SSEK Indonesian Legal Consultants founding partner Ira A. Eddymurthy and Maria Yudhitama, an associate at the firm, have contributed the Indonesia chapter of the new Practical Law global guide to insurance and reinsurance. SSEK Legal Consultants has one of the leading insurance law practices in Indonesia and has been involved in numerous high-profile cross-border transactions in the sector. The following is an extract from the Indonesia chapter of the Practical Law global guide to insurance and reinsurance written by SSEK Legal Consultants.
Both insurers and reinsurers must be licensed by the Financial Services Authority (Otoritas Jasa Keuangan or OJK). Insurers and reinsurers are regulated under a separate set of regulations. The main regulations for insurers and reinsurers are the:
- Insurance Law.
- Government Regulation No. 73 of 1992 regarding the Implementation of Insurance Business, as amended.
- Minister of Finance Regulation No. 422/KMK.06/2003 regarding the Implementation of the Business of Insurance and Reinsurance Companies.
- Minister of Finance Regulation No. 426/KMK.06/2003 regarding Business Licensing and Institutional Aspects of Insurance and Reinsurance Companies.
- Minister of Finance Regulation No. 53/PMK.010/2012 of 2012 regarding the Financial Soundness of Insurance and Reinsurance Companies.
Only insurance and reinsurance companies licensed by the OJK are allowed to engage in the insurance and reinsurance business in Indonesia. Foreign insurance companies can engage in the insurance and reinsurance business in Indonesia through either:
- A joint venture insurance/reinsurance company.
- Acquiring an existing insurance/reinsurance company.
Restrictions on insurers and reinsurers
Insurance and reinsurance companies are prohibited from carrying on any non-insurance/reinsurance business. Insurance and reinsurance companies are only permitted to carry on one type of insurance/reinsurance business. For example, a life insurance company is prohibited from engaging in general insurance business, and vice versa.
Reinsurance companies can only conduct reinsurance business, but general insurance companies can also engage in reinsurance business.
Transfer of risk by insurance or reinsurance companies
Insurance and reinsurance companies must determine their own retention in accordance with their financial capability and the level of risk faced by the relevant insurance and reinsurance companies. Own retention is defined as the portion of risk retained by the insurer without the support of reinsurance. The maximum own retention for a general insurance or reinsurance company is 10% of its own capital for any risk. The risk of an insurance contract exceeding that level must be transferred to a reinsurance company.
Insurance companies must obtain automatic reinsurance (also known as treaty reinsurance) for each line of insurance business marketed. For general insurance, automatic reinsurance must be obtained from one reinsurance company and from another general insurance company in Indonesia.
For life insurance, automatic reinsurance must be obtained from one reinsurance company in Indonesia. Automatic reinsurance from an offshore insurer can only be obtained if the insurance company is unable to obtain automatic reinsurance from an Indonesian reinsurance company. The rating of the offshore reinsurer must be at least BBB or its equivalent by an internationally acknowledged rating agency. The obligation to obtain automatic reinsurance can be waived in the event that:
- There is no reinsurer that is able to provide reinsurance support due to the characteristic of the particular risk.
- The line of insurance business being marketed is new.
- There is a particular request from the policyholder for a comprehensive insurance package.
- The risk managed by the insurer does not exceed its self-retention capacity.
An insurance company must also be supported by facultative reinsurance if the automatic reinsurance support is deemed insufficient or the insurance company has failed to obtain automatic reinsurance support due to:
- The characteristic of the particular risk.
- The marketing of a new line of insurance business.
- A particular request from a policyholder for a comprehensive insurance package.
Facultative reinsurance support obtained by a general insurance company must be provided by at least two local reinsurers. For life insurance companies, facultative reinsurance support must be provided by at least one local reinsurance company.
This publication is intended for informational purposes only and does not constitute legal advice. Any reliance on the material contained herein is at the user’s own risk. You should contact a lawyer in your jurisdiction if you require legal advice. All SSEK publications are copyrighted and may not be reproduced without the express written consent of SSEK.