Mutual funds and other investment companies offer investors a wide range of investment options including systematic investment plans. The Systematic Investment Plan gives investors the opportunity to invest small amounts of money over a longer period of time instead of having to make large sums of money all at once. Most Systematic Investment Plans require payments into the package on a consistent basis—whether it’s weekly, monthly, or quarterly.

The principle of systematic investing is simple. It works on the regular and periodic purchase of shares or units of securities from funds or other investments. Dollar cost averaging involves purchasing the same fixed dollar amount of a security regardless of its price at any periodic interval. As a result, shares are purchased at various prices and in varying amounts—although some plans allow you to set a fixed number of shares to buy. Because the amount invested is generally fixed and does not depend on the unit or share price, investors end up buying fewer shares when the unit price goes up and more shares when the price goes down.

Systematic Investment Plans tend to be passive investments because once you put money in, you continue to invest in it regardless of how it performs. That’s why it’s important to keep an eye on how much wealth you accumulate in your Systematic Investment Plan. Once you reach a certain amount or near your retirement age, you may want to reconsider your investment plan. Moving to an actively managed strategy or investment can allow you to grow your bankroll even more. But it’s always a good idea to talk to a financial advisor or expert to determine the best situation for you.

This term is usually popularized by foreign and domestic securities companies to create cash inflows by inviting investors to buy mutual fund units on a regular basis every month. More and more investors who buy mutual funds from a securities company will increase cash inflows and a small portion will be allocated as management fees, namely various costs incurred by the Investment Manager for daily operational activities such as bloomberg terminal subscriptions, employee salaries, analyst salaries and MI salaries. itself. The greater the cash inflow, the greater the management fee received which has an impact on increasing the salaries of employees, analysts and MI.

How to implement a systematic investment plan?

* Dollar Cost Averaging is an investment strategy by setting aside some funds to be invested by buying financial instruments on a regular basis. For example, you have an income of IDR 5,000,000 every month and are committed to setting aside IDR 1,000,000 every month to buy X units of mutual funds or buy Y lots of shares. The advantage of the DCA strategy is that it can minimize losses when the market is weak. But the drawback is the relatively low profit value when the market forms a strengthening trend.

* Lump Sum is an investment strategy that sets aside some funds to be collected first and then invested by buying financial instruments after the nominal is deemed large enough. The advantage of implementing a lump sum strategy is optimizing the amount of profit when the market is strong, but the disadvantage is that the loss is relatively large when the market forms a weakening trend.

Do professional traders implement a systematic investment plan?

Trading and investing activities carried out by professionals are more likely to depend on market fundamental conditions because in general they already have an allocation of funds that can be invested. For example, trader X works at investment company ABC and gets Rp 10 billion in managed funds, what trader X considers is not a systematic investment plan but the fundamental condition of each stock or other financial instrument. If there is an attractive opportunity, buying can be done using several methods, such as buying periodically for several days or buying all at once in one day. Systematic investment plans are more appropriate for passive traders and investors who make trading or investing activities as a side activity so they can focus on working and earning income so that a small portion can be set aside to invest.

Types of Systematic Investment Plans

What I mention below are some examples of the many types of SIPs provided by investment companies or investment managers.

– Flexible Systematic Investment Plans (Flexi SIP): This SIP allows us to change our deposits according to market conditions and our personal finances. For example, when you are laid off, you can make a smaller deposit to this type of SIP.

– Step up Systematic Investment Plans (Top Up SIP): investors can increase the amount of investment in this SIP at fixed time intervals. For example, employees who experience a salary increase every year can increase their deposits every year.

– Perpetual Systematic Investment Plans: investors can determine the start and end date of the SIP. So we can estimate with certainty how much total profit we will get. However, when investors forget or do not decide on the expiration date of the SIP, this type of SIP will be automatically terminated in 2099.

– Trigger Systematic Investment Plans: these are SIPs with special arrangements according to the wishes of investors. For example, if the SIP value reaches a certain amount, then a small portion of the funds will be withdrawn to the account or allocated to other assets.

When is the best time to start Systematic Investment Plans?

The best time is anytime when we are ready. Ready here means having a stable income and ready to take risks. Although SIP is relatively safe, at least we need to estimate the financial possibilities that we can face in the future that will interfere with the investment process in SIP. In addition, we also need to determine the SIP scheme that best suits our circumstances, whether the type is Flexi SIP or Trigger SIP.

Advantages and disadvantages of Systematic Investment Plans

Advantages

– Help improve discipline in investing. The problem is that we have to deposit funds regularly, either monthly or quarterly.
– The process of investing in SIP is easy. Because it can be set to auto debit to the account. So the funds will be deducted automatically when the deposit time arrives.
– SIP’s rate of return is more attractive than deposits.
– SIP can be accessed by the middle class or workers with mediocre income because the value of the deposit is relatively small.
– There is a compounding advantage obtained from SIP. So even though our deposit is small, in the long term the rate of return will be quite large thanks to compounding.
– Help realize financial goals, whether in the form of a pension fund, and children’s education, or other goals.

Deficiency

– SIP is not suitable for people who have uncertain income.
– The SIP rate of return is relatively lower than the general market rate of return.
– SIP deposits cannot stop halfway and then continue again.

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Introduced as part of the post-crisis banking reform known as Basel III, the ratio ensures banks don’t carry out excessive maturity transformations, namely the practice of using short-term funding to meet long-term obligations. The degree of risk depends in part on the nature of the collateral and the counterparty involved. If the collateral is a highly rated government bond, and the counterparty is a large capital institution, then the risk is minimal. It’s another story, of course, if a bank accepts lower-rated securities from a high-leverage hedge fund.

The Basel III capital framework uses this kind of risk capture approach, with the leverage ratio acting as a buffer for risk-based capital requirements. This may not be sufficient, off-balance sheet activity avoids the former, and it may also not appear in risk-weighted assets. “One of the reasons repos can be dangerous is that, if over-guaranteed trades are even small, banks can list zero risk-weighted assets,” said Benedict Roth, a former supervisor at the Bank of England.

Basel III architects lived with this problem. The liquidity coverage ratio and net stable funding ratio (NSFR) were introduced as additional safeguards, to ensure banks do not run into excessive liquidity risk. The latter requires companies to maintain a stable minimum level of long-term funding that is appropriate for their assets. The treatment of repo loans and securities in the NSFR is asymmetrical – funding provided to financial firms requires stable funding, but funding raised from other financial firms does not count as available stable funding – to prevent banks from relying on other leveraged entities for funding.

The ratio also differentiates based on the quality of the collateral. High quality government bonds require 5% stable funding, while corporate and equity bonds have 50% stable funding requirements. To the extent that Nomura’s off-balance sheet activity poses a liquidity risk, due to the collateral and counterparties involved, this should appear in the NSFR. But national regulators have been slow to implement this last part of the Basel III framework.

Net Stable Funding Ratio (NSFR) or Net Stable Funding Ratio is a banking term that states the comparison value between Available Stable Funding (ASF) or Available Stable Funding and Required Stable Funding (RSF). Required Stable Funding must be greater than 100%, which is if formulated is:

NSFR = ASF/RSF > 100%

Available Stable Funding (ASF)

ASF is the sum of the stable equity and liability sectors within 1 year which is used to fund banking activities. In terms of equity value, it is estimated that the maturity value of less than 1 year originating from deposits from individual customers as well as micro businesses and small businesses must be greater than corporate customers. This includes core bank capital (Tier 1) and supplementary capital (Tier 2).

For the value of the liability, it is calculated that all loans and liabilities, whether using collateral or not, with a period of 1 year are also included in this case are deposits and securities issued.

Required Stable Funding (RSF)

RSF is the sum of assets and administrative account transactions that are funded by stable funding. Included in the RSF are purchase orders or sales orders that have been successfully executed, financial assets, foreign currencies and commodities.

History of Net Stable Funding Ratio (NSFR)

In 2008 there was a worldwide financial crisis that started in the United States, one of which was caused by a liquidity crisis in banks. This is actually very surprising because when viewed from the side of capital, the actual capital owned is more than sufficient category. However, it turns out that having large capital alone is not enough to survive in the financial system if banks are not careful in managing their liquidity.

One of the banking activities is intermediation, which is tasked with receiving funding and then redistributing it in the form of credit or placed in certain assets with different time periods. The crisis in 2008 could occur because previously there were no official regulations binding banks to implement liquidity risk management which ultimately to get the maximum profit, banks depended heavily on short-term funding from corporations.

Even though the number of customers in the corporate category is very small, the amount that is entered is very large so that the banking balance can rise very quickly, but the problem is that money is very unstable because it creates an imbalance between short-term and long-term funding which eventually has a systemic impact.

After the crisis occurred, then financial institutions realized that liquidity risk management was necessary and how the balance sheet of the bank must be balanced between money obtained from corporate customers with a short-term orientation and individual customers with a long-term orientation. Still in 2008 a few months after the crisis, The Basel Committee on Banking Supervision (BCBS), which is a collection of world bankers, published a banking guide entitled Principles for Sound Liquidity Risk Management and Supervision or better known as Basel III Reform.

Stable financing refers to customer deposits and long-term financing, short-term financing is excluded. The use of this ratio in practice will lead to an increase in the stability of the banking system, its ability to withstand stress factors in the event of a possible crisis, including a liquidity crisis. The introduction of the NFSR is fully in line with the implementation of the Basel III recommendations, based on lessons learned from the Great Recession that occurred in 2007 to 2008 that affected all global financial markets (same as LCR).

In general, banks that have not complied with the NSFR should make structural adjustments to their balance sheets by increasing stable funding and lowering average loan terms. This will limit the ability of banks to provide loans other than short term and will have a severe impact on the category of assets that play an important role in increasing average maturities. An IMF survey noted that disparities between countries can be significant. In general, the application of these ratios tends to lead to a decrease in large-scale financing (especially short-term), an increase in deposits, a decrease in the volume of long-term loans and an increase in liquid assets.

For many financial institutions, liquidity problems may not only be related to capital. Because supply constraints play a key role (availability of deposits, medium-term financing, and high quality liquid assets). To meet the new quantitative standards, banks will have to enter more intense competition for deposits, work more actively to refinance medium-term funds at favorable interest rates, and potentially increase their ability to transact with liquid assets.

Currently, banking financial institutions need to assess the impact of the new liquidity management regime on the balance sheet. This is necessary to identify potential conflicts between the current funding structure and the requirements of the new regulatory regime. Taking into account the new quantitative requirements, financial institutions also need to pay attention to the creation of a reliable liquidity management system: the regulator has clearly indicated that this system should be considered taking into account the implementation of new quantitative standards and monitoring tools.

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Services in insurance claims written in an EOB usually include things such as:

Services provided by insurance companies
Total medical costs (hospitals and doctors)
Costs covered and not covered by the insurance
What payments are approved by the insurance company to be paid according to the claim
Amount that is the responsibility of the insured (amount to be paid by yourself)

EOB is not a bill but this document is quite important for policyholders to read and understand because it contains details of medical costs or hospital treatment costs, costs incurred by the insurance company and costs incurred themselves.

Basic Information in Explanation Of Benefits

Account Summary – contains detailed information regarding the patient (insured) such as name, date of claim, claim number and others
Claim details – lists the services provided by the insurance company, when to provide these services and also the details of the services provided
Amount – contains the amount charged by the insurance company, the amount agreed to be paid by the insurance company and the discount between medical costs and costs incurred by insurance
Responsibilities of the insured – contains the amount or costs that must be borne by the patient (the insured) when there is a difference in the insurance benefits provided by health facilities, for example if you want to upgrade to a VIP room from the room below and so on

It describes what part of the service your insurance plan pays for and what part you are responsible for paying. Your insurance company sends it to you when your health care provider makes a claim on your behalf.

As we read the EOB, make sure you understand every line. Use it to track your expenses and make sure there are no billing errors.

When we visit a doctor, or other health care provider, we will usually be asked if you would like the service to be charged to your insurance. If you do, the medical office must fill out a health insurance claim and submit it to the health insurance company.

This is basically a request for payment to your insurance company to cover the cost of visits, maintenance, or equipment.
When insurance companies get a claim, they will evaluate the claim, make
Benefit Description (sometimes referred to as EOB) and send it to you by post.

They may also provide digital copies through their website.

You must accept EOB whether you have private insurance, insurance through your employer, or Medicare.

If you have made a letter in EOB.
The EOB contains the following information:

Your name, or the name of your dependents (whoever receives the service)
Your health insurance ID or policy number (or your dependents), and claim number
Name of health care provider who provides treatment for a doctor, dentist, specialist, laboratory, hospital, or clinic
The type of service or equipment you received and the date you received it; for services lasting more than one day, a date range will be provided.
Service fee (which your provider charges the insurance company)
How much is the bill paid by your insurance company
The remaining amount to be paid, which is usually your responsibility

The EOB may contain information about whether the amount you need to pay will be applied to your deductible. Sometimes the EOB also lists how much of your deductible remains for the year.

In simple terms, the explanation of benefits or EOB is a receipt or details of what types of funds are paid or covered by the insurance company. Ok, when we apply for insurance to the insurance company, the insurance company will explain in detail about the rights that the policyholder will get and what obligations must be paid to the insurance company. At that time, the two parties must match what is needed and what the insurance can cover.

When it is running and the policyholder already has the right automatically to file a claim, this explanation of benefits will appear. For example, policyholder A buys insurance that covers kidney surgery funds. Now, when the claim is made or the customer has performed kidney surgery, a record of the types of costs that are covered in the kidney surgery process will be issued. For example, the cost of hospitalization after surgery, the class of facilities to be provided and so on.

Usually the contents of this explanation of benefits are in the form of detailed patient data, services to be received, liability costs, benefits of discounts or discounts, things that are not covered by the insurance, reimbursement receipts for claims, etc.

This is a report document issued by the insurance company to the insured party or policy holder which contains an explanation of the detailed details of the costs incurred by the health service/hospital in terms of treatment and hospitalization costs in accordance with the health insurance benefits provided by the insurance party to the party. the insured is based on a policy agreement signed by both parties where the customer / patient receives direct benefits from the health insurance product provided.

This report document details the costs incurred by the hospital which will later be submitted to the insurance for payment claims and the claim report paid by the insurance is forwarded to the beneficiary (insurance customer) as a form of accountability and an explanation of a detail of how the insurance company processes a complete health insurance claim with details of the costs covered by the insurance.

Explanation of benefits (EOB) or direct benefit claims will help the insured to track expenses and avoid overpaying for additional services, and this is not a bill but a form of reciprocal benefit received by the customer for the insurance premium paid during the period. and has met the requirements and procedures for submitting a claim according to the type of health insurance product selected and paid so far.

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The law requires banks and other financial institutions to provide regulators with documentation, such as currency transaction reports. Such documentation can be requested from banks whenever their clients handle suspicious cash transactions involving sums of more than $10,000. The law gives authorities the ability to more easily reconstruct the nature of transactions.

The law requires banks and other financial institutions to provide regulators with documentation, such as currency transaction reports. Such documentation can be requested from banks whenever their clients handle suspicious cash transactions involving sums of more than $10,000. The law gives authorities the ability to more easily reconstruct the nature of transactions.

In general, criminals try to hide or disguise the origin of assets resulting from criminal acts in various ways so that the assets resulting from criminal acts are difficult to trace by law enforcement officers so that they can freely use these assets for both legal and illegal activities. Therefore, the crime of money laundering does not only threaten the stability and integrity of the economic system and financial system. The more illegal transactions that take place, the more economic resources that cannot get protection and clarity in the eyes of the state.

This law was implemented to better identify when money laundering is used to promote criminal enterprises, support terrorism, cover up tax evasion, or disguise other unlawful activities. The law was originally used to fight the financing of criminal organizations but has grown and is also used to deal with the financing of terrorist groups.

Criminals and fraudsters use money laundering as a means to hide their illicit actions from the law. Cash tends to be the preferred tool for buying illegal goods and services compared to transactions through financial institutions. Money laundering tactics are used to disguise these sources of cash income as legitimate transactions.

Bank Secrecy Law is a law that stipulates all banking regulations, especially those related to deposits and claims. The law is implemented in the Philippines while in the United States such a law is called the Bank Secrecy Act (BSA) which is a financial institution that helps government agencies prevent and detect the action of Money Laundry (money laundering). The legal basis of the Bank Secrecy Law is Republic Act (RA) No. 1405 which was ratified on 19 September 1955 and amended by presidential decree no. 1792 on January 16, 1981. The law in the Bank Secrecy Law covers several matters relating to customer privacy and sanctions for customers who violate the law.

The Bank Secrecy Law applied in the Philippines is the most famous and strictest law in the world, meaning that the secrecy of a bank account in that country can only be opened when there is a violation of the anti-money laundering law or other cases such as tax evasion, corruption or other violations of law. made by the customer at the Bank of that country and uploaded to the court.

What is the essence of the contents of the Bank Secrecy Law?

The contents of the Bank Secrecy Law essentially regulates Bank secrecy, especially related to depositors’ deposits and sanctions for violations in all banking activities ranging from fraud, corruption, money laundering and other violations of law. All deposits in any form in Banks and Banking Institutions in the Philippines as well as Investment Bonds issued by the Philippine government are considered strictly confidential and may not be checked by anyone, even government officials unless they have written permission from the depositor (customer) or by court order in this case. the subject matter of which refers to the money saved or the investment made.

Deposits can only be disclosed confidentially only when the relevant bank account is being investigated by the court. All disclosure of the Bank’s confidentiality is unlawful except with the permission as stated above. Meanwhile, for cases of violation of the Bank Secrecy Law, the violator will be subject to sanctions, namely a maximum prison sentence of 5 years or a fine of P20,000 or can also be sentenced to both according to court decisions and policies.

Important Functions of Bank Secrecy Law

Protect Depositors
This law protects the privacy and excellent security of savers from an act of fraud.

Customer activities in a bank can be more organized and focused
This is different if there is no such law, so if something happens, for example fraud or a violation of the law, there is nothing that customers or banks can do.

Paving the way for economic development
Banks in general have financial strength that can support and sustain the economic activities of a country so that with this Law, banks can provide loans to the government to carry out activities in economic development.

Prevent and reduce acts of fraud, tax evasion, violation of banking laws and corruption
Corruption that is often carried out by government officials can be suppressed by reviewing all activities carried out by officials and other customers.

Increased trust in the Bank
Banks and depositors (customers) must have a strong relationship so that apart from being able to monitor customer activities, customers will also be safe from fraud or money laundering so that people will have more confidence in the Bank.

Bank Secrecy Legal Exceptions

Although it is binding and has legal consequences, banks are allowed to open and provide data and financial information of their customers for certain purposes. This is called an exception to bank secrecy laws.

The exception to bank secrecy applies to matters relating to law enforcement. For example, for the purposes of investigating allegations of money laundering, tax evasion, and other financial crimes committed by customers.

In this case, the bank may disclose the data and provide the required information to the authorities. However, there are limitations. Banks are only allowed to provide relevant data and information. Only customer financial data and information related to the investigation material may be disclosed.

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What is Main Reserve

MAIN RESERVE – is a premium reserve owned by insurance participants which will usually be calculated every mid-year. Reserve Premium itself is defined as money collected by the insurance company that comes from the difference in the value of compensation with the value of claim payments that will be paid by the company in the future if there is a claim. Usually the actuary who calculates this premium reserve must be based on regulations that have been legalized by the relevant Directorate General of Financial Institutions.

The calculation of premium reserves also differs from one insurance to another because there are various types of insurance companies such as life insurance, health insurance, education insurance, vehicle insurance, loss insurance and so on. So the calculations themselves are different as has been determined by the Minister of Finance Number 80/KMK.04/1995 and based on Law No. 7 of 1983 Article 9 Paragraph (1).

The calculation of premium reserves is done by the actuarial mathematical calculation method and can be done in 2 ways, namely the prospective method and the retrospective method. For the determination or calculation of the reserve premium itself, there are several methods (methods) that can be used such as the Zilmer Method, the Gross Premium Valuation (GPV) method, the different formula premium method and so on according to the type of insurance company.

Main Reserve Function

As a company reserve fund that can be needed at any time
As a company’s obedience in following government regulations (minister of finance) and laws to provide reserve funds
Can be used to spin profits in other forms of low-risk investments

Main Reserve Benefits for Customers

The benefits of Main reserve or reserve premium for customers of course provide peace to customers because they can make claims at any time when something unexpected happens. In addition to this type of investment insurance, the policyholder will also benefit from this premium reserve because of its status as the policyholder’s property in the form of insurance benefits, for example in Unit Link insurance.

Main Reserve Benefits for Insurance Companies

For companies, the existence of this Main Reserve can be used to get additional profits, namely by managing and putting it into other investments that have a low level of risk, such as government bonds or mutual funds. Even just from the investment results of this reserve premium, at the end of the contract the policyholder (insurance participant) the cash value obtained is equivalent to the sum assured or insurance claim.

In addition to providing benefits, the Main Reserve is also used as a form of liability for insurance companies in fulfilling claims submitted at any time and showing that their business activities are in a healthy condition. With proper management and calculation of premium reserves, the company will always have a good reputation.

In the world of insurance, Main Reserves are the main reserve funds used to finance policy payment obligations and company operational costs. In simple terms, Main Reserves is the difference between the number of policies paid by customers and the amount of funds issued by the company to pay claims.

Usually the calculation will be done every 1 semester or in the middle of the year and at the end of the year. In accumulation, Main Reserves can be used to review all customers or individuals. The purpose of calculating Main Reserves is for insurance companies to take various preventive measures from the value of the reserve fund deficit.

When the reserve fund is in deficit, the insurance company will not be able to pay the customer’s policy, as was the case with Jiwasraya. The massive mafia case continues to escape the attention of the OJK, which should be able to easily obtain various information on reserve funds or Main Reserves in Jiwasraya’s business portfolio.

Reserve funds are important, because through this information an insurance company can take reactive or preventive actions such as:

Reject some profiles of prospective policyholders.
Take action to increase the portfolio of policyholders.
Refuse to pay customer claims because they are considered fraudulent.
Coordinate with shareholders to provide bailout funds or seek loan funds or seek funds through the sale of additional shares (Right Issue) and so on.

In the insurance company, of course, it has been filled by people who are good at probabilities and economics, so it is hoped that something unexpected can be minimized. In addition, insurance companies usually try to strengthen the legal side so that there is no loophole that can be exploited by the public or customers to get a claim bigger than what has been promised.

If you think about it more deeply, it is actually important for the Main Reserve business to know its value both by insurance employees and customers. However, because often the company’s financial affairs are classified as confidential company information, in the end the most interested party is the company itself. But with the outbreak of the JiwaSraya case in the last few months that the media started reporting on it, I came to understand that there is such a thing as an institution called OJK which is in charge of monitoring the financial health situation of an insurance company, including seeing whether the ratio of the Main Reserve value is at a safe level.

Main Reserve Ratio

If you study the rules in other countries, for example in the United States, there is a main reserve ratio that must be met by the insurance company, which ranges from 8 to 12 percent of the total premium that has been collected. However, this will vary in each country depending on the current situation and conditions.

Main Reserve is a component of technical reserves related to Premium Reserves. Where Technical reserve is a mechanism for managing funds by setting aside a portion of the premium received as an anticipatory measure against liabilities that may occur in the future, which consists of:

1. Premium Reserve
2. Unearned Premium Reserves.
3. Reserves on products associated with investments.
4. Claim reserve
5. Reserve of Disaster Risk

The main reserve is closely related to the insurance company’s obligation to pay claims submitted by policyholders. Claims from policyholders can come at any time with an uncertain amount. Therefore, insurance companies must have reserve funds that can be used whenever needed. This mandatory reserve fund is called the premium reserve.

Premium reserves are calculated based on the estimated total amount of compensation to policyholders that must be paid at maturity. Among other things, the prospective method, the premium difference formula method, and the paid-up formula.

Calculation of insurance risk (RA) for premium reserves for insurance products with a term of more than one year whose terms and conditions are non-renewable on each policy anniversary, as well as for products with a term of more than one year whose terms and conditions are the condition of the policy is renewable and provides other benefits after a certain period is determined using the following formula:

RA = max ((CP* – CP), 0)

CP* = premium reserve calculated with the best estimate plus a margin for deterioration risk with 95% confidence level of premium reserve adequacy (company level).

CP = premium reserve according to the statement of financial position (balance sheet) and in accordance with the company’s actuary calculations.

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a. The debtor has defaulted on one of his debts or has a high probability of this happening in the future.
b. The debtor declares bankruptcy or at least is in the process of going bankrupt.
c. There is an opportunity for the debtor’s business to stagnate.
c. Securities owned by debtors are delisted from the stock exchange or are in the process of being delisted.
d. The debtor’s cash flow is estimated to be insufficient to pay off the debt in accordance with the contract.
e. Debtors cannot access fresh funds other than current creditors.

When the above requirements are met, the creditor will provide concessions in the form of reduced interest, postponement of payments, replace payments with equity, and so on.

How to deal with Trouble Debt Restructuring?

Unfortunately, the question above does not mention ‘who’ is handling this Trouble Debt Restructuring. Is it the creditor or the debtor? Because of course how to handle it will be different. Therefore I will discuss from two sides at once.

a. Debtor

Entities that face Trouble Debt Restructuring are usually already in checkmate position. The problem is that one of the most important conditions in determining this is the absence of other sources of funding other than the current creditor. So if you don’t get concessions, the debtor is sure to go bankrupt. Even if it passes the credit score of the debtor will be affected. So there is the potential for the company to have difficulty getting funding in the future.

So the best way to deal with it is to convince current creditors. It can be by showing the company’s problems and how the company will overcome them, to a realistic budget plan when given credit slack.

b. Creditor

When the debtor experiences Trouble Debt Restructuring, the creditor can choose to agree or refuse to provide concessions. There are a number of variables that are taken into account by creditors before deciding, for example:

a. The amount of principal and collateral to be paid must be more significant than the payment to be restructured. The problem is that if it is reversed, there is a possibility that the credit disbursed is at risk of being lost.

b. The delay period must be shorter than the credit due. For example, the maturity period is 10 years, the restructuring period must be less than this.

c. Has there been a cumulative effect of past debtor restructuring? If so, then the creditor will refuse because there is a potential for default in the future. But if there is no then it can be approved.

Trouble Debt Restructuring itself means the restructuring of problem debts, aka the handling of bad loans. In the world of credit, bad credit is the thing that the debtor and creditor want to avoid the most. For debtors, problematic debt can be a burden on the mind, financial burden, reputation burden, and a decrease in credit score. Meanwhile, for creditors, of course, problem debt means a loss. Anticipatory steps have generally been attempted at the beginning before credit is given, especially by creditors, starting from credit scores, criteria for credit recipients, to verifying the debtor’s financial condition. But it is unavoidable, sometimes there are reasons for a debt/credit to become problematic due to various factors and changes that occur during the credit period.

Generally, troubled debt is the source of the problem, technically it comes from the debtor. Usually, debt becomes problematic for two reasons:

1. The debtor is in bankruptcy/bankruptcy.
2. There is a change in the cash flow of the debtor which makes it difficult for the debtor to complete the credit contract.

Of course the best way is with openness and good faith, especially from the debtor’s side. In addition, the handling method is also different when viewed from both sides, both from debtors and creditors.

So this is how, in credit, actually creditors (banks, financial institutions) usually have a higher bargaining position than debtors. Basically, it is the debtor who needs the creditor. So the restructuring will usually be carried out by creditors if the debtor shows good faith first. For example, if someone has a home mortgage debt and it turns out he has been laid off. So, the debtor can go to the creditor and be open about the problem. In this case, the debtor can apply for restructuring and discuss this with the bank/creditor. As far as I know, sometimes over-credit can be attempted and the bank will facilitate this.

But sometimes it can also happen the other way around, although rarely. In financial institutions that live from credit, there is usually an indicator called NPL (Non Performing Loan) aka bad credit. It could be that if the NPL target has exceeded the threshold, creditors soften and try to restructure bad loans. For example, the minimum NPL threshold at bank A is 5%, so when the NPL has reached 5%, bank A will try to review the existing bad loans and sort out which ones can be restructured.

So in essence, as debtors we must always be open to creditors and always show good faith. Meanwhile, as a creditor, you should be pro-active in monitoring the credit of your customers and be able to provide various solutions to overcome bad loans, so that the NPL value is not too large.

The main things in Debt Restructuring:

Debt restructuring is for, people, and even more so for the country.

The debt restructuring process can lower the loan interest rate or extend it to coincide with the repayment due date.

Debt restructuring may include an exchange of debt for equity, in which creditors agree to cancel some or all of the debt in exchange for equity in the business.

A country that wants to restructure its debt may transfer its debt from private zones to public zone institutions.

How to Overcome Trouble Dept Restructuring:

1. Debt Rescheduling (Rescheduling)

The way to deal with the Dept. Restructuring trouble is that we come to the bank where we borrow money. Then we talk to the bank honestly and openly that our company is experiencing bad finances so it is having difficulty paying debts so the bank considers that our debt can be rescheduled.

2. Restructuring debt (requirement of return)

•Debtors notify that they face difficulties in paying debts.

•Based on Bank Indonesia Regulation Article 57 PBI 14/ 2012, debtors who can be rescheduled are debtors who still have good business prospects and are judged to be able to pay their obligations after rescheduling is attempted. This matter will be analyzed through business prospects and cash flow projections, and will be decided by a Bank official who has a higher position than the party who decides on rescheduled credit. And if the Bank official is the highest official, then the rescheduling decision must be made by an official at the same level as the official.

3. Reconditioning debt (Rearrangement)

Later, after consideration, if the parties agree to reschedule the debt again, it will be carried out with debt reconditioning or commonly called restructuring / restructuring of debt.

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The contestable period is the period in which the insurer, usually the insurance company itself, has the right to cancel the policy or refuse insurance claims. if they are the insurance company finds that the customer, participant, insured party, or policy holder provides information that is not in accordance with reality to the insurance company in the process of requesting insurance coverage. This term in Indonesian is also known as “trial period”. For insurance companies, the right to refuse claims during the contestable period is very important. This relates to the burden they have to bear from the possibility that customers lie about their condition, so that insurance companies charge insurance costs that are not commensurate with the risk.

The length of the Contestable Period

This trial period or contestable period varies in length, there are insurance companies that provide a trial period of less than one year and some are more than one year. Generally this trial period lasts for 2 years. It is rare for an insurance company to have a contestable period of less than 2 years. The longer the trial period the more profitable the insurance company is. Because at this time the insurance company can cancel the customer’s insurance participation and refuse insurance claims. It is also useful as a protection for insurance companies from fraud committed by their customers.

Consequences of the Insurance Contestable Period

This is a trial period, during which the insurance company can cancel the customer’s insurance participation, and even reject the claims submitted by their customers. This refusal is carried out because the customer is proven to have provided false information or made up information so that participation in an insurance product can be accepted. Whereas insurance is a service company for risk control, not a company that bears the burden of its customers. Risk means something that might happen, not something that has already happened. If something is certain, the insurance company is not needed, and they will refuse the applicant’s participation because it is detrimental to the insurance company. So the consequence of the act of providing incorrect information by the customer is the cancellation of the customer’s insurance participation, and the insurance company has the right to refuse the customer’s claim.

Customers who are caught lying in the provision of their data are not always canceled their participation in insurance. Usually the insurance company will ask the customer to increase their premium. So that the customer’s insurance costs are in accordance with the risks covered by the insurance company. For errors that are unintentional and do not have a major impact, such as mistakes in spelling names, writing parents’ names, the age difference given to the insurance company and the actual age that is not much different, the insurance company asks the customer to correct it.

Purpose of the Contestable Period

This trial period aims to protect insurance companies from fraudulent acts of their customers. If there is no constatable period, the insurance company directly has an obligation to protect the risks that its customers have. Though the determination of the cost of this insurance is strongly influenced by the information from the insurance applicant. Insurance costs will increase according to the risk covered by the insurance company. If the customer lies, the insurance company bears a greater risk than the fees charged to their customer. To prevent this, a constestable period is enforced in insurance products sold by insurance companies.

The contestable period is the time given to the insurance company to cancel the policy. The provisions of this constestable period relate to the application of the principle of good faith or utmost good faith in insurance.

The contestable period or often termed a probationary period, generally lasts two years. Within that period the insurance company has the right to investigate and question the veracity of the data and information provided by the policy holder or the insured to determine the next decision on the policy contract.

The Principle of Good Faith in Insurance

Insurance, like agreements in general, is bound by the principle of consensuality. The agreement is considered valid if it fulfills four conditions. Namely, there is an agreement, the subject who makes a legally competent agreement, regarding a certain object, and for a lawful cause.

The insurance agreement is valid from the time the policy contract is made and the insured pays the premium for the first time. However, the insurance company as the insurer is given time to ensure that the data and information provided by the policy holder or the insured in the insurance application is correct.

Based on the principle of good faith, every policy holder or insured is obliged to provide actual data and information about the object being insured. For example, regarding a disease that has been suffered before becoming a participant in health insurance or the actual value of the object of coverage in property insurance.

Insurance Cancellation During the Contestable Period

Good faith is included in the conditions for the validity of the agreement ‘a lawful cause’. This concerns the insured object. Violation of these conditions results in the agreement being null and void or deemed to have never existed.

If the insurance company during the contestable period finds out that the data and information provided by the insured regarding the object of coverage is incorrect, the insurance company can cancel the policy. Insurance companies are exempt from paying claims or returning premiums that have been paid by the insured.

The trial period for this procedure varies, some are months, but some are up to two years.
The purpose of this procedure, as I explained above, is to avoid criminal acts of insurance crime, by having the possibility that the customer will continue to use the insurance service, or cancel it at a later date. This is important to do, because it has a high risk to the insurance company. With regard to money, people who have evil intentions, of course, try to have loopholes, how to commit fraud in this insurance sector, can be seen in the news, or in films based on true stories, there are lots of them.

Goals of the Contestable Period

Prevent losses for insurance companies
Life insurance products usually offer contracts with varying terms ranging from 5 years to even 20 years. When the policyholder dies before the contract period ends, the policy issuer (insurance company) will pay the policyholder’s family (the insured) a large sum of money exceeding the total premium paid. But if it turns out that until the contract period ends it turns out that the policyholder is still alive, the insurance company will return all premiums that have been paid to the policyholder.

The concept is simple, healthy people (no history of dangerous diseases and healthy habits) tend to live longer than those who are unhealthy (have a history of dangerous diseases and unhealthy habits). The policy of the insurance company (policy issuer) is to offer insurance products to those who are healthy. So it is expected that all policy holders remain healthy until the end of the contract period and the insurance company does not have to pay a large sum insured to the heirs of the insured.

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At this time, the insurance industry is growing with the emergence of new products. Basically, in life and in business, one must be able to guarantee security from dangerous risks, starting from business risks that can arise or more broadly with the presence of a major force that can cause the company to be in limbo.

The premium reserve itself is a sum of money collected by the insurance company which is obtained from the difference in the value of the compensation and the cash value of the payment at a time of insurance in preparation for payment of claims.

Premium is the amount of money paid by the insured to the insurer whose amount has been determined. The premium paid by the policyholder (the insured) will be allocated by the insurance company for compensation or benefits to be returned to the insured, company operations and for premium reserves.

Premium reserves must be wisely managed by the insurance company. In addition to being returned to the insured in the form of compensation, the reserve can also be used if at any time unforeseen things occur such as unexpected claims.

Well, the calculation of premium reserves as of the middle of this year is very important to do to avoid losses due to not being able to pay compensation to the insured. This is because when the number of claims submitted by the insured must be paid more than the predicted number of claims. This situation can be anticipated if the insurance company has a reserve fund that has been prepared and calculated properly.

The calculation of premium reserves can be done through the actuarial mathematical calculation method, namely by using the retrospective method and the prospective method. The retrospective premium reserve method is a reserve method that uses the past as the basis for calculations. While the prospective premium reserve method is a reserve that uses the future as the basis for its calculation.

What is Main Reserve Actually?

MAIN RESERVE – is a premium reserve owned by insurance participants which will usually be calculated every mid-year. Reserve Premium itself is defined as money collected by the insurance company that comes from the difference in the value of compensation with the value of claim payments that will be paid by the company in the future if there is a claim. Usually the actuary who calculates this premium reserve must be based on regulations that have been legalized by the relevant Directorate General of Financial Institutions.

The calculation of premium reserves also differs from one insurance to another because there are various types of insurance companies such as life insurance, health insurance, education insurance, vehicle insurance, loss insurance and so on. So the calculations themselves are different as has been determined by the Minister of Finance Number 80/KMK.04/1995 and based on Law No. 7 of 1983 Article 9 Paragraph (1).

The calculation of premium reserves is done by the actuarial mathematical calculation method and can be done in 2 ways, namely the prospective method and the retrospective method. For the determination or calculation of the reserve premium itself, there are several methods (methods) that can be used such as the Zilmer Method, the Gross Premium Valuation (GPV) method, the different formula premium method and so on according to the type of insurance company.

Main Reserve Function

As a company reserve fund that can be needed at any time
As a company’s obedience in following government regulations (minister of finance) and laws to provide reserve funds
Can be used to spin profits in other forms of low-risk investments

Main Reserve Benefits for Customers

The benefits of Main reserve or reserve premium for customers of course provide peace to customers because they can make claims at any time when something unexpected happens. In addition to this type of investment insurance, the policyholder will also benefit from this premium reserve because of its status as the policyholder’s property in the form of insurance benefits, for example in Unit Link insurance.

Main Reserve Benefits for Insurance Companies

For companies, the existence of this Main Reserve can be used to get additional profits, namely by managing and putting it into other investments that have a low level of risk, such as government bonds or mutual funds. Even just from the investment results of this reserve premium, at the end of the contract the policyholder (insurance participant) the cash value obtained is equivalent to the sum assured or insurance claim.

In addition to providing benefits, the Main Reserve is also used as a form of liability for insurance companies in fulfilling claims submitted at any time and showing that their business activities are in a healthy condition. With proper management and calculation of premium reserves, the company will always have a good reputation.

Main Reserves means the main reserve fund. In the world of insurance, Main Reserves are the main reserve funds used to finance policy payment obligations and company operational costs. In simple terms, Main Reserves is the difference between the number of policies paid by customers and the amount of funds issued by the company to pay claims.

Usually the calculation will be done every 1 semester or in the middle of the year and at the end of the year. In accumulation, Main Reserves can be used to review all customers or individuals. The purpose of calculating Main Reserves is for insurance companies to take various preventive measures from the value of the reserve fund deficit.

When the reserve fund is in deficit, the insurance company will not be able to pay the customer’s policy, as was the case with Jiwasraya. The massive mafia case continues to escape the attention of the OJK, which should be able to easily obtain various information on reserve funds or Main Reserves in Jiwasraya’s business portfolio.

Reserve funds are important, because through this information an insurance company can take reactive or preventive actions such as:

Reject some profiles of prospective policyholders.
Take action to increase the portfolio of policyholders.
Refuse to pay customer claims because they are considered fraudulent.
Coordinate with shareholders to provide bailout funds or seek loan funds or seek funds through the sale of additional shares (Right Issue) and so on.

As important as they seem, Main Reserves are only one of many important indicators in an insurance company. Because the capital adequacy ratio is also very important outside the Main Reserves because in the short term the newly established insurance companies will inevitably have a deficit compared to a surplus in their reserve fund.

Illustration of Main Reserves in the insurance world

I will give some illustrations about main reserves. Of course, different types of insurance will also have different calculation methods.

Main Reserves in Goods Insurance.

For example a car insurance company. You pay a premium of a certain amount, for example, you pay a premium of 7 million rupiah for car insurance worth 300 million rupiah for 1 year with an All Risk premium. All Risk premium means to bear all risks with the applicable terms and conditions. After 6 months, it turns out that the car owner has not made a claim at all, meaning that the customer’s main reserves are still 7 million rupiah. In the 11th month, it turned out that the customer made a claim and the insurance company to repair the car had to spend 4 million rupiah. in the 11th month the remaining funds are 3 million rupiah. When the policy period ends, the insurance company makes a profit of 3 million rupiah. These are no longer Main Reserves but have already been realized into profits. For example, when the car is lost and the insurance must replace the car. Let’s say in the example above on the 10th month the car disappears. Then the insurance pays coverage of 200 million (depending on the contents of the policy how much nominal will be covered). So in the 10th month the Main Reserves were not -193 million but had realized a loss of -193 million.

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The length of the Contestable Period

This trial period or contestable period varies in length, there are insurance companies that provide a trial period of less than one year and some are more than one year. Generally this trial period lasts for 2 years. It is rare for an insurance company to have a contestable period of less than 2 years. The longer the trial period the more profitable the insurance company is. Because at this time the insurance company can cancel the customer’s insurance participation and refuse insurance claims. It is also useful as a protection for insurance companies from fraud committed by their customers.

Consequences of the Insurance Contestable Period

This is a trial period, during which the insurance company can cancel the customer’s insurance participation, and even reject the claims submitted by their customers. This refusal is carried out because the customer is proven to have provided false information or made up information so that participation in an insurance product can be accepted. Whereas insurance is a service company for risk control, not a company that bears the burden of its customers. Risk means something that might happen, not something that has already happened. If something is certain, the insurance company is not needed, and they will refuse the applicant’s participation because it is detrimental to the insurance company. So the consequence of the act of providing incorrect information by the customer is the cancellation of the customer’s insurance participation, and the insurance company has the right to refuse the customer’s claim.

Customers who are caught lying in providing their data do not always have their participation in insurance canceled. Usually the insurance company will ask the customer to increase their premium. So that the customer’s insurance costs are in accordance with the risks covered by the insurance company. For errors that are unintentional and do not have a major impact, such as mistakes in spelling names, writing down parents’ names, the age difference given to the insurance company and the actual age that is not much different, the insurance company asks the customer to correct it.

Purpose of the Contestable Period

This trial period aims to protect insurance companies from fraudulent acts of their customers. If there is no constatable period, the insurance company directly has the obligation to protect the risk that its customers have. Though the determination of the cost of this insurance is strongly influenced by the information from the insurance applicant. Insurance costs will increase according to the risk covered by the insurance company. If the customer lies, the insurance company bears a greater risk than the fees charged to their customer. To prevent this, a constestable period is enforced in insurance products sold by insurance companies.

Contestability period is the contestation period stated in the standard wording of life insurance policies, in which the policy contains the time limit required by the company to review coverage if at any time the policyholder is proven to have misinformed, such as notification of incorrect identity when registering as a customer. insurance. Usually the contestability period is 1 to 2 years depending on each insurance company.

The policy is used with the aim of protecting the company from fraudulent practices. Because usually insurance companies want to ensure that customers are not cheating or lying about information related to the health or lifestyle of customers that are reported during the insurance application submission process, in order to get the desired coverage value.

Example:

When applying for a mortgage loan at the bank, a person named ADI uses his parents’ names in the approval of the application. Previously he knew that his parents were sick and predicted his age would not be long. However, because he wanted to take advantage of the life insurance coverage that was bundled with mortgage loans, he reported the data on prospective customers, in this case their parents, with good criteria, all including their health. In the middle of the journey, still in the contestation period, it turned out that the customer had died. ADI tried to apply for insurance so that the mortgage loan could be paid off immediately, but the insurance company had a contestation policy so that they investigated it was proven that the data information provided at the time of submitting the credit application was only manipulation. So the company has the right to reject the claims submitted by ADI in accordance with the rules of the contestability period.

Goals of the Contestable Period

Prevent losses for insurance companies

Life insurance products usually offer contracts with varying terms ranging from 5 years to even 20 years. When the policyholder dies before the contract period ends, the policy issuer (insurance company) will pay the policyholder’s family (the insured) a large sum of money exceeding the total premium paid. But if it turns out that until the contract period ends it turns out that the policyholder is still alive, the insurance company will return all premiums that have been paid to the policyholder.

The concept is simple, healthy people (no history of dangerous diseases and healthy habits) tend to live longer than those who are unhealthy (have a history of dangerous diseases and unhealthy habits). The policy of the insurance company (policy issuer) is to offer insurance products to those who are healthy. So it is expected that all policy holders remain healthy until the end of the contract period and the insurance company does not have to pay a large sum insured to the heirs of the insured.

However, in this very complex world, there will definitely be a handful of people who try to manipulate the system, including manipulating their own personal and health data, so that they will have the opportunity to buy an insurance policy. So that when one day the buyer of this manipulative policy dies, the insurance company is obliged to pay the sum insured to the heirs of the insured in a fairly large amount.

The insurance company (policy issuer) of course does not want to pay a large sum insured if it turns out that the policy holder provides incorrect personal and health data. So that the “Contestable Period” was born, which is a period for a maximum of 2 years owned by the insurance company (policy issuer) to check the correctness of the data provided by the policyholder. If the policy holder is proven to have provided wrong personal and health data, the policy issuer has a strong basis for rejecting the sum assured claim submitted by the policyholder’s heirs (the insured).

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Avoiding adverse elections requires identifying groups of people who are more at risk than the general population and charging them more costs or money. For example, a life insurance company undergoes underwriting when evaluating whether to grant a policy to an applicant and how much premium to charge.

The underwriter will typically evaluate the applicant’s height, weight, current health, medical history, family history, occupation, hobbies, driving record, and the applicant’s lifestyle risks such as smoking, all of which affect the applicant’s health and the company’s potential to pay claims. The insurance company then determines whether to grant the policy to the applicant and what premium to charge for taking the risk.

Another example of adverse selection is in the case of vehicle insurance, where the applicant obtains insurance coverage by providing a residential address in an area with a very low crime rate, but on the other hand the applicant actually lives in an area with a very high crime rate. Obviously, the risk of a vehicle being stolen, vandalized, or damaged when regularly parked in a high crime area is substantially greater than if the vehicle is regularly parked in a low crime area.

Adverse Selection of Banking Industry

In banking, consumers will have superior information than banks. Be it a small loan, mortgage, or business loan. Consumers will be more aware of their spending habits than banks. Similarly, business owners will know more about the industry and its future growth, although this too may be overly optimistic.

There is also the problem of interbank trade. For example, the 2008 financial crisis was driven in part by the packaging of ‘toxic loans’ that included subprime mortgages. It is packaged with ‘safe’ debt and traded between banks. The original company that packaged this instrument knew how great the risk was, but it ended up causing an adverse selection because the buyer did not have the same information.

Adverse Selection In The Market

The problem of adverse selection is by no means uncommon in the insurance industry. If sellers in any industry have more information than buyers, buyers are automatically at a disadvantage, and are likely to be overcharged.

One example in the market is the sale of used cars. A car dealer may notice that the car they are selling has major defects, which are not immediately apparent to the buyer. The dealer may not divulge this information and sell the car for more than it’s worth which of course leads to the buyer being duped.

A seller may have better information than a buyer about the products and services offered. This of course puts the buyer at a disadvantage in the transaction. For example, company managers may choose to issue stock when they know the stock is overvalued compared to its true value, so buyers may end up buying overvalued shares and end up losing money.

Effects of Adverse Selection

Adverse selection occurs when there is a difference in information between buyers and sellers. This can increase costs, lower consumption, eliminate customers, and potentially increase health risks. Examples of bad selection effects include:

Higher Prices for Customers
Since customers may not notice any errors or issues, the price they pay for an item is much higher. For example, when buying a used laptop, there may be no signs of damage and can function properly, but it turns out that after taking it home and being exposed to a little splash of water, the keyboard on the laptop is damaged. The price a customer has to pay between a laptop that works well and a laptop that breaks is the additional price paid for a bad choice.

For example, gadget insurance is more beneficial for those who are more careless than those who are not. However it is not possible to collect all the customer information which one is sloppy which one is not. So, this protection must be applied to all buyers so as to make the selling price higher.

So while careless customers will make more claims and charge the insurer more, they are likely to increase their overall prices to cover these costs. In turn, customers who are not careless end up having to pay more to cover those who are more prone to accidents.

Lower Consumption
When customers pay higher prices, consumption will also fall. If we take insurance for example, some customers have to subsidize those who are more at risk. As a result, they also have to pay for the risk that other customers pass on to the insurance company. In fact, some of these customers may withdraw from the market and buy no insurance at all.

Mental health and safety risks
Since customers do not always have complete information about an item, it is potentially dangerous for them. For example, a damaged used car can pose a health and safety risk to the buyer. Damage or electricity can cause a fatal accident.

Elsewhere, foods are now often labeled in many developed countries, with nutritional value placed on them. This is so that factors such as calorie and sugar content are more visible to consumers. We can see this as a more consumer-friendly option as they are still free to choose, but with more information provided to them.

Fewer customers
Because adverse selection leads to higher costs, it means fewer customers are able and willing to buy goods. For example, when insurance premiums increase to compensate for a lack of information, fewer customers will buy insurance.

As a result, the government often intervenes to enforce universal insurance schemes. That way, those who are healthy are forced to subsidize the costs of those who are sick.

Furthermore, it can be extended to other markets. For example, the second-hand market generally offers cheaper items, which attracts more price-sensitive customers. However, because customers may not have much information about the product, they may not be sure of its value; especially if they’ve had bad experiences with used products before.

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