Indonesia plans to close down embattled state life insurer Asuransi Jiwasraya and set up a new company to settle outstanding claims, a move requiring state investment, media reported on Wednesday, citing a deputy minister.

The plan was introduced for parliamentary debate on Tuesday by deputy minister of state-owned enterprises (SOEs) Kartika Wirjoatmodjo, according to news website Kompas.com.

The reports did not specify the size of the investment that may be required. Wirjoatmodjo was quoted as saying Jiwasraya had 35.9 trillion rupiah ($2.50 billion) in negative equity.

Such a plan may put the state budget under further strain, with spending for the fight against the coronavirus pandemic and falling revenues already expected to widen the fiscal deficit to 6.34% of GDP, more than three times the original plan.

The central bank is expected to finance some of the fiscal deficit by taking up bonds without receiving interest and helping the government pay some interest expenses, under a $40 billion bond scheme.

"We propose forming a new company ... that we will call Nusantara Life, which will later on become the company that takes over restructured Jiwasraya policies," the deputy minister said in a video carried by Kompas.com.

Another news portal, Tempo.co, said Jiwasraya's unpaid claims as of the end of May amounted to 18 trillion rupiah.

A spokesman for the SOEs ministry and Jiwasraya's chief executive did not immediately respond to a request for comment.

The Attorney General's Office is currently investigating alleged fraud related to the insurer's investment in penny stocks.

The government had considered topping up Jiwasraya's capital by some $1 billion last year, but the plan was shelved.

($1 = 14,385.0000 rupiah)

(Reporting by Gayatri Suroyo; Editing by Ed Davies)