New Insurance Regulations on Foreign Ownership and Compliance Director Requirement
There are 2 (two) regulations issued concerning insurance business sector–which are:
- Government Regulation Number 3 of 2020 (“GR 3/2020”) to amend the previously issued Government Regulation Number 14 of 2018 on Foreign Ownership in Insurance Business Companies (“GR 14/2018”). GR 3/2020 has been in force since January 20, 2020. GR 3/2020 introduces new provisions on restriction on foreign ownership threshold for both conventional and shariah-based insurance business companies; and
- Financial Services Authority (“OJK”) Regulation Number 43/POJK.05/2019 (“POJK 43/2019”), which amends the previously issued OJK Regulation Number 73/POJK.05/2016 (“POJK 73/2016”) regarding Good Corporate Governance for Insurance Companies. POJK 43/2019 has been in force since December 31, 2019. POJK 43/2019 introduces a requirement for insurance business companies to appoint compliance director.
We set out below notable provisions under GR 3/2020 and POJK 43/2019.
- GR 3/2020
Foreign Ownership Threshold
With respect to joint investment between Indonesian individuals and/or legal entities with foreign parties (“JV Insurance Business Companies”), GR 3/2020 reaffirms the previous provision on GR 14/2018 which allows JV Insurance Business Companies to maintain its foreign capital participation that exceeds 80% prior to the enactment of GR 14/2018.
The old provision under GR 14/2018 required, in the event of an increase of paid-up capital, at least 20% of the newly issued shares shall be subscribed by Indonesian individuals or legal entities. Consequently, each action will cause the foreign shareholding proportion in the said JV insurance Business Company to be diluted.
Such provision is amended by GR 3/2020. In case of increase of paid-up capital in JV Insurance Business Companies which foreign capital participation already exceeds 80%, GR 3/2020 only prohibits the foreign shareholder to further increase their shares ownership that already exceeds 80% – but allowing such foreign shareholder to maintain their shareholding composition in case of increase of capital.
As an illustration: a JV Insurance Business Company, with shareholding composition of: (i) 10% of issued shares hold by an Indonesian individual and (ii) 90% of issued shares hold by a foreign party, intends to increase its issued and paid up capital.
Under GR 14/2018, the said Indonesian shareholder must subscribe at least 20% of the newly issued shares – which means that the foreign shareholder may only subscribe 80% at the most. As the result, the foreign shareholder, which previously hold 90% of shares, will end up holding less than 90% as it cannot subscribe in accordance with its shareholding composition.
Now, GR 3/2020 only prohibits the said foreign shareholder to hold more than 90% as the result of increase of capital. Therefore, if the said foreign shareholder intends to maintain its 90% shareholding composition in case of an increase of capital, it may subscribe 90% of the newly issued shares, while the Indonesian individual must subscribe the remaining 10%.
Further, when the Indonesian shareholder cannot subscribe to the newly issued shares in accordance with their shareholding composition, which would result in the increase of foreign shareholding composition, then the increase of capital must be conducted through an IPO.
Addition of Scope of Foreign Ownership in Insurance Business Companies
GR 14/2018 is applicable for insurance companies, including insurance companies that operate based on conventional or sharia principles, reinsurance companies, insurance/reinsurance brokerage companies, and insurance loss adjusting companies. GR 3/2020 adds the scope to also cover sharia-based insurance/reinsurance companies resulting from spin-off of sharia-based business units of conventional insurance/reinsurance companies (“Sharia-based Insurance Companies Through Spin-Off”).
Under GR 3/2020, Sharia-based Insurance Companies established through Spin-Off shall also be subjected to the same foreign ownership restriction as conventional insurance-business companies (as discussed in the previous section). Sharia-based insurance companies are subjected to the same sanctions with conventional insurance-business companies for any violation of GR 3/2020 and GR 14/2018.
- POJK 43/2019
POJK 43/2019 requires insurance companies to appoint at least 1 (one) compliance director in its Board of Directors. The compliance director should not hold dual positions as a director handling matters concerning technical insurance, financial, or marketing matters. Based on the complexity and business line, OJK may request certain insurance companies to appoint a compliance director solely for attaining to compliance matters.
February 5, 2020
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- February 5, 2020