This content is from: Local Insights


The Indonesian Insurance Regulatory Body has issued new regulations on insurance business in Indonesia. Implemented as of September 30 2003, by virtue of Minister of Finance decrees, these are:

  • 421/KMK 06/2003 on the Fit and Proper Test for Insurance Company's Directors and Commissioners;
  • 422/KMK 06/2003 on the Operation of Insurance and Reinsurance Businesses;
  • 423/KMK 06/2003 on Inspection into Insurance Companies;
  • 424/KMK 06/2003 on the Financial Solvency of Insurance and Reinsurance Companies;
  • 425/KMK 06/2003 on the Licensing and Operation of the Business of Insurance Supporting Companies; and
  • 426/KMK 06/2003 on the Business and Institutional Licensing of Insurance and Reinsurance Companies.

Under the first regulation, management and shareholders of an insurance company or an insurance-related company must comply with fit and proper criteria. (This affects loss insurance, life insurance, reinsurance, insurance brokerage, loss insurance appraisal and actuary consulting companies.) The Evaluations Committee, that is, the Director-General of Financial Institutions (DGFI), will perform this test. The test, which focuses on the competency and integrity of a candidate, will be conducted when somebody holds a position as director or commissioner in any of the above types of company and whenever deemed necessary by the Minister of Finance. Directors or commissioners who fail the test must resign from their positions within a month of the DGFI's decree stipulating the test result.

The second regulation enhances certain documentary requirements that companies must adhere to before filing any plan to market new insurance products with respect to loss insurance or life insurance, such as unit link insurance products. The required documents are, among others, a copy of the new insurance product's policy, an expert statement on the detail and the basis of computing the premium rate and technical reserve, and an underwriting projection for the next three years. Insurance companies must comply with the conditions on solvency and are not under the imposition of administrative sanctions. Also, the loss insurance company marketing the investment product must employ an expert qualified as a deputy investment manager with at least three years' experience and be supported with an adequate information system.

The third regulation says that an inspector, either an authorized officer of the Directorate of Insurance or any other party duly appointed by the DGFI, will inspect the company at least once every five years or at any other time deemed necessary. Their intention is to ensure, among other things, the accountability of its periodical reports, its compliance with the provisions of laws on insurance business and that its periodical reports are in line with the company's actual condition. Inspections will be performed based on an order letter and inspection letter issued by the insurance director on behalf of the DGFI.

The fourth of these regulations requires insurance or re-insurance companies to comply with a minimum solvency rate of 120% from the risk of loss as a result of deficiency in the management of assets and liabilities. Provided that exceptional conditions for further adjustment in a certain year apply to the company with a solvency rate of at least 100%. Investment assets in each provider, such as a bank, share issuer, bond or MTN issuer, are also restricted to less or equal to 20% of the total investment value. An insurance or reinsurance company can own assets offshore in certain forms of investments, such as stock registered in a stock exchange, bonds and medium-term notes ranked at least A or private/direct placement.

According to the fifth regulation, an insurance supporting company must fulfil more requirements when submitting an application to obtain a business licence. It must now include a certificate stating that the shareholders are not on the blacklist, a business feasibility study, evidence of employment of expatriates and a director's statement indicating that concurrent positions at other companies are not held. Moreover, if the insurance supporting company has foreign shareholders, it must also submit a reference or recommendation from the development and insurance business supervisory institution of the company's country of residence.

The sixth of these regulations enhances the requirements and procedures for conventional insurance and reinsurance companies to secure a business licence. A statement from shareholders certifying that the capital does not come from criminal sources, as defined under the amended Indonesian Anti-Money Laundering Law, is required. Specific provisions apply to Sharia Principle insurance and reinsurance companies wishing to secure a business licence.

By Rahmat Bastian

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