Mechanism and Procedures for Separation of Sharia Units of Insurance and Reinsurance Companies

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Sector: PPDP

Sub-Sector: Insurance; Reinsurance

Regulation Type: OJK Circular Letter

Regulation Number: 10/SEOJK.05/2024

Effective Date: 9/27/2024

Attachment 1 SEOJK 10-SEOJK.05-2024 Mechanism and Procedures for Separation of Sharia Units of Insurance and Reinsurance Companies.pdf Abstract SEOJK 10-SEOJK.05-2024 Mechanism and Procedures for Separation of Sharia Units of Insurance and Reinsurance Companies.pdf FAQ SEOJK 10-SEOJK.05-2024 Mechanism and Procedures for Separation of Sharia Units of Insurance and Reinsurance Companies.pdf

Page Content OJK Circular Letter Number 10/SEOJK.05/2024 concerning Mechanism and Procedures for Separation of Sharia Units of Insurance and Reinsurance Companies

Abstract: In order to fulfill the mandate of Article 10 paragraph (11) of Financial Services Authority Regulation Number 11 of 2023 concerning the Separation of Sharia Units of Insurance and Reinsurance Companies, which regulates the mechanism, procedures, notification, announcement, reporting, and approval of the Financial Services Authority for the separation of Sharia units of insurance and reinsurance companies.

The purpose of separating Sharia units is to strengthen the resilience structure and competitiveness of the insurance and reinsurance industry, create more effective and efficient business operations, strengthen technology and human resource investments, and protect the interests of policyholders and participants.

In order to achieve these objectives, this OJK Circular Letter regulates the method of separating Sharia units in 2 forms:

1. Form 1, namely establishing a new Sharia Insurance Company or Sharia Reinsurance Company resulting from the Separation of Sharia Units, followed by the transfer of participant portfolios to the new Sharia Insurance Company or Sharia Reinsurance Company resulting from the Separation of Sharia Units; or
2. Form 2, namely transferring the participant portfolios of the Sharia Unit to a Sharia Insurance Company or Sharia Reinsurance Company that has obtained a business license.

Based on the two forms of separation methods mentioned above, this OJK Circular Letter regulates the stages of Sharia unit separation consisting of:

1. Preparation for the separation of Sharia units;
2. Establishment of a new Sharia Insurance Company or Sharia Reinsurance Company resulting from the Separation of Sharia Units (specific to Form 1);
3. Application for Business License for the new Sharia Insurance Company or Sharia Reinsurance Company resulting from the Separation of Sharia Units (specific to Form 1);
4. Transfer of Participant Portfolios of the Sharia Unit to the new Sharia Insurance Company or Sharia Reinsurance Company resulting from the Separation of Sharia Units;
5. Reporting of Amendments to the Articles of Association regarding Additional Paid-in Capital in connection with the Transfer of Participant Portfolios; and
6. Closure of the Sharia Unit and Revocation of the License for the Establishment of the Sharia Unit.

The legal basis for this OJK Circular Letter is POJK No. 11 of 2023.

This OJK Circular Letter regulates:

1. General provisions;
2. Objectives and methods for the separation of Sharia units of insurance companies and reinsurance companies;
3. Mechanism and procedures for separating Sharia units by establishing a new Sharia insurance company or Sharia reinsurance company resulting from the separation of Sharia units, followed by the transfer of all participant portfolios to the new Sharia insurance company or Sharia reinsurance company resulting from the separation of Sharia units (mechanism and procedures for separating Sharia units in Form 1);
4. Mechanism and procedures for separating Sharia units by transferring all participant portfolios of the Sharia unit to a Sharia insurance company or Sharia reinsurance company that has obtained a business license (mechanism and procedures for separating Sharia units in Form 2);
5. Other provisions; and
6. Closing provisions.

Note: This OJK Circular Letter takes effect on the date of establishment, namely September 27, 2024.

Submission of applications for business licenses for new Sharia Insurance Companies or Sharia Reinsurance Companies resulting from the Separation of Sharia Units must be submitted simultaneously with:

1. Applications for assessment of competence and propriety for prospective principal parties;
2. Reporting on Sharia insurance products that have received approval letters or records from the Financial Services Authority or proof of reporting from the Financial Services Authority and are marketed by the Sharia Unit, which will continue to be marketed by the new Sharia Insurance Company resulting from the Separation of Sharia Units; and
3. Applications for approval of cooperation in single ownership.

The Board of Directors of the Insurance Company or Reinsurance Company conducting the Separation of Sharia Units must submit an application for the transfer of participant portfolios to the Financial Services Authority with:

1. Information stating the effective date of cessation of acceptance of new business or participants for the Sharia Unit; and
2. Attachment of the minutes of the General Meeting of Shareholders approving the Separation of Sharia Units as part of the application for approval of the transfer of participant portfolios of the Sharia Unit.

In order to fulfill the minimum equity requirements for the new Sharia Insurance Company or Sharia Reinsurance Company resulting from the Separation of Sharia Units, it is mandatory to increase paid-in capital and must be reported as a report on amendments to the Articles of Association of the new Sharia Insurance Company or Sharia Reinsurance Company resulting from the Separation of Sharia Units.

The revocation of the license for the establishment of the Sharia Unit from the Insurance Company or Reinsurance Company that has a Sharia Unit and has carried out the transfer of participant portfolios of the Sharia Unit is done by:

1. Submitting a report on the implementation of the cessation of business activities of the Sharia Unit; and
2. Submitting an application for the closure of the Sharia Unit, to the Financial Services Authority.

In the event that the Separation of Sharia Units has the potential to cause the Insurance Company or Reinsurance Company that is a shareholder of the Sharia Insurance Company or Sharia Reinsurance Company resulting from the Separation of Sharia Units to exceed investment limits in the form of direct participation and/or investment limits on related parties, the placement of such investments may be carried out after first obtaining approval from the Financial Services Authority, which is part of the business license application documents.

Approvals at the time of business license issuance or changes in ownership in the context of the Separation of Sharia Units include fulfilling Financial Services Authority approval for investment placements in the form of direct participation and/or investments in related parties that exceed limits.

The obligation to notify and announce the work plan for the Separation of Sharia Units for Insurance Companies and Reinsurance Companies conducting the Separation of Sharia Units that have obtained approval letters from the Financial Services Authority regarding the work plan for the Separation of Sharia Units before this OJK Circular Letter was established, must be carried out no later than 2 (two) months from the date this OJK Circular Letter takes effect.

Attachment: 56 pages.