uneconomical by competition or developments in the
insurance, investment, banking, pension and wealth management industries. Furthermore, even if our current and
anticipated product offerings respond to changing market demand, we may be unable to commercialize them.
Moreover, potential products may fail to receive necessary regulatory approvals, be difficult to market on a large
scale, be uneconomical to introduce or fail to achieve market acceptance. Our future success will depend on our
ability to adapt to changing customer preferences and industry standards through new product offerings and
services. Any of these changes may require us to re-evaluate our business model and adopt significant changes
to our strategies and business plan.
Furthermore, historically, non-life insurers have also experienced significant fluctuations in operating results due
to volatile and sometimes unpredictable developments, many of which are beyond the direct control of the
insurer, including competition, frequency or severity of catastrophic events, general economic conditions and
other factors. This may cause a decline in revenues during certain periods if we choose not to reduce our general
product prices in order to maintain our profitability.
We may therefore experience the effects of such cyclicality, changes in customer preferences or expectations of
appropriate premium levels, the frequency or severity of claims or other loss events, or other factors affecting
the insurance business, which could have a material adverse effect on our results of operations and financial
condition.
If we fail to attract, motivate and retain agents, our competitive position, growth and profitability will
suffer.
Our insurance businesses depend to a significant extent on agents to distribute their products, and one of our
strategies is to grow our life insurance agency force. We face intense competition to attract and retain agents, and
we compete with other companies for their services, primarily on the basis of our reputation, product range,
compensation and retirement benefits, training, support services and financial position. We may not always be
successful in attracting agents, and we cannot assure you that our strategy or initiatives to retain and attract
agents will succeed. We have experienced low productivity of our life insurance agents, who in some cases lack
training and management oversight. Competition from other insurance companies and business institutions may
also force us to increase the compensation of our agents, which would increase operating costs and reduce our
profitability. If we are unsuccessful in attracting and retaining agents, our ability to effectively market and
distribute our products may be negatively affected, which could have a material adverse effect on our financial
condition and results of operations. Additionally, misconducts committed by our agents could result in violations
of law, regulatory sanctions and/or serious reputational or financial harm to us. For more information, see “—
Risks Relating to Our Overall Business—Fraud or other misconduct or the failure to be licensed by employees,
agents or third parties could subject us to losses and regulatory sanctions”.
Failure to secure new distribution relationships, as well as any termination or disruption of our distribution
channels, including as a result of financial industry consolidation, may have a material adverse effect on our
competitiveness and result in a material impact on our business, financial condition, results of operations and
prospects.
We have increasingly focused on marketing our insurance products through bancassurance, direct marketing
and other distribution channels. As these channels become increasingly important, if we fail to secure new
distribution relationships or maintain existing relationships, our competitiveness may be materially and
adversely affected.
Moreover, many of our insurance, investment and pension products are distributed through other financial
institutions such as banks. As industry consolidation increases, the number of financial institutions suitable for
distributing our products decreases. A reduction in distributors of insurance, investment and pension products
may negatively impact the industry’s sales, increase competition for access to distributors, result in greater
distribution expenses and potentially impair our ability to market our products to our current customer base or to
expand our customer base. In addition, some banks and financial institutions in some of the geographical
markets in which we operate are increasingly expanding into the origination, development and sale of insurance
products and are directly competing against us. Reforms to the bancassurance industry could also cause a
material adverse affect to our operations.
Our insurance businesses maintain a significant bancassurance relationship with Bank Sinarmas. As of
September 30, 2011, approximately Rp.8,302.0 billion or 84.6% of our gross insurance premiums and policy
fees are sold through bancassurance channels, with Bank Sinarmas contributing 75.5% of such sales.
If our insurance businesses fail to maintain their existing relationships with other segments of the Group, or
they fail to develop new bancassurance relationships with other banks, our competitiveness may be materially
and adversely affected or we may not be able to maintain or grow our premiums, and our business, financial
condition, results of operations and prospects may be materially and adversely impacted.
Risks Relating to Our Banking and Multifinance Businesses
Systemic risk resulting from failures in the banking industry and financial difficulties of other financial
institutions could adversely affect our business, financial condition, results of operations and prospects.
Within the banking industry, the default of any institution could lead to defaults by other institutions.
Concerns about, or a default by, one institution could lead to significant liquidity problems, losses or
defaults by other institutions because the commercial soundness of many financial institutions may be closely
related as a result of their credit, trading, clearing or other relationships. This risk is sometimes referred to as
“systemic risk” and may adversely affect financial intermediaries, such as clearing agencies, clearing houses,
banks, other securities firms and exchanges with whom we interact on a daily basis. Any default by other
institutions or any difficulties or instability of the financial system in general could create an adverse market
perception and adversely affect our business, financial condition, results of operations and prospects.
The adoption of Basel II and Basel III capital adequacy standards in Indonesia may require Bank
Sinarmas to seek additional capital which may not be available on favorable terms or at all.
We operate in a highly regulated industry in which regulatory authorities have been consistently imposing
higher standards and developing new guidelines and regulatory requirements, in accordance with the Basel II
and Basel III capital adequacy standards.
In line with the implementation of Basel II, Bank Indonesia has introduced regulations increasing the allocation
of risk-weighted assets in the calculation of our banking business’ capital adequacy ratio. If our capital ratios fall
below required levels, Bank Indonesia could require us to take a variety of corrective actions, including
suspension of all or part of our operations. In addition, our securities business is also subject to capital ratio
requirements. Failure of our securities business to meet this requirement may result in administrative actions or
sanctions imposed by local regulatory authorities. To counterbalance an increase on risk-weighted assets and
maintain our overall capital adequacy ratios as stipulated by Bank Indonesia, Bank Sinarmas may have to raise
and maintain additional regulatory capital or may need to adjust the assets it holds.
On December 16, 2010, the Basel Committee on Banking Supervision (the “Basel Committee”) published
“Basel III: A global regulatory framework for more resilient banks and banking systems”, the Basel III rules
outlining measures aimed at strengthening the resilience of the banking sector. The Basel III framework sets out
higher capital standards for banks, and introduced two global liquidity standards: the “Liquidity Coverage
Ratio”, intended to promote resilience to potential liquidity disruptions over a thirty-day horizon and the “Net
Stable Funding Ratio”, which requires a minimum amount of funding from stable sources relative to the liquidity
profiles of the assets at a bank and to the potential for contingent liquidity needs arising from off-balance sheet
commitments over a one-year horizon.
Under the requirements of the Basel Committee, banks are required to maintain minimum common equity Tier
1 (“CET1”), Tier 1 and total capital adequacy ratios of 3.5%, 4.5% and 8.0%, respectively, from January 1,
2013, and CET1, Tier 1 and total capital adequacy ratios of 4.5%, 6.0% and 8.0%, respectively, from January 1,
2015. In addition, banks are required to hold a capital conservation buffer of 2.5% to weather periods of high
stress. This capital conservation buffer is to be met with CET1 capital and will begin at 0.625% on January 1,
2016, increasing by an additional 0.625% in each subsequent year, to reach 2.5% on January 1, 2019.
Furthermore, banks are subject to a counter-cyclical buffer ranging from 0% to 2.5% which will be
implemented by each country when there is excessive credit growth in their systems, with discretion on the
implementation according to their national circumstances. This counter-cyclical buffer is to be met with CET1
or possibly other forms of loss absorbing capital, subject to further guidance from the Basel Committee. On
January 13, 2011, the Basel Committee also published requirements for all non-common Tier 1 and Tier 2
capital instruments issued on or after January 1, 2013 to be loss absorbing at the point of non-viability. Based
on the Basel Committee’s timeline, the Basel III rules will be phased in from January 1, 2013 and be fully
implemented on January 1, 2019.
While Bank Indonesia has provided some clarity on the capital adequacy requirements, the approach and local
implementation of other aspects of Basel III in Indonesia have not been finalized by Bank Indonesia and will
depend on Bank Indonesia’s response to the capital and liquidity frameworks set by the Basel Committee.
Therefore, there is still uncertainty as to how and when Bank Indonesia will adopt the
Basel Committee’s standards for implementation of other aspects of Basel III in Indonesia, and there is no
assurance that we will not face pressure on our capital and liquidity positions in the future under the Basel III
standards.
In addition, Bank Indonesia has developed a program for the implementation of a banking industry blueprint,
called Arsitektur Perbankan Indonesia (“API”). The API program aims to increase the capital level in the
Indonesian banking system over a period of 10–15 years through, among other things, bank mergers, an increase
in new capital equities, new share issues and public offerings, and issues of subordinated loans. Failure by us to
comply with the API program could result in fines and/or other penalties, which could have a material adverse
effect on our financial condition and results of operations.
In the event we have to raise capital to comply with changing capital adequacy regulations, there can be no
assurance that any additional required capital would be available to us on favorable terms or at all. In addition,
any further regulatory changes in relation to the adoption of Basel II and Basel III requirements may result in the
incurrence of compliance and monitoring costs and any breach of applicable laws and regulations may adversely
affect our reputation or our business, results of operations and financial condition.
We are subject to Bank Indonesia policies intended to promote lending, some of which may adversely
affect our results of operations.
Bank Indonesia has engaged in a number of formal and informal policies to promote bank lending. For example,
in August 2009, Bank Indonesia officials arranged a meeting of 14 major Indonesian banks to facilitate a
reduction in deposit rates, with the expectation that such actions would result in lower lending rates. The banks
agreed in principle to gradually reduce their deposit rates to no more than 50 basis points above the Bank
Indonesia rate by December 2009. Although most major Indonesian banks have followed Bank Indonesia’s
suggestion to reduce deposit rates, lending rates have remained largely unchanged, which may contribute to the
high net interest margins and low cost of funds available to Indonesian banks. To the extent Indonesian banking
authorities apply downward pressure directly to lending rates rather than indirectly through deposit rates, the
yields on our loans and net interest margin could be adversely affected. Furthermore, to the extent that the low
cost of funds available to Indonesian banks are attributable to arrangements designed to reduce deposit rates,
discontinuance of such measures could increase our cost of funds and reduce our net interest margin.
Bank Indonesia’s policies in reducing the lending rates of Indonesian banks may also indirectly apply and may
adversely affect non-bank financing companies such as multifinance companies. Multifinance companies may
cooperate with commercial banks in providing loans to customers through channeling and joint financing.
Since in both types of funding cooperation the proportion of funds from the commercial banks is greater than
that from the multifinance companies, such policies of Bank Indonesia could also increase the cost of fund and
reduce the net interest margin of multifinance companies.
Our customers, counterparties or obligors may be unable to perform their obligations to us as a result of
deterioration in their credit quality or defaults.
We extend credit to clients and customers through our banking, multifinance and securities businesses. We are
also exposed to counterparty risk of local banks and cooperatives which have channeled consumer loans to Bank
Sinarmas. Even where such arrangements are secured by physical or financial collateral, the value of such
collateral may at times be insufficient to fully cover the loan repayment amount. Issuers or borrowers whose
securities or loans we hold may default on their obligations to us. Our investment portfolio includes investments
in the financial services sector and other market sectors that have experienced significant price fluctuations and
defaults. As a result, we are exposed to the risk that third parties may default on their obligations to us because
of bankruptcy, lack of liquidity, operational failures or other reasons. A failure of a significant market
participant, or even concerns about a default by such an institution, could lead to significant liquidity problems,
losses or defaults by other institutions, which in turn could adversely affect us. We are also subject to the risk
that our rights against third parties may not be
enforceable in all circumstances. While in many cases we are permitted to require additional collateral from
counterparties that experience financial difficulties, disputes may arise as to the amount of collateral we are
entitled to receive and the value of pledged assets. The termination of contracts and the foreclosure of collateral
may subject us to claims for the improper exercise of our rights. Default rates, downgrades and disputes with
counterparties as to the valuation of collateral increase significantly in times of market stress and illiquidity.
Although our subsidiaries review credit exposures to specific clients, obligors and counterparties, groups of
customers and to specific industries that they believe may present credit concerns, default risks may arise from
events or circumstances that are difficult to detect or foresee, such as fraud. Moreover, we do not review credit
exposures on a Group basis. We may also fail to receive full information with respect to the trading risks of
counterparties. Any such losses as a result of counterparty or obligor default may have a material adverse effect
on our financial condition and results of operations, as well as our liquidity and profitability.
If we are unable to effectively maintain the quality of our loan portfolio, our financial condition and
results of operations may be materially and adversely affected.
As a financial intermediary, extending loans is an important part of our business and our results of operations are
negatively impacted by provisions and/or losses related to our NPLs and the sustainability of our growth
depends largely upon our ability to effectively manage our credit risk and maintain the quality of our loan
portfolio.
NPLs of Bank Sinarmas amounted to Rp.85.3 billion, Rp.117.5 billion, Rp.88.3 billion (US$10.0 million) and
Rp.87.1 billion (US$9.9 million) as of December 31, 2008, 2009 and 2010 and as of September 30, 2011,
respectively. As a percentage of gross customer loans, NPLs were 1.99%, 2.17%, 1.26% and 0.95% as of
December 31, 2008, 2009 and 2010, and as of September 30, 2011, respectively. For our multifinance business,
NPLs amounted to Rp.1,253.0 billion, Rp.1,105.0 billion, Rp.4,794.0 billion (US$543.4 million) and
Rp.13,397.0 billion (US$1,518.4 million) as of December 31, 2008, 2009 and 2010 and as of September 30,
2011, respectively. As a percentage of gross customer loans, NPLs were 0.1%, 0.1%,0.3% and 0.5% as of
December 31, 2008, 2009 and 2010, and as of September 30, 2011, respectively.
NPLs and credit costs for customers may increase significantly above the current level as a result of a number of
events, including if domestic or global economic conditions worsen or do not improve, borrowers do not repay
their loans, and past experience, evaluations, assumptions and estimates about borrowers, valuation of collateral
and guarantees, general economic and business conditions on which Bank Sinarmas’ allowance for loan losses is
based fail to provide an accurate representation of actual future incurred losses. Changes in law or Government
policies that have an adverse impact on the rights of creditors could also cause us to incur increased credit costs.
As a result, Bank Sinarmas’ and Sinar Mas Multifinance’s respective NPL ratios may increase substantially,
which could have a material adverse effect on its financial position, results of operations and prospects.
If our banking and multifinance subsidiaries are not able to control or reduce the level of NPLs, the overall
quality of our loan portfolio may deteriorate, we may become subject to enhanced regulatory oversight and
scrutiny, our reputation may be adversely impacted and our business, financial condition, results of
operations, prospects and capital adequacy ratio may be materially and adversely affected.
Funding for Bank Sinarmas is predominantly in the form of short-term deposits, and liquidity shortfalls
may increase its cost of funds and materially and adversely affect our business, financial condition, results
of operations and prospects.
Bank Sinarmas needs liquidity to pay operating expenses, pay interest on and principal of debt and
dividends on capital stock, maintain lending activities and meet deposit withdrawals. Most of its funding
requirements are met through a combination of funding sources, primarily in the form of deposit-taking
activities and interbank funding.
As of December 31, 2010 and September 30, 2011, 33.0% and 25.2% respectively, of its customer deposits were
payable on demand. Such deposits are mainly from savings, fixed and current accounts and demand deposits. In
addition, a substantial portion of the Bank’s time deposits consist of time deposits by members of our Group and
the larger Sinar Mas Group which, under intra-group arrangements, can be and are regularly withdrawn on
demand. See “Business—Banking—Bank Sinarmas”. Because a portion of its assets have medium or long-term
maturities, this creates a potential for funding mismatches. High volumes of deposit withdrawals, failure of a
substantial number of its depositors to roll over deposited funds upon maturity, to replace withdrawn deposits
with new deposits or its inability to grow its deposit base could each have an adverse effect on its liquidity
position, and its business, its financial condition and prospects could be materially and adversely affected. In
such a situation, Bank Sinarmas could be required to seek alternative short-term and long-term funds to finance
operations, which may be more expensive than current funding sources and also increase its exposure to interest
rate changes, which may adversely affect its business, financial condition, results of operations and prospects.
Without sufficient liquidity, Bank Sinarmas would be forced to curtail its operations and its and our business,
financial condition, results of operations and prospects would be materially and adversely affected.
We have a high concentration of loans to certain customers and certain sectors.
As of December 31, 2010 and September 30, 2011, our banking business’ total exposure to our ten largest
individual or group borrowers based on outstanding principal balance of loans totaled approximately
Rp.1,537.8 billion and Rp.2,321.7 billion, respectively, which represented 22.0% and 25.4%, respectively of
our total loans.
As of September 30, 2011, a majority of our banking business’ loans were made to borrowers in the
manufacturing and trading, restaurant and hotel sectors, comprising 16% and 15%, respectively, of our
banking business’ total outstanding loans.
As our loan portfolio is highly concentrated by borrower and sector, if any loans to the top ten individual or
group borrowers become non-performing, or if there are financial difficulties encountered in sectors in which
our loans are concentrated, the overall quality of our total loan portfolio and our financial condition may be
adversely affected.
Indonesian banks and other non-bank lending institutions are generally exposed to different, and in some
cases, higher credit and market risks and potentially greater market volatility than banks in other countries.
Indonesian banks are subject to the risk that Indonesian borrowers may not make timely payment of principal
and interest on loans and in particular that, upon such failure to pay, Indonesian banks and nonbank lending
institutions may not be able to enforce any security interests they may have. The credit and market risks to
which Indonesian banks and these non-bank institutions are subject to are of a different quality, and can be of a
greater magnitude, than those in certain other countries due to the nature of the Indonesian banking and
financial industry, which is characterized by greater uncertainty associated with the Indonesian regulatory,
political, legal and economic environment, greater volatility in interest rates and the domestic currency and a
relatively traditional banking and lending function with assets consisting of concentrated, self-originated loans
and Government bonds, funded largely by customer deposits. Any significant political or economic event in
Indonesia may result in a rapid deterioration in the credit quality of our loan portfolio and, as a consequence, a
significantly higher percentage of NPLs than banks in certain other countries typically experience.
The nature and magnitude of the credit and market risks to which we are exposed could have a material
adverse effect on the quality of our loan portfolio and expose Indonesian banks and non-bank lending
institutions, including us, to different risks and potentially higher losses than those in certain other countries.
A loss of investor confidence in the financial systems of emerging or other markets may cause increased
volatility in Indonesian financial markets which may, in turn, adversely affect the Indonesian
economy in general. Furthermore, in times of deteriorating economic conditions, higher credit risk could make it
more difficult or more expensive for us to raise equity financing when we most need to increase our
capitalization.
Such losses and higher capital costs arising from the credit and market risks to which we are subject may have
a material adverse effect on our financial condition, liquidity and results of operations.
Bank Sinarmas is exposed to derivative financial instruments and any deterioration of creditworthiness of
counterparties and/or adverse market impact on fair value of derivatives may have a material adverse effect
on our business, financial condition, results of operations and prospects.
Bank Sinarmas has commitments for the purchase and sale (spot and forward) of foreign currencies to hedge its
foreign exchange exposures. These purchase and sale foreign currency commitments amounted to Rp.27.0
billion and Rp.14.5 billion, respectively, as of December 31, 2009, Rp.28.7 billion (US$3.3 million) and Rp.27.0
billion (US$3.0 million), respectively, as of December 31, 2010, and Rp.12.3 billion (US$1.4 million) and
Rp.52.7 billion (US$6.0 million), respectively, as of September 30, 2011. The derivative financial instruments
are carried at fair value. The fair value of these derivatives and our exposure to the risk of default by the
underlying counterparties depends on the valuation and the perceived risk of the derivatives as well as on the
creditworthiness of the relevant counterparty. Any default by counterparties as a result may have an adverse
impact on our profitability and business.
A discontinuance of the bank deposit guarantee program in Indonesia might lead to instability in the
banking sector.
Prior to January 26, 1998, deposits in Indonesian banks were not guaranteed by any Government agency. To
restore confidence in the banking system during the financial crisis, the Government established the Government
Guarantee Program that guaranteed most payment obligations of Indonesian banks, including deposits with, and
certain borrowings by, participating banks. This program was replaced by a deposit insurance program which
insures deposits of up to Rp.2.0 billion for each customer or depositor. The deposit insurance program is
conducted by the Deposit Insurance Corporation (Lembaga Penjamin Simpanan) and has no scheduled
termination date, but we cannot assure you that the current deposit guarantee program will not be altered or
terminated. Any changes or termination of the program could lead to instability in the Indonesian banking sector,
including liquidity shortages and interest rate increases caused by withdrawals of deposits. Any such instability
may have a material adverse effect on our business, financial condition, liquidity and results of operations.
Indonesian banks and non-bank lending institutions have limited independent information regarding the
credit history and status of potential borrowers.
There is limited independent information regarding the credit history of potential borrowers in
Indonesia, including repayment histories. Limited access to credit history information is a risk Bank
Sinarmas and our multifinance subsidiaries must consider when extending credit, since no third party
institution monitored credit histories in Indonesia prior to 1990.
Currently, information regarding the credit repayment history of potential Indonesian borrowers is only
provided by Bank Indonesia. However, no information is currently available from any other sources regarding
debt incurred by potential borrowers through other banks or financing sources. The lack of complete and
detailed information regarding the credit history and status of potential borrowers makes it difficult for Bank
Sinarmas and our multifinance subsidiaries to reliably assess the creditworthiness of potential borrowers and
therefore accurately manage their risk profile of exposure, which could have a material adverse impact on the
Company.
The collateral or guarantees securing our loans may not be sufficient, and we may be unable to realize the
full value of the collateral or guarantees.
Most of Bank Sinarmas’ and our multifinance subsidiaries’ loans are secured by collateral, primarily in the form
of fixed assets, cars and motorcycles, accounts receivables and inventory. Our multifinance business provides
financing to individual customers for the purchase of new and used cars and motorcycles and also multipurpose
loans to individual customers that are secured by the customer’s car or motorcycle. Until the borrowing is
repaid, we hold titles of ownership to the used car or motorcycle. The value of such collateral may significantly
fluctuate or decline due to factors beyond our control, including macroeconomic factors. For example, a decline
in Indonesia’s economic conditions may result in a decline in real estate prices, which may cause significant
declines in the value of property securing a loan. Each decline in collateral value may diminish the amount
which may be recovered from the collateral held by us and increase our required allowance for impairment
losses.
We conduct annual revaluations of the collateral. However, we do not always revalue collateral based on
assessments from an independent appraisal. As such, we may not have the latest information regarding the
value of collateral, which may make it difficult to accurately assess the loan secured by such collateral. To the
extent we offset the value of collateral from any impairments associated with NPLs, we may underestimate the
allowance for impairment losses associated with such loans. Furthermore, in such circumstances, we may have
to recognize additional losses based on changes in the market value of collateral, even in the absence of
changes in the credit condition of the borrower or where the loan is fully impaired. In addition, in certain
situations, our rights over the collateral may have lower priority compared to other rights during a liquidation
process.
Enforcement difficulties may prevent us from recovering the assessed value of collateral if our borrowers
default on their obligations in Indonesia.
We cannot assure you that we will be able to realize the full value, or any value, of any collateral located in
Indonesia in a bankruptcy or liquidation proceeding or otherwise. Indonesian banks and non-bank lending
institutions may not be able to fully recover collateral or enforce any guarantees due, in part, to the legal
uncertainties in enforcing such rights. Although the law provides for expedited procedures for the enforcement
of certain types of collateral, in practice lenders generally end up submitting a petition to an Indonesian court
and can face challenges by borrowers which often result in delays that could last several years. Such delays
could result in deterioration in the physical condition and market value of the collateral, particularly where the
collateral is in the form of inventory or receivables. In addition, such collateral may not be insured. These
factors have in the past exposed, and continued to expose, lenders in Indonesia to legal liability while in
possession of collateral. The current difficulty of bringing enforcement actions in the Indonesian legal system
significantly reduces the ability of lenders to realize the value of collateral located in Indonesia. This may be
particularly true for loans of relatively small size.
Risks Relating to Our Securities Business
Sinarmas Sekuritas generates a significant percentage of revenue from trading both on a proprietary basis
and for clients, and it may incur substantial losses in connection with its equity and fixed income sales and
trading businesses, which may materially and adversely affect our business, results of operations or
financial condition.
Sinarmas Sekuritas engages in the trading of various types of investment products both on a proprietary basis
and for its clients, including fixed income, equity and money market securities. As of December 31, 2008, 2009
and 2010 and September 30, 2011, such investments on a proprietary basis accounted for approximately 33.4%,
23.7%, 11.4% and 6.2%, respectively, of its total AUM and 3.1%, 2.6%, 1.6% and 0.7%, respectively, of
SMMA’s total assets. As each type of product we trade in presents a different risk and return profile, we are
exposed to risks that are specific to each investment product, and we could incur substantial losses from our
investments. Changes in market condition such as sharp declines in
market values of securities and the failure of issuers and counterparties to perform their obligations can result in
illiquid markets. In such markets, we may not be able to sell investments in securities. We bear the full risk of
declines in the value of our proprietary investments. We could also lose trading income as a result of clients
declining to engage our services as a result of such losses. Any of the above could have a material adverse
effect on our business, financial position, results of operations and prospects.
In addition, due to limitations in investment options and hedging strategies in Indonesia, we may not be able to
effectively hedge our exposures to the systemic risks associated with our investments, which could adversely
affect our results of operations and financial condition. Moreover, the risk management measures that we have
put in place may not be adequate to cover risks arising from such investments. For more information, see “—
Risks Relating to Our Overall Business—Our risk management policies and procedures and internal controls
may not adequately address unidentified or unanticipated risks, which could adversely affect our business”.
Our asset management revenue and earnings could decline if the investments we manage perform poorly,
our clients withdraw assets we manage on short notice, or if we lose clients.
Investment performance affects our AUM and is one of the most important factors in retaining clients and
competing for new asset management business. Market volatility and limitations in investment options and
hedging strategies in Indonesia could limit our ability to provide stable returns for our clients and cause us to
lose clients. Poor investment performance could adversely affect our revenue and growth because:
•
existing clients might withdraw funds from our asset management business in favor of better
performing products provided by our competitors, which would result in lower management
fees for us;
•
clients may request that we lower our fees for asset management services, particularly in an
intensely competitive industry;
•
our incentive fees, which are based on a percentage of investment returns, would decline;
and
•
firms with which we have strategic alliances may terminate such relationships with us and
future strategic alliances may be unavailable.
In addition, we may not be able to keep or increase our AUM due to increased competition from insurance
companies, trust companies, banks and other competitors, which would adversely affect our results of operations
and financial condition.
We may fail to realize any profits from our investments in relatively high-risk, illiquid securities for a
considerable period of time or lose some or all of the capital invested.
From time to time, we may hold investments in securities that are not publicly traded. Our ability to dispose of
such investments is heavily dependent on the equity capital markets. For example, the ability to realize any
value from an investment may depend upon the ability to exit through an initial public offering of the portfolio
company in which such investment is made. Even if the securities are publicly traded, large holdings of
securities can often be disposed of only over a substantial length of time, exposing our investment returns to
market risks during the intended disposition period. Accordingly, under certain conditions, we may be forced to
either sell securities at undesirable prices or defer sales, potentially for a considerable period of time.
Our securities business is subject to concentration risks due to significant holdings of financial assets or
significant commitments of capital.
In the course of our business, we often commit substantial amounts of capital to certain types of businesses or
asset classes, including as part of our investment banking, proprietary trading, equity and fixed income sales and
trading activities. This commitment of capital exposes us to concentration risks, including market risk, where
our holdings of concentrated or illiquid positions in a particular asset class as part of our investment banking,
proprietary trading, equity and fixed income sales and trading activities. Any decline in the value of such assets
may reduce our revenues or result in losses.
We are subject to capital requirements that may restrict our business activities.
Bapepam-LK requires securities companies in Indonesia to maintain certain minimum paid-up capital and net
adjusted working capital. For example, securities companies that engage in underwriting, brokerage and
investment management activities in Indonesia must maintain a minimum paid-up capital of Rp.70.0 billion by
no later than December 31, 2011 and Rp.75.0 billion beginning December 31, 2012, and a minimum net adjusted
working capital of the greater of Rp.25.0 billion and 625% of total liabilities, plus Rp.200.0 million and 0.1% of
total funds being managed. If we fail to promptly adjust our asset composition to meet such requirements, we
may be restricted from operating our securities business and our business, financial condition and results of
operations may be adversely affected.
Our securities business is dependent on our ability to identify, execute and complete projects successfully.
Total revenues from our securities business accounted for approximately 1.6% and 1.9% of our operating
income for the year ended December 31, 2010 and the nine months ended September 30, 2011, respectively.
We derive a portion of our securities revenue and other income from sponsor fees and underwriting
commissions and our ability to timely complete the projects we sponsor or underwrite may materially affect
the level of income we derive from our investment banking business.
We are exposed to transaction-specific execution risks for each project we sponsor or underwrite. We generally
receive payment of sponsor fees and underwriting commissions only after we successfully complete a
transaction. If a project is not completed as scheduled or at all for any reason, such as the failure to obtain
regulatory approval for a listing application we sponsor, we may not receive payment for our services in a timely
manner, or at all, which could materially adversely affect our results of operations. In addition, if we fail to sell
the securities we underwrite, we would suffer reputational damage, as well as incur expenditure to purchase and
hold the underwritten securities, thereby materially adversely affecting our results of operations and financial
condition.
Companies that wish to list their securities in Indonesia require an investment bank to act as sponsor for the
transaction. When we act as a sponsor, we are required to fulfill certain due diligence and disclosure
requirements in connection with each project we sponsor. A failure to satisfy these requirements could subject
us to fines and other administrative or regulatory penalties, which could materially adversely affect our
business, reputation, results of operations or financial condition.
Sinarmas Sekuritas’ ability to execute transactions on behalf of certain existing customers may be restricted
if such customers fail to complete certain application documents for the purpose of adjusting securities
account opening contracts as provided by recent regulation, which may reduce the net adjusted working
capital of Sinarmas Sekuritas and have an adverse effect on Sinarmas Sekuritas’ business and results of
operations.
Bapepam-LK regulation promulgated in 2010 require all securities companies in Indonesia to adjust certain
clauses in their securities account opening contracts with each existing customer to include specific amended
provisions, with a January 31, 2012 deadline for implementing such adjustments. These amended provisions
include, among other things, a requirement to open, in the name of the customer, a fund account
at the paying bank, and a sub-securities account with PT Kustodian Sentral Efek Indonesia (“KSEI”). As of the
date of this document, Sinarmas Sekuritas has not yet obtained the required revised documentation authorizing
such account openings for a significant portion of its existing account holders. If Sinarmas Sekuritas fails to
receive these authorizations by February 1, 2012, Sinarmas Sekuritas will not be able to execute transactions on
behalf of such customers, which may have an adverse effect on Sinarmas Sekuritas’ business and results of
operations. Failure to obtain such authorizations from remaining account holders may also impact the calculation
of Sinarmas Sekuritas’ net adjusted working capital, as funds held in accounts for which Sinarmas Sekuritas has
not obtained the necessary documentation will be held in its own name, which will increase the level of
Sinarmas Sekuritas’ business risk and accordingly, reduce its net adjusted working capital.
RELATED PARTY TRANSACTIONS
The Company and its subsidiaries are members of the Sinar Mas Group, which was founded by Mr.
Eka Tjipta Widjaja, the father of our controlling shareholder, Indra Widjaja, and controlled by various
members of the Widjaja family. The Sinar Mas Group is one of the largest business groups in Indonesia and
also has various businesses in Singapore and China. The Sinar Mas Group is engaged principally in the pulp
and paper, property, food and agribusiness, infrastructure and mining, telecommunications and financial
services businesses, and includes Asia Pulp & Paper Group companies such as PT Indah Kiat Pulp & Paper
Tbk and PT Pabrik Kertas Tjiwi Kimia, APP China Group companies such as Gold East Paper (Jiangsu)
Co., Ltd. and Gold Huasheng Paper (Suzhou Industrial Park) Co., Ltd., Sinar Mas Land Limited, Golden
Agri Resources Limited, and PT Dian Swastatika Sentosa Tbk and its coal mining subsidiary PT Golden
Energy Mines.
In general, transactions between our Company and its subsidiaries and any of our related parties (as
defined below) constitute “related party transactions”. We have summarized below the key related party
transactions that:
•
our subsidiaries and other members of the Sinar Mas Group have entered into among themselves;
•
include investments made by our subsidiaries and other members of the Sinar Mas Group in each
other; and
•
include any account receivables and obligations that are owed to us by, or that we owe to, other
members of the Sinar Mas Group.
We believe each of the transactions as described below have been entered into on arm’s length terms
or on terms that we believe are at least as favorable to us as similar transactions with non-related parties.
Under Bapepam-LK regulations, there are two types of related party transactions, namely affiliated
party transactions and conflict of interests transactions. An affiliated party transaction is defined as a
transaction conducted between the company or a controlled company and an affiliate of the company or an
affiliate of a member of the board of directors, the board of commissioners, or a substantial shareholder
(defined as a shareholder who owns at least 20.0% of the issued shares in the company or other lower
threshold as determined by Bapepam-LK). Affiliated party transactions do not require the approval of
independent shareholders. Generally, such transactions, including detailed information and a summary
appraisal report regarding the transactions, must be announced within two business days from the date of the
transactions, unless an exemption is available. If an exemption is available, the transactions may not be
required to be disclosed and reported to Bapepam-LK. Transactions that are not required to be disclosed and
reported to Bapepam-LK include, among others: (i) any transaction that constitutes the core businesses of
the company or its controlled subsidiaries, or any transactions that supports the core businesses of the
company or its controlled subsidiaries, or (ii) any transaction that occurs before the public offering of a
company, or before the submission of a registration statement, that has been disclosed in the prospectus,
provided that the terms and conditions of the transaction has not changed in a manner that may cause losses
to the company. Any transactions by a company listed on an Indonesian stock exchange which entail
conflicts of interest must be approved by a majority of the shareholders who do not have a conflict of
interest in the proposed transaction and certain disclosure must be made to the shareholders prior to the
shareholders meeting held to approve such conflicts of interest transactions. A “conflict of interest” is defined
in Bapepam-LK regulations to mean a conflict between the economic interests of a publicly listed company,
on the one hand, and the personal economic interests of any member of the board of commissioners, board
of directors or a substantial shareholder which has the potential to result in losses to the Company. BapepamLK has the power to enforce this rule, and the Company’s shareholders may also bring enforcement action
based on this rule.
Our Related Parties
Our related parties consist of the following:
•
companies that, through one or more intermediaries, control, or are controlled by, or are under
common control with, the Company (including holding companies, subsidiaries, and fellow
subsidiaries);
•
associated companies;
•
individuals owning, directly or indirectly, an interest in the voting power of the Company that
gives them significant influence over the Company, and close family members of such
individuals, and companies under the control of such close family members;
•
key management personnel, that is, those persons having authority and responsibility for
planning, directing and controlling the activities of the Company, including commissioners,
directors and managers of the Company and close family members of such individuals; and
•
companies in which a substantial interest in the voting power is owned, directly or indirectly, by
any persons described above, or over which such person is able to exercise significant influence.
These include companies owned by commissioners, directors or major stockholders of the
Company, and companies that have common member of key management with the Company.
Present and Ongoing Related Party Transactions
Investments in Mutual Funds Managed by Sinarmas Sekuritas
We and our subsidiaries invest in a variety of units of mutual funds managed by Sinarmas Sekuritas
such as fixed income mutual funds, money market mutual funds, mixed mutual funds and shares mutual
funds. The table below shows our outstanding investments in mutual funds managed by Sinarmas Sekuritas
as of the periods indicated.
As of December 31,
2008
Rp.
Investments in mutual funds:
Fixed income . . . . . . . . . .
Money market . . . . . . . . .
Mixed . . . . . . . . . . . . . .
Shares . . . . . . . . . . . . . .
Others . . . . . . . . . . . . . .
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
2009
2010
As of September 30,
2010
2010
2011
Rp.
Rp.
US$
Rp.
Rp.
(Rp. in billions, US$ in millions, except percentages)
2011
US$
.
.
.
.
.
62.7
12.9
17.2
5.6
1,100.7
93.9
12.0
66.5
33.5
229.5
62.2
51.8
79.5
59.4
271.6
7.0
5.9
9.0
6.7
30.8
86.1
51.3
79.8
47.0
271.3
674.0
0.4
15.8
3.0
4.4
76.4
—
1.8
0.3
0.5
Total . . . . . . . . . . . . . . . . . .
1,199.1
435.4
524.5
59.4
532.6
697.7
79.0
As a percentage of total assets (%) .
7.7
2.2
1.9
1.9
2.1
1.6
1.6
As of December 31, 2008, 2009 and 2010 and September 30, 2011, Sinarmas Sekuritas and its
subsidiary managed Rp.86.8 billion, Rp.115.8 billion, Rp.26.9 billion (US$3.0 million) and Rp.40.9 billion
(US$4.6 million) of assets from Sinar Mas Group Companies other than the SMMA Group.
Short-term Investments in Units of Mutual Funds Managed by Related Parties and Corporate Bonds of
Related Parties
We and our subsidiaries invest on a proprietary basis in a variety of units of mutual funds managed by
related parties such as Danamas Stabil, Simas Danamas Mantap Plus, Simas Danamas Instrumen Negara,
Danamas Rupiah Plus, Riau Liquid Fund, Danamas Rupiah, Danamas Flexi, Simas Satu, Simas Danamas
Saham, Sinar Prima Reksa, Sinar Dana Tumbuh and Danamas Dollar, and also in corporate bonds of related
parties such as Bumi Serpong Damai II/2006. The table below shows our outstanding investments in units of
mutual funds managed by related parties and in corporate bonds of related parties as of the periods
indicated.
As of December 31,
2008
Rp.
2009
2010
As of September 30,
2010
2010
2011
Rp.
Rp.
US$
Rp.
Rp.
(Rp. in billions, US$ in millions, except percentages)
2011
US$
Segregated funds net assets − unit link:
Unit of mutual funds . . . . . . . . . .
303.1
Bonds . . . . . . . . . . . . . . . . . . .
3.0
1,071.1
3.0
53.3
3.0
6.0
0.3
53.7
3.0
32.5
3.0
3.7
0.3
Total . . . . . . . . . . . . . . . . . .
306.1
1,074.1
56.3
6.3
56.7
35.5
4.0
As a percentage of total assets (%) .
2.0
5.5
0.2
0.2
0.2
0.1
0.1
Investments in Shares and Warrants of Related Parties
We and our subsidiaries hold a variety of shares and warrants issued by related parties such as PT
Dian Swastatika Sentosa Tbk, PT Indah Kiat Pulp & Paper Tbk and PT Pabrik Kertas Tjiwi Kimia Tbk. The
table below shows our outstanding investments in shares and warrants issued by related parties as of the
periods indicated.
As of December 31,
2008
Rp.
Shares:
PT Dian Swastatika Sentosa Tbk . . .
PT Indah Kiat Pulp and Paper Tbk .
PT Pabrik Kertas Tjiwi Kimia Tbk .
PT Sinar Mas Multiartha Tbk . . . . .
PT Bumi Serpong Damai Tbk . . . .
Others (below Rp.500 million each) .
Subtotal . . . . . . . . . . . . . . . . . . .
Warrants:
PT Sinar Mas Multiartha Tbk . . . . .
PT Bank Sinarmas Tbk. . . . . . . . .
Subtotal . . . . . . . . . . . . . . . . . . .
Total Investments in shares and
warrants . . . . . . . . . . . . . . . . . .
Total as a percentage of total assets
(%) . . . . . . . . . . . . . . . . . . . . .
2009
2010
As of September 30,
2010
2010
2011
Rp.
Rp.
US$
Rp.
Rp.
(Rp. in billions, US$ in millions, except percentages)
2011
US$
—
—
—
0.6
2.1
0.1
2.8
1.3
—
0.2
4.0
19.3
—
24.8
3.6
2.6
2.6
—
0.1
—
8.9
0.4
0.3
0.3
—
—
—
1.0
1.5
3.7
1.4
—
0.1
—
6.7
2.4
1.4
1.8
—
—
—
5.6
0.3
0.2
0.2
—
—
—
0.7
0.1
—
0.1
0.6
—
0.6
1.0
—
1.0
0.1
—
0.1
0.6
—
0.6
2.8
—
2.8
0.3
—
0.3
2.9
25.4
9.9
1.1
7.3
8.4
1.0
0.2
1.3
0.4
0.4
0.3
0.2
0.2
Finance Leases Receivables
Our subsidiaries, Sinar Mas Multifinance and AB Multifinance provide finance leasing services to our
related parties such as PT Graha Dinamika Sejahtera, PT Citra Cemerlang, PT Buana Mas Intitrans and PT
Ciptatrans Abadi. The table below shows our outstanding net investments in finance leases from related
parties as of the periods indicated.
As of December 31,
2010
As of September 30,
2008
2009
2010
Rp.
Rp.
Net investments in finance leases . . . .
57.9
110.5
172.8
19.6
As a percentage of total assets (%) .
0.4
0.6
0.6
0.6
2010
2011
2011
Rp.
US$
191.3
139.6
15.8
0.8
0.3
0.3
Rp.
US$
Rp.
(Rp. in billions, US$ in millions)
Our consolidated finance lease income from related parties in 2008, 2009 and 2010 and the nine
months ended September 30, 2011, amounted to Rp.6.1 billion, Rp.16.5 billion, Rp.22.8 billion (US$2.6
million) and Rp.17.6 million (US$2.0 million), respectively, or 46.9%, 69.8%, 81.9% and 95.3%,
respectively, of the total consolidated finance lease income. For more information regarding our leasing
activities, see “Business—Multifinance—Sinar Mas Multifinance and AB Multifinance”.
Factoring Receivables
Our subsidiaries, Sinar Mas Multifinance and AB Multifinance, provide factoring services to our
related parties such as PT Cakrawala Mega Indah, Jimmy Widjaja, and PT Rolimex Kimia Nusamas. The
table below shows our outstanding factoring receivables from related parties as of the periods indicated.
As of December 31,
2010
As of September 30,
2008
2009
2010
Rp.
Rp.
Factoring receivables . . . . . . . . . . .
22.2
21.1
65.7
7.4
As a percentage of total assets (%) .
0.1
0.1
0.2
0.2
2010
2011
2011
Rp.
US$
55.1
116.4
13.2
0.2
0.3
0.3
Rp.
US$
Rp.
(Rp. in billions, US$ in millions)
Our consolidated factoring income from related parties in 2008, 2009 and 2010 and the nine months
ended September 30, 2011, amounted to Rp.14.2 billion, Rp.9.8 billion, Rp.10.7 billion (US$1.2 million) and
Rp.7.2 billion (US$0.8 million), respectively, or 49.1%, 21.4%, 36.3% and 20.9%, respectively, of our total
consolidated factoring income. For more information regarding our factoring activities, see “Business—
Multifinance—Sinar Mas Multifinance and AB Multifinance”.
Loans Provided to Related Parties
Our subsidiary, Bank Sinarmas, provides loans to related parties such as PT Lontar Papyrus Pulp &
Paper Industry, PT Sinar Wisata Lestari and PT Putra Alvita Pratama. The table below shows our
outstanding loans made to related parties as of the periods indicated.
As of December 31,
2008
2009
Rp.
Rp.
Loans:
PT Lontar Papyrus Pulp & Paper
Industry . . . . . . . . . . . . . . . .
Others . . . . . . . . . . . . . . . . . . .
—
83.4
677.8
64.1
653.6
141.3
74.1
16.0
Total . . . . . . . . . . . . . . . . . .
83.4
741.9
794.9
As a percentage of total loans(1)
(%) . . . . . . . . . . . . . . . . . . .
2.0
13.9
11.5
(1)
2010
As of September 30,
2010
2010
2011
2011
Rp.
US$
648.9
209.4
1,299.0
137.0
147.2
15.5
90.1
858.3
1,436.0
162.7
11.5
14.2
15.8
15.8
Rp.
US$
Rp.
(Rp. in billions, US$ in millions)
Refers to total loans provided by Bank Sinarmas.
Most of the loans to related parties are fully cash collateralized by deposits placed with Bank
Sinarmas. See “Business—Banking—Bank Sinarmas—Lending—Related Party Funding Arrangements”.
As of December 31, 2009 and 2010 and as of September 30, 2011, loans made by Bank Sinarmas to PT
Lontar Papyrus Pulp & Paper Industry accounted for 91.4%, 82.2% and 90.5%, respectively, of loans made to
all related parties. Our interest income on loans to related parties in 2008, 2009 and 2010 and the nine
months ended September 30, 2011, amounted to Rp.9.9 billion, Rp.21.2 billion, Rp.59.4 billion (US$6.7
million) and Rp.43.5 billion (US$4.9 million), respectively, or 1.6%, 2.7%, 6.5% and 4.6%, respectively, of
our total interest income. For more details on the related party loans, see “Business—Banking—Bank
Sinarmas—Lending—Loan Portfolio”.
The table below shows interest income from outstanding loans made to related parties as of the periods
indicated.
For the Year Ended December 31,
2008
2009
Rp.
Rp.
Interest received on Loans from
Related Parties and Related Banks . .
9.9
21.2
59.4
6.7
As a percentage of total interest
income(1) (%) . . . . . . . . . . .
1.6
2.7
6.5
6.5
(1)
Refers to Bank Sinarmas’ Interest Revenues and Profit Sharing.
2010
2010
For the Nine Months Ended
September 30,
2010
2011
2011
Rp.
US$
40.7
43.5
4.9
6.0
4.6
4.6
Rp.
US$
Rp.
(Rp. in billions, US$ in millions)
Deposits from Related Parties and Related Banks
Bank Sinarmas holds deposits from related parties and deposits from other banks which are related to
us. The table below shows outstanding deposits held by Bank Sinarmas from such parties as of the periods
indicated.
As of December 31,
2008
Rp.
2009
2010
As of September 30,
2010
2010
2011
2011
Rp.
Rp.
US$
Rp.
Rp.
(Rp. in billions, US$ in millions, except percentages)
US$
Deposits from Related Parties and
Related Banks . . . . . . . . . . . . . .
1,689.5
2,999.8
4,457.5
505.2
4,571.3
5,478.0
620.9
As a percentage of total Deposits
and Deposits from Other Banks(1)
(%) . . . . . . . . . . . . . . . . . . .
31.5
42.4
43.8
43.8
49.3
38.7
38.7
(1)
Refers to total deposits held by Bank Sinarmas.
For more details about related party customer deposits of Bank Sinarmas, see
“Business—Banking—Bank Sinarmas—Deposits”.
The table below shows interest paid on outstanding deposits held by Bank Sinarmas from such parties
as of the periods indicated.
For the Year Ended of December 31,
For the Nine Months Ended
September 30,
2008
2010
Rp.
2009
2010
2010
2011
Rp.
Rp.
US$
Rp.
Rp.
(Rp. in billions, US$ in millions, except percentages)
2011
US$
Interest paid on Deposits from Related
Parties and Related Banks . . . . . . .
111.3
175.5
192.0
21.8
136.0
223.9
25.4
As a percentage of total interest
expense(1) (%). . . . . . . . . . . . .
26.1
37.3
38.6
38.6
38.8
39.1
39.2
(1)
Refers to Bank Sinarmas’ Interest Expense and Profit Sharing.
Securities Sold under Agreements to Repurchase
Sinarmas Sekuritas has entered into sales agreements where it sells securities to related parties.
Pursuant to these agreements, it is required to repurchase the securities sold to these related parties within a
set period of time. The table below shows Sinarmas Sekuritas’ outstanding securities sold to related parties
which it has agreed to repurchase as of the periods indicated.
As of December 31,
2010
As of September 30,
2008
2009
2010
Rp.
Rp.
Securities sold under agreements to
repurchase . . . . . . . . . . . . . . . .
—
26.3
32.1
3.6
As a percentage of total liabilities
(%) . . . . . . . . . . . . . . . . . . .
—
0.2
0.1
0.1
2010
2011
2011
Rp.
US$
30.5
37.2
4.2
0.1
0.1
0.1
Rp.
US$
Rp.
(Rp. in billions, US$ in millions)
Premium and Reinsurance Receivables
Our subsidiaries, Sinarmas MSIG Life and Asuransi Sinar Mas, provide insurance services to our
related parties such as PT Kali Besar Raya Utama, PT Indah Kiat Pulp & Paper Tbk and PT Cakrawala
Mega Indah. The table below shows our outstanding premiums and reinsurance receivables from related
parties as of the periods indicated.
As of December 31,
2010
As of September 30,
2008
2009
2010
Rp.
Rp.
Premiums and reinsurance receivables .
110.0
151.3
44.1
5.0
As a percentage of total premiums
and reinsurance receivables (%) . .
24.6
34.8
12.5
12.5
2010
2011
2011
Rp.
US$
58.5
110.1
12.5
19.1
27.0
27.0
Rp.
US$
Rp.
(Rp. in billions, US$ in millions)
Our consolidated premium and reinsurance income from related parties in 2008, 2009 and 2010 and
the nine months ended September 30, 2011, amounted to Rp.269.7 billion, Rp.308.1 billion, and Rp.369.6
billion (US$41.9 million) and Rp.298.8 billion (US$33.9 million), respectively, or 4.5%, 3.7%, 3.5% and
2.7%, respectively, of our total consolidated insurance and reinsurance income. For more information
regarding our insurance activities, see “Business—Life Insurance—Sinarmas MSIG Life” and
“Business—Non-Life—Asuransi Sinar Mas”.
Unearned Premiums and Estimated Retention Claims
Our subsidiaries, Sinarmas MSIG Life and Asuransi Sinar Mas, record unearned premiums from
related parties in respect of insurance policies written to related parties. They also set aside estimated
retention claims in response to claims that they may make. The table below shows such outstanding
unearned premiums and estimated retention claims as of the periods indicated.
As of December 31,
2008
2009
Rp.
Rp.
2010
As of September 30,
2010
2010
Rp.
US$
Rp.
(Rp. in billions, US$ in millions)
2011
2011
Rp.
US$
Unearned premiums and estimated
own retention claims . . . . . . . . . .
108.3
150.8
193.4
21.5
159.3
182.9
20.7
As a percentage of total liabilities
(%) . . . . . . . . . . . . . . . . . . .
9.6
11.3
12.1
12.1
0.8
0.6
0.6