Asset Valuation Basis for Investment and Non-Investment Assets of Sharia Insurance and Reinsurance Companies

To:

1. Board of Directors of Sharia Insurance Companies;
2. Board of Directors of Sharia Reinsurance Companies;
3. Board of Directors of Insurance Companies with Sharia Units; and
4. Board of Directors of Reinsurance Companies with Sharia Units,

at their respective locations.

COPY

CIRCULAR LETTER OF THE FINANCIAL SERVICES AUTHORITY NUMBER 23 /SEOJK.05/2017

CONCERNING

ASSET VALUATION BASIS FOR INVESTMENT AND NON-INVESTMENT ASSETS OF SHARIA INSURANCE AND SHARIA REINSURANCE COMPANIES

In relation to the mandate of Article 13 paragraph (5), Article 24 paragraph (4), and Article 33 paragraph (5) of Financial Services Authority Regulation Number 72/POJK.05/2016 concerning Financial Health of Sharia Insurance and Sharia Reinsurance Companies (State Gazette of the Republic of Indonesia Year 2016 Number 305, Supplement to the State Gazette of the Republic of Indonesia Number 5995), it is necessary to regulate implementation provisions regarding the asset valuation basis for investment and non-investment assets of Sharia insurance and Sharia reinsurance companies in this Financial Services Authority Circular Letter as follows:

I. GENERAL PROVISIONS

In this Financial Services Authority Circular Letter, the following terms are meant:

1. Company means a Sharia insurance company, a Sharia reinsurance company, and a Sharia unit.

2. Sharia Insurance Company means a general Sharia insurance company and a life Sharia insurance company, as referred to in Law Number 40 of 2014 concerning Insurance.

3. Sharia Unit means a working unit at the head office of an insurance company or reinsurance company that functions as the head office of offices outside the head office that conduct business based on Sharia principles.

4. General Sharia Insurance Company means a company that conducts risk management business based on Sharia principles to assist and protect each other by providing compensation to participants or policyholders for losses, damages, costs arising, loss of profit, or legal liability to third parties that may be suffered by participants or policyholders due to the occurrence of uncertain events.

5. Life Sharia Insurance Company means a company that conducts risk management business based on Sharia principles to assist and protect each other by providing payments based on the death or survival of participants, or other payments to participants or other entitled parties at certain times regulated in the agreement, the amount of which has been determined and/or based on the results of fund management.

6. Sharia Reinsurance Company means a company that conducts risk management business based on Sharia principles over risks faced by Sharia Insurance Companies, Sharia guarantee companies, or other Sharia Reinsurance Companies, including Sharia Units of reinsurance companies.

7. Sharia Medium Term Notes, hereinafter referred to as Sharia MTN, are Sharia securities issued by companies and have a maturity period of one to five years.

8. Sharia Commercial Bank is a Sharia bank that in its activities provides services in payment flows as referred to in Law Number 21 of 2008 concerning Sharia Banking.

9. Sharia People's Financing Bank, hereinafter abbreviated as BPRS, is a Sharia people's financing bank as referred to in Law Number 21 of 2008 concerning Sharia Banking.

II. ASSET VALUATION BASIS FOR INVESTMENT ASSETS OF SHARIA INSURANCE AND SHARIA REINSURANCE COMPANIES

The valuation basis for investment types is as follows:

1. Time deposits at Sharia Commercial Banks, Sharia business units at commercial banks, or BPRS, including deposit on call and time deposits with a maturity period of less than or equal to 1 (one) month, based on nominal value;
2. Deposit certificates at Sharia Commercial Banks or Sharia business units at commercial banks based on cash value;
3. Sharia stocks:
   a. in the event that Sharia stocks are actively traded on the stock exchange, based on market value using the last closing price information at the stock exchange where the Sharia stocks are listed and traded; or b. in the event that Sharia stocks are not actively traded on the stock exchange, based on fair value determined by a securities price valuation institution that has obtained a business license from the Financial Services Authority or a securities price valuation institution that has been recognized internationally;
4. Sukuk or Sharia bonds listed on the stock exchange based on fair value determined by a securities price valuation institution that has obtained a business license from the Financial Services Authority or a securities price valuation institution that has been recognized internationally;
5. Sharia MTN based on fair value determined by a securities price valuation institution that has obtained a business license from the Financial Services Authority or a securities price valuation institution that has been recognized internationally. In the event that there is no fair value from a securities price valuation institution that has obtained a business license from the Financial Services Authority or a securities price valuation institution that has been recognized internationally, the value from an appraiser registered with the Financial Services Authority is used;
6. Sharia securities issued by the State of the Republic of Indonesia based on fair value determined by a securities price valuation institution that has obtained a business license from the Financial Services Authority or a securities price valuation institution that has been recognized internationally;
7. Sharia securities issued by countries other than the State of the Republic of Indonesia based on fair value determined by a securities price valuation institution that has been recognized internationally;
8. Sharia securities issued by Bank Indonesia based on market value;
9. Sharia securities issued by multinational institutions where the State of the Republic of Indonesia is one of the members or shareholders, based on fair value determined by a securities price valuation institution that has been recognized internationally;
10. Sharia mutual funds based on:
    a. net asset value; or b. market value using the last closing price information at the stock exchange where the Sharia mutual fund is traded, for Sharia mutual funds of the exchange traded fund (ETF) type;
11. Sharia asset-backed securities based on market value using the last closing price information at the stock exchange in Indonesia, for asset-backed securities listed on the stock exchange in Indonesia. In the event that such market value does not exist, valuation uses fair value determined by a securities price valuation institution that has obtained a business license from the Financial Services Authority or a securities price valuation institution that has been recognized internationally;
12. Sharia real estate investment funds in the form of collective investment contracts based on:
    a. market value, for Sharia real estate investment funds in the form of collective investment contracts traded on the stock exchange. In the event that Sharia real estate investment funds in the form of collective investment contracts are not actively traded on the stock exchange, based on fair value determined by a securities price valuation institution that has obtained a business license from the Financial Services Authority or a securities price valuation institution that has been recognized internationally; or b. net asset value, for Sharia real estate investment funds in the form of collective investment contracts that are not traded on the stock exchange;
13. Sharia securities transactions through repurchase agreements (REPO) based on the amortized cost of the security acquisition cost with the effective yield rate (amortized cost);
14. Sharia financing through mechanisms of cooperation with other parties in the form of cooperation for providing Sharia financing (executing) based on the remaining loan value;
15. Pure gold based on market value;
16. Direct participation in companies whose shares are not listed on the stock exchange valued based on equity value;
17. Land, buildings with strata title (strata title), or land with buildings, for investment based on the value determined by an appraiser registered with the Financial Services Authority or the Taxable Object Selling Value (NJOP) in the event that no valuation is conducted by a valuation institution; and/or
18. Sharia financing with mortgage rights based on the remaining loan value.

III. ASSET VALUATION BASIS FOR NON-INVESTMENT ASSETS OF SHARIA INSURANCE AND SHARIA REINSURANCE COMPANIES

The valuation basis for non-investment assets is as follows:

1. Cash and bank based on nominal value;
2. Direct closing tabarru' contribution receivables, including co-insurance contribution receivables that are part of the Company, based on the remaining receivable value;
3. Direct closing ujrah receivables, including co-insurance contribution receivables that are part of the Company, based on the remaining receivable value;
4. Reinsurance contribution receivables based on the remaining receivable value;
5. Reinsurance ujrah receivables based on the remaining receivable value;
6. Tabarru' reinsurance assets and tanahud sourced from the estimated claim recovery value for the reinsurance portion, based on the contribution reserve, unearned contribution reserve, and/or estimated reinsurance portion claim liability calculated consistently based on the terms and conditions of the reinsurance contract. In the event that there are indications of default by the Reinsuring Party, the reinsurance asset amount must be adjusted by forming a bad debt expense;
7. Company Fund reinsurance assets sourced from long-term contract agreements of capital-oriented reinsurance programs based on the remaining reinsurance asset value. In the event that there are indications of default by the party providing the capital-oriented reinsurance program, the reinsurance asset amount must be adjusted by forming a bad debt expense;
8. Co-insurance claim receivables based on the remaining receivable value;
9. Reinsurance claim receivables based on the remaining receivable value;
10. Investment receivables based on the receivable value;
11. Investment result receivables based on the remaining receivable value;
12. Buildings with strata title (strata title) or land with buildings, for own use, based on the value determined by a valuation institution registered with the competent authority or based on the Taxable Object Selling Value (NJOP) in the event that no valuation is conducted by a valuation institution; and/or
13. Deferred acquisition costs (DAC) based on the remaining DAC value after proportional amortization for each financial reporting period with a maximum duration of 4 (four) years from the period of DAC formation.

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

IV. ASSET VALUATION BASIS FOR INVESTMENT AND NON-INVESTMENT ASSETS SOURCED FROM PARTICIPANT INVESTMENT FUNDS

1. Provisions regarding the valuation basis for investment and non-investment assets sourced from participant investment funds are calculated based on the provisions as referred to in Section II and Section III.
2. Provisions regarding the valuation basis for direct closing participant investment fund contribution receivables are calculated based on the remaining receivable value.

V. CLOSING PROVISIONS

The provisions in this Financial Services Authority Circular Letter shall take effect on July 1, 2017.

Established in Jakarta on June 13, 2017

EXECUTIVE HEAD OF SUPERVISOR OF
INSURANCE, PENSION FUNDS,
FINANCING INSTITUTIONS, AND
OTHER FINANCIAL SERVICE INSTITUTIONS
FINANCIAL SERVICES AUTHORITY, signed
FIRDAUS DJAELANI