Approval of Investment and Non-Investment Placements in Insurance, Reinsurance, Sharia Insurance, and Sharia Reinsurance Companies

To:

1. Board of Directors of Insurance Companies;
2. Board of Directors of Reinsurance Companies;
3. Board of Directors of Sharia Insurance Companies; and
4. Board of Directors of Sharia Reinsurance Companies,
   At your location.

COPY
CIRCULAR LETTER OF THE FINANCIAL SERVICES AUTHORITY NUMBER 26/SEOJK.05/2017 CONCERNING APPROVAL OF INVESTMENT AND NON-INVESTMENT PLACEMENTS IN INSURANCE COMPANIES, REINSURANCE COMPANIES, SHARIA INSURANCE COMPANIES, AND SHARIA REINSURANCE COMPANIES

In relation to the mandate of the following regulations:

1. Article 12 paragraph (5) and Article 17 paragraph (3) of Financial Services Authority Regulation Number 71/POJK.05/2016 concerning Financial Health of Insurance Companies and Reinsurance Companies (State Gazette of the Republic of Indonesia Year 2016 Number 304, Supplement to the State Gazette of the Republic of Indonesia Number 5994);
2. Article 20 paragraph (5) and Article 24 paragraph (4) of Financial Services Authority Regulation Number 72/POJK.05/2016 concerning Financial Health of Insurance Companies and Reinsurance Companies with Sharia Principles (State Gazette of the Republic of Indonesia Year 2016 Number 305, Supplement to the State Gazette of the Republic of Indonesia Number 5995),
   provisions regarding approval are needed for:
3. investment placements that exceed limits; and
4. placements of permitted assets in the form of non-investments on:

a. reinsurance assets derived from long-term contract programs (longterm contract) of capital-oriented reinsurance programs; or b. deferred acquisition costs, for insurance companies, reinsurance companies, Sharia insurance companies, and Sharia reinsurance companies in the following Financial Services Authority Circular Letter:

I. GENERAL PROVISIONS
In this Financial Services Authority Circular Letter, the following terms are defined:

1. Company means an insurance company, reinsurance company, Sharia insurance company, Sharia reinsurance company, insurance company with a Sharia unit, and reinsurance company with a Sharia unit.
2. Party means an individual or business entity, whether a legal entity or not, as referred to in Law Number 40 of 2014 concerning Insurance.
3. Affiliated Party means a Party that has a relationship with one or more other Parties, such that one Party can influence the management or policies of the other Party or vice versa.
4. Investment-Linked Insurance Product, hereinafter referred to as PAYDI, is an insurance product that provides at least death risk protection and provides benefits referring to the investment results of a fund pool specifically formed for the insurance product, whether in unit or non-unit form.
5. Investee means the Party where the Company places its investment.
6. Solvency Ratio is the difference between the amount of permitted assets minus the amount of liabilities.

II. INVESTMENT PLACEMENTS REQUIRING APPROVAL FROM THE FINANCIAL SERVICES AUTHORITY
Companies must obtain approval from the Financial Services Authority if the Company intends to make investment placements that exceed limits. The types of investments referred to are placements of all investments in:

1. direct equity (shares not listed on the stock exchange) in financial service institutions that have received a license from the Financial Services Authority exceeding 10% (ten percent) of the total investment amount;
2. Affiliated Parties with the Company exceeding 25% (twenty-five percent) of the total investment amount; and/or
3. Parties or several Affiliated Parties, but such Parties are not affiliated with the Company, exceeding 25% (twenty-five percent) of the total investment amount.

III. PROCEDURES FOR APPLICATION AND APPROVAL OF INVESTMENT PLACEMENTS REQUIRING FINANCIAL SERVICES AUTHORITY APPROVAL

1. Companies submit requests to the Financial Services Authority to obtain approval for the Company's investment placements exceeding limits on:
   a. direct equity (shares not listed on the stock exchange) in financial service institutions that have received a license from the Financial Services Authority; b. Affiliated Parties with the Company; and/or
   c. Parties or several Affiliated Parties, but such Parties are not affiliated with the Company.
2. Requests for approval for investment placements exceeding limits on direct equity as referred to in item 1 letter a must be accompanied by documents containing at least:
   a. the background or considerations of the Company making direct equity investments exceeding limits; b. the Company's financial conditions and projections, including capital adequacy projections before and after the investment placement;
   c. the results of the Company's risk profile analysis, before and after investment placement, both individually and consolidated;
   d. the Company's funding sources for making investment placements; e. a statement letter from the Board of Directors or equivalent of the Company stating that the investment placement is for long-term investment purposes and not intended for stock trading; f. the internal control system owned by the Company in the form of standard operating procedures or other documents related to the Company's internal control over investments in direct equity; g. analysis results regarding the Investee's profile, including the support and benefits of the Investee for the Company's development; h. the audited financial statements of the previous year, financial statements for the last 3 (three) months, and financial projections for the next 3 (three) years from the Investee;
   i. the latest ownership and management structure of the Investee;
   j. agreements and/or draft agreements:

1. between Investee shareholders; and/or
2. between the Company and shareholders of the Investee selling shares to the Company; and
   k. photocopies of the Investee's legal entity establishment deed and articles of association.

3. In the event that the Investee is a company established for less than 1 (one) year of financial reporting periods, the documents as referred to in item 2 letter h are not required, but the Company must submit other documents as follows:
   a. the purpose of the Company's establishment; b. feasibility studies regarding business forecasting and market opportunities for the Investee; and
   c. documentation of the Investee's business license from the Financial Services Authority.
4. Requests for approval for investment placements exceeding limits on Affiliated Parties with the Company as referred to in item 1 letter b and Parties or several Affiliated Parties, but such Parties are not affiliated with the Company, as referred to in item 1 letter c, must be accompanied by documents containing at least:
   a. the Company's financial conditions and projections, including capital adequacy projections 1 (one) year before and 3 (three) years after the investment placement; b. the results of the Company's risk profile analysis, before and after investment placement, both individually and consolidated;
   c. the internal control system owned by the Company in the form of standard operating procedures or other documents related to the Company's internal control over investments in Affiliated Parties with the Company and/or Parties or several Affiliated Parties, but such Parties are not affiliated with the Company; and
   d. a list of investment types placed in Affiliated Parties with the Company and/or Parties or several Affiliated Parties, but such Parties are not affiliated with the Company, before and after the investment placement, along with their composition and nominal values.
5. In addition to the requirements as referred to in items 2, 3, and/or 4, if deemed necessary, the Financial Services Authority may request that the Company submit due diligence results and/or other supporting documents.
6. Companies must submit a statement letter guaranteeing the truthfulness of the documents and data as referred to in items 2, 3, and/or 4 submitted in the context of the investment placement approval request.
7. The Financial Services Authority provides approval, requests for document completeness, or rejection of the request as referred to in item 1 within a maximum period of 20 (twenty) working days from the date the request is received.
8. In the event of a request for document completeness by the Financial Services Authority as referred to in item 7, the Company must submit the complete documents within a maximum of 10 (ten) working days from the date of the document completeness request letter from the Financial Services Authority.
9. If within 10 (ten) working days from the date of the document completeness request letter as referred to in item 8, the Financial Services Authority has not received a response to the document completeness request, the Company is deemed to have cancelled the request as referred to in item 1.
10. In the event that the Company has submitted the complete documents as referred to in item 8, the Financial Services Authority provides approval or rejection of the request as referred to in item 1.
11. In the event that the request as referred to in item 1 is approved, the Financial Services Authority sends an approval letter to the Company.
12. In the event that the Financial Services Authority rejects the request as referred to in item 1, the rejection must be done in writing with reasons attached.
13. If within 6 (six) months from the date of approval by the Financial Services Authority, the Company does not realize the investment placement, the Financial Services Authority's approval becomes invalid.
14. Companies must submit a report on the realization of investment placements within a maximum of 7 (seven) working days after the investment placement is carried out.
15. The Financial Services Authority may revoke approval or order the Company to suspend investment placements as referred to in item 1 if, before the realization of the investment placement, there are changes in ownership and/or management structure, a decline in the Company's financial conditions, and/or a decision by a relevant agency that affects the Company.

IV. PERMITTED ASSETS IN THE FORM OF NON-INVESTMENTS REQUIRING APPROVAL FROM THE FINANCIAL SERVICES AUTHORITY
Companies must obtain approval from the Financial Services Authority if the Company intends to use permitted assets in the form of non-investments, namely for the following types and provisions:

1. assets derived from long-term contract programs (longterm contract) of capital-oriented reinsurance programs, with provisions:
   a. only for each new PAYDI whose acquisition costs are paid in advance by the Company (back end loading); and b. Companies that have already recognized assets arising from capital-oriented reinsurance program agreements for one PAYDI are not permitted to recognize deferred acquisition cost assets for the same PAYDI; and/or
2. deferred acquisition costs, with provisions:
   a. can only be done for PAYDI whose acquisition costs are paid in advance by the Company (back-end loading); and b. Companies that have already recognized deferred acquisition cost assets for PAYDI are not permitted to recognize assets arising from capital-oriented reinsurance program agreements for the same PAYDI product.

V. PROCEDURES FOR APPLICATION AND APPROVAL OF PERMITTED ASSETS IN THE FORM OF NON-INVESTMENTS REQUIRING FINANCIAL SERVICES AUTHORITY APPROVAL

1. Companies submit requests to the Financial Services Authority to obtain approval for:
   a. assets derived from long-term contract programs (longterm contract) of capital-oriented reinsurance programs; and/or b. deferred acquisition costs.
2. Requests as referred to in item 1 letter a must be accompanied by documents containing at least:
   a. draft long-term contract agreements (longterm contract) of capital-oriented reinsurance programs, along with the implementation mechanisms of such agreements, containing at least:

1. insurance risks related to reinsured policies are transferred to reinsurance companies, Sharia reinsurance companies, or Sharia units of reinsurance companies;
2. reasonable possibilities that from the start of coverage, reinsurance companies, Sharia reinsurance companies, or Sharia units of reinsurance companies may incur losses based on the terms and conditions of the agreement; and
3. conditions causing significant transfer of insurance risks;
   b. the results of Solvency Ratio calculations before the transaction and projections after the agreement takes effect; and
   c. actuarial analysis results regarding the projected performance of insurance products supported by reinsurance capital, including Solvency Ratio projections after the agreement takes effect, including the impact of products supported by reinsurance agreements on solvency or capital.

3. Requests as referred to in item 1 letter b must be accompanied by documents containing at least:
   a. the results of Solvency Ratio calculations before the formation of deferred acquisition costs and projections after the formation of deferred acquisition costs; and b. the Company's actuarial analysis results regarding the projected performance of insurance products for which deferred acquisition costs will be formed.
4. In addition to the requirements as referred to in items 2 and/or 3, if deemed necessary, the Financial Services Authority may request that the Company submit other supporting documents.
5. The Financial Services Authority provides approval, requests for document completeness, or rejection of the request as referred to in item 1 within a maximum period of 20 (twenty) working days from the date the request is received.
6. In the event of a request for document completeness by the Financial Services Authority as referred to in item 5, the Company must submit the complete documents within a maximum of 10 (ten) working days from the date of the document completeness request letter from the Financial Services Authority.
7. If within 10 (ten) working days from the date of the document completeness request letter as referred to in item 6, the Financial Services Authority has not received a response to the document completeness request, the Company is deemed to have cancelled the request as referred to in item 1.
8. In the event that the Company has submitted the complete documents as referred to in item 6, the Financial Services Authority provides approval or rejection of the request as referred to in item 1.
9. In the event that the request as referred to in item 1 is approved, the Financial Services Authority sends an approval letter to the Company.
10. In the event that the Financial Services Authority rejects the request as referred to in item 1, the rejection must be done in writing with reasons attached.
11. If within 6 (six) months from the date of approval by the Financial Services Authority, the Company does not realize the program as referred to in item 1 letter a or letter b, the Financial Services Authority's approval becomes invalid.
12. Companies must submit a report on the realization of the program within a maximum of 7 (seven) working days after the program is carried out.
13. The Financial Services Authority may revoke approval or order the Company to suspend the program as referred to in item 1 letter a or b if, before the realization of the program, there are changes in ownership and management structure, a decline in the Company's financial conditions, or decisions by relevant agencies that affect the Company.

This copy is consistent with the original
Legal Director 1
Legal Department signed
Yuliana

VI. CLOSING PROVISIONS
Provisions in this Financial Services Authority Circular Letter take effect on the date of establishment.
Established in Jakarta on 13 June 2017
EXECUTIVE HEAD OF INSURANCE, PENSION FUNDS, FINANCING INSTITUTIONS, AND OTHER FINANCIAL SERVICE INSTITUTIONS SUPERVISORS FINANCIAL SERVICES AUTHORITY, signed FIRDAUS DJAELANI