Financial Health of Insurance and Reinsurance Companies

FINANCIAL SERVICES AUTHORITY
REPUBLIC OF INDONESIA
FINANCIAL SERVICES AUTHORITY REGULATION
NUMBER 71/POJK.05/2016
CONCERNING
FINANCIAL HEALTH
OF INSURANCE AND REINSURANCE COMPANIES

BY THE GRACE OF THE ALMIGHTY GOD,
THE COMMISSIONERS OF THE FINANCIAL SERVICES AUTHORITY,

Considering: that to implement the provisions of Article 19 paragraph (4), Article 20 paragraph (5), Article 21 paragraph (4), and Article 22 paragraph (5) of Law Number 40 of 2014 concerning Insurance, it is necessary to establish a Financial Services Authority Regulation concerning the Financial Health of Insurance and Reinsurance Companies;

Considering: 1. Law Number 21 of 2011 concerning the Financial Services Authority (State Gazette of the Republic of Indonesia Year 2011 Number 111, Supplement to the State Gazette of the Republic of Indonesia Number 5253);
2. Law Number 40 of 2014 concerning Insurance (State Gazette of the Republic of Indonesia Year 2014 Number 337, Supplement to the State Gazette of the Republic of Indonesia Number 5618);

COPY

DECIDES:
Establish: FINANCIAL SERVICES AUTHORITY REGULATION CONCERNING THE FINANCIAL HEALTH OF INSURANCE AND REINSURANCE COMPANIES.

CHAPTER I
GENERAL PROVISIONS
Article 1
In this Financial Services Authority Regulation, the following terms are meant as:

1. Company means insurance company and reinsurance company.
2. Insurance Company means general insurance company and life insurance company as referred to in Law Number 40 of 2014 concerning Insurance.
3. General Insurance Company means a company conducting risk insurance business services that provides compensation to the insured or policyholder for losses, damages, costs arising, loss of profit, or legal liability to third parties, which may be suffered by the insured or policyholder due to the occurrence of an uncertain event.
4. Life Insurance Company means a company conducting risk mitigation business services that provides payment to the policyholder, insured, or other entitled party in the event the insured dies or remains alive, or other payments to the policyholder, insured, or other entitled party at a certain time as regulated in the agreement, the amount of which has been determined and/or based on the results of fund management.
5. Reinsurance Company means a company conducting reinsurance business services against risks faced by Insurance Companies, guarantee companies, or other reinsurance companies.
6. Party means a person or business entity, whether a legal entity or not, as referred to in Law Number 40 of 2014 concerning Insurance.
7. Investment-Linked Insurance Product, hereinafter referred to as PAYDI, is an insurance product that provides at least protection against the risk of death and provides benefits referring to the investment results of a fund pool specifically formed for the insurance product, whether expressed in unit form or not.
8. Liability means obligations as referred to in insurance legislation.
9. Insurance Fund is a pool of funds derived from premiums formed to meet Liabilities arising from issued policies or insurance claims.
10. Permitted Assets are assets calculated in the solvency ratio calculation.
11. Risk-Based Minimum Capital, hereinafter abbreviated as MMBR, is the amount of funds needed to anticipate potential losses resulting from deviations in asset and Liability management.
12. Solvency Level is the difference between the amount of Permitted Assets minus the amount of Liabilities.
13. Equity is equity based on accounting standards applicable in Indonesia.
14. Medium Term Notes, hereinafter abbreviated as MTN, are debt instruments issued by the company with a maturity of one to five years.
15. Net Premium is gross premium minus commission and minus reinsurance premium paid minus reinsurance commission received.
16. Guarantee Fund is the asset of the Insurance Company or Reinsurance Company that serves as the last resort to protect the interests of policyholders, insured, or participants, in the event of liquidation of the Insurance Company and Reinsurance Company.
17. Investment Manager means an investment manager as referred to in Law Number 8 of 1995 concerning Capital Market.
18. Bank means general bank as referred to in Law Number 7 of 1992 concerning Banking, as amended by Law Number 10 of 1998, and Sharia bank as referred to in Law Number 21 of 2008.
19. People's Credit Bank, hereinafter abbreviated as BPR, means people's credit bank as referred to in Law Number 7 of 1992 concerning Banking, as amended by Law Number 10 of 1998.
20. Sharia People's Financing Bank, hereinafter abbreviated as BPRS, means Sharia people's financing bank as referred to in Law Number 21 of 2008 concerning Sharia Banking.
21. Custodian Bank means a general bank that has received approval from the Financial Services Authority as a custodian.
22. Financial Services Authority, hereinafter abbreviated as OJK, is an independent agency having the functions, duties, and authorities for regulation, supervision, examination, and investigation as referred to in Law Number 21 of 2011 concerning the Financial Services Authority.

CHAPTER II
FINANCIAL HEALTH
First Section
Scope of Financial Health
Article 2
(1) Companies are required at all times to meet financial health requirement standards.
(2) The measurement of the Company's financial health level as referred to in paragraph (1) includes:
a. Solvency Level; b. technical reserves;
c. investment adequacy;
d. Equity; e. Guarantee Fund; and f. other provisions related to financial health.

Second Section
Solvency Level
Article 3
(1) Companies are required at all times to meet a Solvency Level of at least 100% (one hundred percent) of the MMBR.
(2) Companies are required annually to set an internal Solvency Level target.
(3) The internal Solvency Level target as referred to in paragraph (2) is set at a minimum of 120% (one hundred twenty percent) of the MMBR, taking into account the risk profile of each Company and considering the results of scenario simulation (stress test). (4) OJK may order Companies to increase and meet the internal Solvency Level target as referred to in paragraph (3), considering the Company's risk profile and the results of scenario simulation (stress test). (5) Companies are required at all times to meet the Internal Solvency Target as referred to in paragraph (3) and paragraph (4). (6) Companies are prohibited from paying dividends or providing remuneration in any form to shareholders or equivalents if such actions would cause the required internal Solvency Level target as referred to in paragraph (3) and paragraph (4) not to be achieved.

Article 4
(1) The calculation of MMBR as referred to in Article 3 paragraph (1) must consider risks consisting of at least:
a. credit risk; b. liquidity risk;
c. market risk;
d. insurance risk; and e. operational risk.
(2) In the event that an Insurance Company markets PAYDI, the MMBR as referred to in paragraph (1) must be increased by a certain percentage of investment funds sourced from PAYDI. (3) Further provisions regarding the calculation of the MMBR amount as referred to in paragraph (1) and paragraph (2) are regulated in an OJK Circular Letter.

Third Section
Permitted Assets in the Form of Investment
Article 5
(1) Companies are required to apply the principle of prudence in investment placement.
(2) Permitted Assets in the form of investment must be placed in the following types:
a. time deposits at Banks, BPRs, and BPRSs, including deposit on call and time deposits with a duration of less than or equal to 1 (one) month; b. deposit certificates at Banks;
c. stocks listed on the stock exchange;
d. corporate bonds listed on the stock exchange; e. MTN; f. securities issued by the Republic of Indonesia; g. securities issued by countries other than the Republic of Indonesia; h. securities issued by Bank Indonesia;
i. securities issued by multinational institutions of which the Republic of Indonesia is a member or shareholder;
j. mutual funds; k. asset-backed securities;
l. real estate investment funds in the form of collective investment contracts;
m. securities transactions through repurchase agreement (REPO); n. direct participation in limited liability companies whose stocks are not listed on the stock exchange; o. land, buildings with strata rights (strata title), or land with buildings, for investment; p. financing through cooperation mechanisms with other Parties in the form of credit granting cooperation (executing); q. pure gold; r. loans secured by land rights; and/or s. policy loans. (3) Permitted Assets in the form of investment as referred to in paragraph (2) that can be placed abroad must be in the following types:
a. stocks listed on the stock exchange; b. corporate bonds listed on the stock exchange;
c. securities issued by countries other than the Republic of Indonesia;
d. securities issued by multinational institutions of which the Republic of Indonesia is a member or shareholder; e. mutual funds; and/or f. direct participation in companies whose stocks are not listed on the stock exchange. (4) Investment types as referred to in paragraph (2) and paragraph (3) also include investment types using Sharia principles. (5) Provisions regarding the valuation basis for each investment type as referred to in paragraph (2) through paragraph (4) are regulated in an OJK Circular Letter.

Article 6
(1) Placement of Permitted Assets in the form of investment in corporate bonds as referred to in Article 5 paragraph (2) letter d must be done on corporate bonds that have an investment grade rating from a securities rating company recognized by OJK. (2) Placement of Permitted Assets in the form of investment in MTN as referred to in Article 5 paragraph (2) letter e must meet the following provisions:
a. MTN is registered at the Indonesia Central Securities Depository; b. MTN has a monitoring agent that has received a license as a trustee from OJK; and
c. MTN has an investment grade rating issued by a securities rating company recognized by OJK.
(3) Placement of Permitted Assets in the form of investment in securities issued by multinational institutions of which the Republic of Indonesia is a member or shareholder as referred to in Article 5 paragraph (2) letter i must meet the following provisions:
a. has an investment grade rating from a securities rating company recognized internationally; b. is sold through a public offering; and
c. information regarding the transaction can be accessed in Indonesia.
(4) Placement of Permitted Assets in the form of investment in mutual funds as referred to in Article 5 paragraph (2) letter j must meet the following provisions:
a. for mutual funds conducted through a public offering, has received an effective statement from OJK; and b. for limited participation mutual funds, has been registered with OJK. (5) Placement of Permitted Assets in the form of investment in asset-backed securities and real estate investment funds in the form of collective investment contracts as referred to in Article 5 paragraph (2) letter k and letter l must meet the following provisions:
a. has received an effective statement from OJK; b. has an investment grade rating from a securities rating company recognized by OJK; and
c. is conducted through a public offering as regulated in capital market legislation.
(6) Placement of Permitted Assets in the form of investment in REPO as referred to in Article 5 paragraph (2) letter m must meet the following provisions:
a. the Company's risk level based on OJK's assessment is low to moderate or low; b. uses a contract standardized by OJK;
c. transaction in the form of buying securities with a promise to sell back at a specified time and price;
d. collateral type is limited to securities issued by the Republic of Indonesia and/or securities issued by Bank Indonesia; e. duration does not exceed 90 (ninety) days; f. REPO value is at most 80% (eighty percent) of the market value of the collateral securities; and g. REPO transaction is registered at the Indonesia Central Securities Depository or Bank Indonesia Scriptless Securities Settlement System (BI-S4). (7) Placement of Permitted Assets in the form of investment in land, buildings with strata rights (strata title), or land with buildings, for investment, as referred to in Article 5 paragraph (2) letter o must meet the following provisions:
a. owned and controlled by the Company, proven by land and/or building ownership certificates in the Company's name; and b. not placed on land, buildings, or land with buildings that are currently mortgaged, in dispute, or blocked by other Parties. (8) Placement of Permitted Assets in the form of investment in financing through cooperation mechanisms with other Parties in the form of credit granting cooperation (executing) as referred to in Article 5 paragraph (2) letter p must meet the following provisions:
a. is a financing company that has received a business license from OJK; b. the financing company is not currently subject to administrative sanctions in the form of business activity restrictions or suspension by OJK at the start of the cooperation;
c. the financing company's risk level based on OJK's assessment is low to moderate or low; and
d. meets financial health level provisions based on financing legislation at the start of the cooperation.
(9) Placement of Permitted Assets in the form of investment in pure gold as referred to in Article 5 paragraph (2) letter q must meet the following provisions:
a. meets specification requirements established by a commodity exchange that has received a license from the competent authority; and b. is stored at a Custodian Bank or other Party that has received a license or approval from the competent authority to provide storage services. (10) Placement of Permitted Assets in the form of investment in loans secured by land rights as referred to in Article 5 paragraph (2) letter r must meet the following provisions:
a. the loan is granted to individuals; b. the loan is secured by the first land right;
c. the loan is conducted in accordance with legislation;
d. land ownership certificates with land right encumbrance notes are stored by the Company; and e. the amount of each loan is at most 75% (seventy-five percent) of the smallest collateral value between the value determined by a registered appraisal institution with the competent authority and the Taxable Object Value (NJOP).

Article 7
In the event that corporate bonds and/or MTN issued by financing companies do not have an investment grade rating as referred to in Article 6 paragraph (1) and/or paragraph (2) letter c, placement may be conducted as long as:
a. it has a rating 1 (one) level below investment grade; and b. the financing company issuing the corporate bonds and/or MTN meets financial health level provisions based on financing legislation at the time of placement.

Article 8
(1) Placement of Permitted Assets in the form of investment abroad in stocks listed on the stock exchange as referred to in Article 5 paragraph (3) letter a must meet the following provisions:
a. is included in the category of stocks actively traded on the stock exchange where the stock is listed based on criteria established by the respective stock exchange; and b. information regarding the issuer and stock transactions can be accessed in Indonesia. (2) Placement of Permitted Assets in the form of investment abroad in corporate bonds listed on the stock exchange, securities issued by countries other than the Republic of Indonesia, and securities issued by multinational institutions of which the Republic of Indonesia is a member or shareholder as referred to in Article 5 paragraph (3) letter b, letter c, and letter d must meet the following provisions:
a. has an investment grade rating from a securities rating company recognized internationally; b. is sold through a public offering; and
c. information regarding the transaction can be accessed in Indonesia.
(3) Placement of Permitted Assets in the form of investment abroad in mutual funds as referred to in Article 5 paragraph (3) letter e must meet the following provisions:
a. is managed by an Investment Manager abroad who has received a license from the capital market authority in the country where the Investment Manager resides; b. has received a license/approval/registration from the capital market authority in the country where the Investment Manager resides and is conducted through a public offering;
c. is managed by an Investment Manager abroad who is not currently subject to administrative sanctions in the form of business activity restrictions or suspension by the authority in the country where the Investment Manager resides; and
d. information regarding the mutual fund can be accessed in Indonesia.

Article 9
(1) In the event that Permitted Assets in the form of investment in stocks and/or corporate bonds as referred to in Article 5 paragraph (2) letter c and letter d listed on stock exchanges within and/or outside the country and whose issuers are foreign legal entities are categorized as foreign investment. (2) In the event that Permitted Assets in the form of investment in stocks and/or corporate bonds as referred to in Article 5 paragraph (2) letter c and letter d listed on stock exchanges within and/or outside the country and whose issuers are Indonesian legal entities are categorized as domestic investment. (3) In the event that Permitted Assets in the form of investment in corporate bonds listed on the stock exchange as referred to in Article 5 paragraph (2) letter d issued by foreign legal entities where more than 50% (fifty percent) of the shares are owned by Indonesian legal entities are categorized as domestic investment. (4) Permitted Assets in the form of investment in corporate bonds as referred to in paragraph (1) through paragraph (3) must meet the following provisions:
a. has an investment grade rating from a securities rating company recognized by OJK or has an investment grade rating from a securities rating company recognized internationally; and b. is sold through a public offering. (5) In the event that Permitted Assets in the form of investment in securities issued by multinational institutions of which the Republic of Indonesia is a member or shareholder as referred to in Article 5 paragraph (2) letter i and paragraph (3) letter d are denominated in Rupiah, they are categorized as domestic investment.

Article 10
(1) Companies are prohibited from holding foreign investments, except in investment types as referred to in Article 5 paragraph (3).
(2) Companies are prohibited from placing foreign investments exceeding 20% (twenty percent) of the total investment amount.
(3) In the event that the amount of foreign investment exceeds the limit as referred to in paragraph (2) due to an increase in the value of the investment, the Company is required to readjust the investment amount in accordance with the provisions as referred to in paragraph (2) within a maximum period of 3 (three) months from the time the increase in investment value is known.

Article 11
(1) Restrictions on Permitted Assets in the form of investment as referred to in Article 5 paragraph (2) are as follows:
a. investment in time deposits at Banks, including deposit on call and time deposits with a duration of less than or equal to 1 (one) month, for each Bank is at most 20% (twenty percent) of the total investment amount; b. investment in time deposits, for each BPR and BPRS is at most 1% (one percent) of the total investment amount and in total is at most 5% (five percent) of the total investment amount;
c. investment in deposit certificates for each Bank is at most 50% (fifty percent) of the total investment amount in time deposits at Banks as referred to in letter a;
d. investment in stocks listed on the stock exchange, for each issuer is at most 10% (ten percent) of the total investment amount and in total is at most 40% (forty percent) of the total investment amount; e. investment in corporate bonds listed on the stock exchange, for each issuer is at most 20% (twenty percent) of the total investment amount and in total is at most 50% (fifty percent) of the total investment amount; f. investment in MTN and securities issued by multinational institutions of which the Republic of Indonesia is a member or shareholder, for each issuer is at most 20% (twenty percent) of the total investment amount and in total is at most 40% (forty percent) of the total investment amount; g. investment in securities issued by countries other than the Republic of Indonesia,

for each issuer, a maximum of 10% (ten percent) of the investment amount;

h. investment in mutual funds, for each Investment Manager, a maximum of 20% (twenty percent) of the investment amount and in total a maximum of 50% (fifty percent) of the investment amount;

i. investment in asset-backed securities, for each Investment Manager, a maximum of 10% (ten percent) of the investment amount and in total a maximum of 20% (twenty percent) of the investment amount;

j. investment in real estate investment funds in the form of collective investment contracts, for each Investment Manager, a maximum of 10% (ten percent) of the investment amount and in total a maximum of 20% (twenty percent) of the investment amount;

k. investment in REPO, for each counterparty, a maximum of 2% (two percent) of the investment amount and in total a maximum of 10% (ten percent) of the investment amount;

l. investment in direct participation (shares not listed on the stock exchange), in total a maximum of 10% (ten percent) of the investment amount;

m. investment in land, buildings with strata title (strata title), or land with buildings, for investment purposes, in total a maximum of 20% (twenty percent) of the investment amount;

n. investment in land for investment purposes, in total a maximum of 1/3 (one third) of the investment amount as referred to in letter m;

o. investment in financing through cooperation mechanisms with Other Parties in the form of credit granting cooperation (executing), for each Party, a maximum of 10% (ten percent) of the investment amount and in total a maximum of 20% (twenty percent) of the investment amount;

p. investment in pure gold, in total a maximum of 10% (ten percent) of the investment amount;

q. investment in loans guaranteed with mortgage rights, in total a maximum of 10% (ten percent) of the investment amount; and/or

r. investment in policy loans, with the policy loan amount being a maximum of 80% (eighty percent) of the cash value of the relevant policy.

(2) Placement of Permitted Assets in the form of investment in mutual funds as referred to in Article 5 paragraph (2) letter j, whose underlying assets are entirely investments in securities issued by the State of the Republic of Indonesia, is exempt from the provisions as referred to in paragraph (1) letter h.

(3) Placement of Permitted Assets in the form of investment in mutual funds as referred to in Article 5 paragraph (2) letter j in the form of limited participation collective investment contracts, for each Investment Manager, a maximum of 10% (ten percent) of the investment amount and in total a maximum of 20% (twenty percent) of the investment amount.

(4) Placement of Permitted Assets in the form of investment as referred to in paragraph (1) letters d through k, in total a maximum of 80% (eighty percent) of the investment amount.

Article 12

(1) Placement of Permitted Assets in the form of investment in Parties affiliated with the Company, a maximum of 25% (twenty-five percent) of the investment amount.

(2) Placement of Permitted Assets in the form of investment in one Party or several Parties that are affiliated but such Parties are not affiliated with the Company, a maximum of 25% (twenty-five percent) of the investment amount.

(3) In the event the Company will conduct investment placement exceeding the limits as referred to in paragraph (1) and paragraph (2) and as referred to in Article 11 paragraph (1) letter l, the Company is required to obtain approval from OJK.

(4) In the event the Company will conduct investment placement exceeding the limits as referred to in Article 11 paragraph (1) letter l, the OJK approval as referred to in paragraph (3) can only be granted for direct participation in financial service institutions that have obtained a license from OJK.

(5) Further provisions regarding investment placement exceeding the limits as referred to in paragraph (3) and paragraph (4) are regulated in an OJK Circular.

Article 13

(1) Affiliated Parties as referred to in Article 12 paragraph (1) and paragraph (2) are Parties that have 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.

(2) Relationships that can influence management or policies as referred to in paragraph (1) are in the form of:

a. one Party has one or more directors or officials below the director level or commissioners, who also serve as directors or officials below the director level or commissioners on the other Party;

b. one Party has one or more directors, commissioners, or controlling shareholders, who have family relationships due to marriage or descent up to the second degree, both horizontally and vertically, who serve as directors, commissioners, or controlling shareholders on the other Party;

c. one Party holds at least 25% (twenty-five percent) of the shares of the other Party;

d. one Party is the largest shareholder of the other Party;

e. the Parties are controlled by the same controller; or

f. one Party has voting rights in the other Party of more than 50% (fifty percent) based on an agreement.

(3) Affiliation relationships and/or other legal relationships with Other Parties as referred to in paragraph (1) and paragraph (2) do not include relationships due to ownership or capital participation by the State of the Republic of Indonesia.

Article 14

(1) The Company is prohibited from conducting any form of asset transfer to shareholders or Parties affiliated with the Company except through arm’s length transactions.

(2) The Company is prohibited from providing loans to shareholders or Parties affiliated with the Company.

(3) The provisions as referred to in paragraph (2) do not apply in the event of loans in the form of investment as referred to in Article 6 paragraph (2).

(4) The provisions as referred to in paragraph (1) do not apply in the event of loans or placement for Permitted Assets in the form of investment and Permitted Assets in the form of non-investment.

Article 15

The investment amount used as the basis for calculating the limits on Permitted Assets in the form of investment as referred to in Article 11 and Article 12 paragraph (1) and paragraph (2) is the value of all forms of investment as referred to in Article 5 as of the date of the financial position report.

Article 16

Provisions regarding limits on Permitted Assets in the form of investment as referred to in Article 11 also apply to placements in investment types using Sharia principles.

Part Four
Permitted Assets in the Form of Non-Investment

Article 17

(1) Permitted Assets in the form of non-investment must be in the following types:

a. cash and bank;

b. direct writing premium receivables, including co-insurance premium receivables that are part of the Company;

c. reinsurance premium receivables;

d. reinsurance assets;

e. co-insurance claim receivables;

f. reinsurance claim receivables;

g. investment receivables;

h. investment income receivables;

i. buildings with strata title (strata title) or land with buildings, for own use; and/or

j. deferred acquisition cost.

(2) Limits on Permitted Assets in the form of non-investment as referred to in paragraph (1) must be implemented with the following provisions:

a. cash and bank, with the provision that cash and bank outside the country are permitted in total a maximum of 1% (one percent) of the current period Equity;

b. direct writing premium receivables including co-insurance premium receivables that are part of the Company, with a receivable age of a maximum of 2 (two) months calculated from the date:

1. coverage begins for policies with single premium payment; or

2. premium payment due date for policies with installment premium payment;

c. reinsurance premium receivables, with a receivable age of a maximum of 2 (two) months calculated from the due date of payment;

d. reinsurance assets, consisting of:

1. assets sourced from the estimated value of claim recovery for the reinsurance portion; and

2. assets sourced from long-term contract agreements (longterm contract) of capital oriented reinsurance programs with the following provisions:

a) only for each new PAYDI whose acquisition costs are paid in advance by the Company (back end loading);

b) Companies that have 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

c) for each capital oriented reinsurance program agreement, prior approval from OJK is required;

e. co-insurance claim receivables, with a receivable age of a maximum of 2 (two) months calculated from the date of claim payment to the policyholder or insured;

f. reinsurance claim receivables, with a receivable age of a maximum of 2 (two) months calculated from the due date of payment;

g. investment receivables, with a receivable age of a maximum of 1 (one) month calculated from the due date of payment;

h. investment income receivables, with a receivable age of a maximum of 1 (one) month calculated from the due date of payment;

i. buildings with strata title (strata title) or land with buildings, for own use, with a total value of a maximum of 25% (twenty-five percent) of the current period Equity; and/or

j. deferred acquisition cost, with the following provisions:

1. can only be done for PAYDI whose acquisition costs are paid in advance by the Company (back-end loading);

2. Companies that have 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; and

3. each formation of deferred acquisition cost for each PAYDI product must first obtain approval from OJK.

(3) Provisions regarding the valuation basis for each type of non-investment as referred to in paragraph (1) and the procedure for applying for OJK approval as referred to in paragraph (2) letter d number 2) letter c) and letter j number 3) are regulated in an OJK Circular.

Part Five
Status of Permitted Assets

Article 18

Permitted Assets in the form of investment as referred to in Article 5 and Permitted Assets in the form of non-investment as referred to in Article 17 must:

a. be owned and controlled by the Company, proven by ownership certificates in the name of the Company from the competent authority;

b. not be in dispute;

c. not be used as collateral; and

d. not be blocked by competent Parties.

Part Six
Liabilities

Article 19

(1) Liabilities calculated in the Solvency Ratio calculation must include all Company Liabilities, including technical reserves.

(2) The Company is required to form technical reserves as referred to in paragraph (1) according to the type of insurance product.

(3) The formation of technical reserves as referred to in paragraph (1) is carried out by the Company's actuary.

Article 20

(1) Liabilities in the form of technical reserves as referred to in Article 19 include:

a. premium reserves:

1. for products with a term of more than 1 (one) year whose policy terms and conditions cannot be renewed (non renewable) on each policy anniversary; and

2. for products with a term of more than 1 (one) year whose policy terms and conditions can be renewed (renewable) on each policy anniversary and provide other benefits after a certain period;

b. reserves for premiums that are not yet revenue for products with a term of up to 1 (one) year or with a term of more than 1 (one) year whose policy terms and conditions can be renewed (renewable) on each policy anniversary;

c. reserves for PAYDI;

d. claim reserves; and

e. catastrophic risk reserves.

(2) The formation of premium reserves as referred to in paragraph (1) letter a must consider income and expenses that may occur in the future using central estimate assumptions plus a risk margin.

(3) The formation of reserves for premiums that are not yet revenue as referred to in paragraph (1) letter b must consider reserves for all unexpired risks (unexpired risk reserve).

(4) Reserves for PAYDI as referred to in paragraph (1) letter c are:

a. fund accumulation reserves for non-guaranteed PAYDI;

b. investment element reserves for guaranteed PAYDI; and

c. protection element reserves from PAYDI and other promised benefits from PAYDI.

(5) Fund accumulation reserves for non-guaranteed PAYDI are not included in the Solvency Ratio calculation.

(6) Claim reserves as referred to in paragraph (1) letter d include:

a. claim reserves in the process of settlement;

b. incurred but not reported (IBNR) claim reserves; and

c. claim reserves for claims that have been approved and benefit payments are not made in a lump sum.

(7) Catastrophic risk reserves as referred to in paragraph (1) letter e are calculated based on retained insurance benefits by considering the possibility of catastrophic risk occurrence.

Article 21

(1) In the event that technical reserves or parts of technical reserves formed by the Company are found to be unreasonable, OJK may:

a. request the Company to revalue the amount of technical reserves or parts of technical reserves deemed unreasonable; or

b. request a review of technical reserves or parts of technical reserves by an independent Party at the Company's expense.

(2) The Company is required to appoint an independent Party no later than 1 (one) month after the request for review as referred to in paragraph (1) letter b.

Article 22

Further provisions regarding technical reserves as referred to in Article 20 are regulated in an OJK Circular.

Part Seven
Subordinated Loans

Article 23

In the calculation of the Solvency Ratio, subordinated loans are not treated as a Liability element if the loans meet the following provisions:

a. used to meet the Solvency Ratio limit requirements; and

b. stipulated in a notarial agreement containing at least:

1. repayment of the loan principal can only be done if it does not cause the Company to fail to meet the internal Solvency Ratio target;

2. the loan repayment period is not limited; and

3. the promised interest rate is a maximum of 1/5 (one fifth) of the Bank Indonesia interest rate at the time of signing the agreement.

Article 24

The Company is prohibited from returning subordinated loans if such action causes the internal Solvency Ratio target requirements as referred to in Article 3 paragraph (3) to not be met.

Part Eight
Investment Adequacy

Article 25

(1) The Company is required to have Permitted Assets in the form of investment as referred to in Article 5 paragraph (2) plus Permitted Assets in the form of non-investment in the form of cash and bank as referred to in Article 17 paragraph (1) letter a, at least equal to the sum of retained technical reserves, plus retained claim payment liabilities, and other liabilities to policyholders or insured parties.

(2) Retained claim payment liabilities as referred to in paragraph (1) are liabilities for payments for claims that have been agreed upon but not yet paid, minus claim expenses that are part of the reinsurer.

CHAPTER III
INSURANCE PRODUCTS LINKED WITH INVESTMENT

Article 26

Insurance Companies marketing PAYDI are required to separate the recording of assets and Liabilities sourced from PAYDI from assets and Liabilities sourced from other insurance products.

Article 27

(1) Assets sourced from PAYDI must be placed in the following types:

a. time deposits at Banks, BPRs, and BPRSs, including deposit on call and deposits with a term of less than or equal to 1 (one) month;

b. deposit certificates at Banks;

c. shares listed on the stock exchange;

d. corporate bonds listed on the stock exchange;

e. MTNs;

f. securities issued by the State of the Republic of Indonesia;

g. securities issued by countries other than the State of the Republic of Indonesia;

h. securities issued by Bank Indonesia;

i. securities issued by multinational institutions of which the State of the Republic of Indonesia is a member or shareholder;

j. mutual funds;

k. asset-backed securities;

l. REPOs; and/or

m. pure gold.

(2) Assets sourced from PAYDI in the form of non-investment must be in the following types:

a. cash and bank;

b. direct writing premium receivables;

c. investment receivables; and/or

d. investment income receivables.

(3) Investment types as referred to in paragraph (1) must be adjusted to the product description reported to OJK and promised to prospective policyholders.

(4) Non-guaranteed assets sourced from PAYDI are not counted as Permitted Assets.

(5) Provisions regarding the valuation basis for each type of investment and non-investment for assets sourced from PAYDI as referred to in paragraph (1) and paragraph (2) are regulated in an OJK Circular.

Article 28

Placement of assets sourced from PAYDI as referred to in Article 27 paragraph (1) must meet the provisions as referred to in Article 6 through Article 9.

Article 29

Foreign investment placement for PAYDI is a maximum of 20% (twenty percent) of total PAYDI investments.

Article 30

(1) The Company is required to account for all assets sourced from PAYDI at a Custodian Bank.

(2) Custodian Banks as referred to in paragraph (1) are prohibited from having an affiliation relationship with the Company, except for affiliation relationships arising from ownership or capital participation by the State of the Republic of Indonesia.

CHAPTER IV
DERIVATIVE TRANSACTIONS

Article 31

(1) The Company is prohibited from conducting derivative transactions or holding derivative instruments, except:

a. put option contracts on shares owned that are listed on the stock exchange in Indonesia;

b. derivative instruments obtained by the Company as instruments attached to shares, corporate bonds, or government securities listed on the stock exchange in Indonesia as referred to in Article 5 paragraph (2) letter c, letter d, and letter f; or

c. other derivative instruments for hedging purposes against currency and/or interest rate risks.

(2) Transactions of other derivative instruments for hedging purposes as referred to in paragraph (1) letter c are conducted with counterparties that have at least an investment grade rating from a securities rating company recognized by OJK or from an internationally recognized securities rating company.

(3) The Company may sell derivative instruments attached to government securities, shares, or corporate bonds listed on the stock exchange in Indonesia as referred to in paragraph (1) letter b separately from the relevant government securities, shares, or corporate bonds.

(4) Derivative transactions or derivative instruments as referred to in paragraph (1) must obtain approval from the Board of Directors or equivalent.

Article 32

(1) The Company is required to report every derivative transaction as referred to in Article 31 paragraph (1) to OJK no later than 7 (seven) working days from the transaction date.

(2) The derivative transaction report as referred to in paragraph (1) must be attached at least with:

a. results of studies/analysis regarding the need for hedging;

b. derivative transaction agreements;

c. proof of the other party's (counterparty) rating as referred to in Article 31 paragraph (2); and

d. proof of approval from the Board of Directors or equivalent.

CHAPTER V
EQUITY

Article 33

The Company is required to have Equity of at least:

a. IDR 100,000,000,000.00 (one hundred billion rupiah), for Insurance Companies;

b. IDR 200,000,000,000.00 (two hundred billion rupiah), for Reinsurance Companies.

Article 34

Companies with Sharia units must meet Equity in the amount as referred to in Article 33 plus Equity for Sharia units as referred to in the OJK Regulation regarding the financial health of Insurance and Reinsurance Companies with Sharia principles.

Article 35

(1) The Company is prohibited from paying dividends or providing remuneration in any form to shareholders or equivalent if such action causes the Equity amount to fall below the required Equity provisions as referred to in Article 33 and Article 34.

(2) Payment of dividends or provision of remuneration in any form to shareholders or equivalent as referred to in paragraph (1) must be carried out in accordance with applicable legislation.

CHAPTER VI
GUARANTEE FUND

Part One
Formation of Guarantee Fund

Article 36

(1) The Company is required to form a Guarantee Fund of at least 20% (twenty percent) of the minimum Equity required as referred to in Article 33.

(2) The amount of the Guarantee Fund as referred to in paragraph (1) must be adjusted to the development of the Company's business volume with the following provisions:

a. for Life Insurance Companies, the Guarantee Fund must be formed at an amount of 2% (two percent) of PAYDI reserves plus 5% (five percent) of premium reserves for products other than PAYDI and reserves for premiums that are not yet revenue; and

b. for General Insurance Companies and Reinsurance Companies, the Guarantee Fund must be formed at an amount of 1% (one percent) of Net Premiums plus 0.25% (zero point two five percent) of reinsurance premiums plus 2% (two percent) of PAYDI reserves.

(3) The Company is required to form a Guarantee Fund at the largest amount between the calculation results of the Guarantee Fund amount as referred to in paragraph (1) and the Guarantee Fund amount as referred to in paragraph (2).

Article 37

(1) The amount of premium reserves including reserves for premiums that are not yet revenue as referred to in Article 36 paragraph (2)

letter a as well as Net Premium and reinsurance premium as referred to in Article 36 paragraph (2) letter b, are obtained from the financial report as of the last December 31 that has been audited by a public accountant registered with the OJK.

(2) In the event that the Guarantee Fund is less than the amount as referred to in Article 36 paragraph (1) or paragraph (2), the Company is required to add to its Guarantee Fund within a maximum of 5 (five) working days after the date of April 30 of the current year.

(3) In the event that the Guarantee Fund already held is greater than the amount as referred to in Article 36 paragraph (1) and paragraph (2), the Company may reduce its Guarantee Fund after first obtaining approval from the OJK.

(4) The Guarantee Fund as referred to in Article 36 paragraph (1) and paragraph (2) must be placed in:

a. deposits, with automatic renewal at a Bank that is not an affiliate of the Company; and/or

b. securities issued by the State of the Republic of Indonesia, which at the time of placement as a Guarantee Fund have a remaining maturity to maturity of at least 1 (one) year.

(5) The Guarantee Fund as referred to in Article 36 paragraph (1) and paragraph (2) is prohibited from being pledged or encumbered with any rights.

Second Section
Management of the Guarantee Fund

Article 38

(1) The Company is required to manage all Guarantee Funds at a Custodian Bank.

(2) The Custodian Bank as referred to in paragraph (1) is not an affiliate of the Company, except where the affiliate relationship arises from ownership or capital participation by the State of the Republic of Indonesia.

Article 39

The management of the Guarantee Fund at the Custodian Bank as referred to in Article 38 paragraph (1) must be based on an agreement between the Company and the Custodian Bank that contains at least:

a. delegation or authorization by the Company to the Custodian Bank to liquidate, transfer, or hand over the Guarantee Fund after obtaining OJK approval;

b. the obligation of the Custodian Bank to place funds obtained from the liquidation of the Guarantee Fund in the form of securities issued by the State of the Republic of Indonesia that have matured into a 1 (one) month time deposit at a Bank in the name of the Company, in the event that the Company has not yet replaced the Guarantee Fund that has matured;

c. provisions that the Custodian Bank cannot execute instructions from the Company or other parties to liquidate, transfer, and hand over deposits or securities issued by the State of the Republic of Indonesia used as the Guarantee Fund unless OJK approval has been obtained; and

d. provisions that the Custodian Bank is required to submit a monthly report on the management of the Guarantee Fund held by the Company to the OJK no later than the 15th of the following month, which contains at least:

1. name of the Company owning the Guarantee Fund;

2. type of Guarantee Fund;

3. bill number and issuing Bank for deposits;

4. series of securities issued by the State of the Republic of Indonesia;

5. nominal value of the Guarantee Fund; and

6. maturity date.

Third Section
Changes to the Guarantee Fund

Article 40

(1) The Company may make changes to the Guarantee Fund in the form of formation, addition, replacement, transfer, and/or liquidation of the Guarantee Fund.

(2) The formation or addition of the Guarantee Fund may be done with the following provisions:

a. new placement of deposits at a Bank and/or securities issued by the State of the Republic of Indonesia as the Guarantee Fund;

b. placement of deposits at a Bank that were originally not the Guarantee Fund becoming the Guarantee Fund; and/or

c. placement of securities issued by the State of the Republic of Indonesia that were originally not the Guarantee Fund becoming the Guarantee Fund.

(3) The Company may transfer or replace the Guarantee Fund with the following provisions:

a. from deposits to securities issued by the State of the Republic of Indonesia or vice versa;

b. changing the maturity period of deposits at the Bank;

c. changing the Bank where the deposits are placed; and/or

d. exchanging securities issued by the State of the Republic of Indonesia with other securities issued by the State of the Republic of Indonesia.

(4) In the event that the Company will carry out the transfer or replacement of the Guarantee Fund as referred to in paragraph (3), the Company is required to first place the replacement Guarantee Fund of at least the value of the Guarantee Fund to be transferred or replaced.

(5) In the event that there is a Guarantee Fund in the form of securities issued by the State of the Republic of Indonesia that will mature, the Company is required to first place new Guarantee Funds of at least the value of the securities issued by the State of the Republic of Indonesia that will mature, no later than 1 (one) day before the maturity date.

(6) The Company may liquidate the Guarantee Fund in the event that the amount of the Guarantee Fund exceeds the minimum amount required as referred to in Article 36 paragraph (1) and paragraph (2).

(7) The amount of the Guarantee Fund that can be liquidated as referred to in paragraph (6) is the excess over the minimum amount required as referred to in Article 36 paragraph (1) and paragraph (2).

(8) The Company may only carry out the transfer or liquidation of the Guarantee Fund after obtaining OJK approval.

(9) The transfer or liquidation of the Guarantee Fund is carried out by submitting a request document containing at least:

a. reasons for the transfer or liquidation of the Guarantee Fund;

b. approval of the Board of Directors or equivalent for the transfer or liquidation of the Guarantee Fund; and

c. supporting documents proving the reasons for the transfer or liquidation of the Guarantee Fund.

Article 41

(1) The OJK may order the Company to increase the amount of the Guarantee Fund by up to the amount of technical reserves, in the event that:

a. the Company cannot meet the provisions regarding the Solvency Ratio as referred to in Article 3 paragraph (1); and

b. the Company is subject to sanctions restricting business activities.

(2) The Company is required to increase the amount of the Guarantee Fund as referred to in paragraph (1) no later than 1 (one) month since being ordered to increase the amount of the Guarantee Fund.

CHAPTER VII
SEPARATION OF ASSETS AND LIABILITIES

Article 42

(1) Assets and Liabilities related to the rights of policyholders or insured parties must be separated from other assets and Liabilities of the Company.

(2) The separation of assets and Liabilities as referred to in paragraph (1) consists of Insurance Funds and Company funds.

(3) The separation of assets and Liabilities as referred to in paragraph (2) must be disclosed in the Company's financial report.

(4) Provisions regarding the disclosure of the separation of assets and Liabilities in the Company's financial report as referred to in paragraph (3) are regulated in an OJK Circular.

Article 43

(1) The Company must maintain Permitted Assets in the Insurance Fund with a value of at least the amount of the Insurance Fund Liabilities.

(2) The Insurance Fund Liabilities as referred to in paragraph (1) consist of technical reserves, claim payables, co-insurance payables, reinsurance payables, and other Liabilities to policyholders or insured parties.

CHAPTER VIII
SUBMISSION OF PERIODIC REPORTS

First Section
Preparation of Reports

Article 44

(1) The Company is required to prepare:

a. annual financial reports for the period January 1 to December 31 based on applicable financial accounting standards in Indonesia;

b. annual financial reports for the period January 1 to December 31 based on provisions of legislation in the insurance field;

c. quarterly financial reports ending on March 31, June 30, September 30, and December 31 based on provisions of legislation in the insurance field;

d. monthly financial reports for the period from the 1st to the end of the current month; and

e. annual actuarial reports for the period January 1 to December 31.

(2) The annual financial report as referred to in paragraph (1) letter a must be audited by a public accountant registered with the OJK.

(3) The annual financial report as referred to in paragraph (1) letter b must be reviewed and assessed for compliance with provisions of legislation in the field of financial health of insurance companies by the Company's actuary or a public accountant registered with the OJK.

(4) The actuarial report as referred to in paragraph (1) letter e is a report that describes the Company's estimated ability to meet its future obligations.

(5) The report as referred to in paragraph (1) letter e must be signed by the Company's actuary.

(6) The annual actuarial report as referred to in paragraph (1) letter e must be reviewed and assessed for fair presentation by an actuarial consultant registered with the OJK at least 1 (one) time in 3 (three) years.

(7) The annual financial report as referred to in paragraph (1) letter b and the quarterly financial report as referred to in paragraph (1) letter c must contain at least:

a. Company profile;

b. statement letter from the Board of Directors or equivalent;

c. financial position report;

d. comprehensive income statement;

e. cash flow statement;

f. statement of changes in Equity;

g. Solvency Ratio report;

h. calculation of assets and Liabilities;

i. PAYDI financial report;

j. consolidated financial report; and

k. additional reports.

(8) Provisions regarding the form and structure of the reports as referred to in paragraph (1) letters b to e are regulated in an OJK Circular.

Article 45

For Companies conducting part of their business with Sharia principles, the reports as referred to in Article 44 paragraph (1) letters b to d do not include reports related to the Sharia unit of the said Company.

Article 46

In the reports as referred to in Article 44 paragraph (1), every asset and Liability in foreign currency units must be presented in Rupiah based on the middle exchange rate set by Bank Indonesia on the date of the report.

Second Section
Submission of Reports

Article 47

(1) The Company is required to submit to the OJK:

a. reports as referred to in Article 44 paragraph (1) letters a, b, and e no later than April 30 of the following year;

b. reports as referred to in Article 44 paragraph (1) letter c, no later than 1 (one) month after the end of the relevant quarter; and

c. reports as referred to in Article 44 paragraph (1) letter d no later than the 10th of the following month.

(2) If the final deadline for submitting reports as referred to in paragraph (1) is a holiday, the final deadline for submitting reports is the first working day after the said final deadline.

(3) Provisions regarding the procedure for submitting reports as referred to in paragraph (1) are regulated in an OJK Circular.

Third Section
Publication of Reports

Article 48

(1) The Company is required to publish a summary of the audited annual financial report as referred to in Article 44 paragraph (2) on the Company's website and in a daily newspaper in Indonesian language circulated nationally no later than 1 (one) month after the submission deadline for financial reports as referred to in Article 47 paragraph (1) letter a.

(2) Proof of publication as referred to in paragraph (1) must be submitted to the OJK no later than 2 (two) working days after the publication in the newspaper.

(3) The Company is required to publish a summary of the quarterly financial report as referred to in Article 44 paragraph (1) letter c on the Company's website no later than 1 (one) month after the end of the relevant quarter.

(4) Provisions regarding the form and structure of the summary of the annual financial report and the quarterly financial report as referred to in paragraph (1) and paragraph (3) are regulated in an OJK Circular.

Article 49

In the event that there are parts that need correction in the reports that have been published as referred to in Article 48 paragraph (1) and paragraph (3), the Company is required to correct the report and republish it on the Company's website.

CHAPTER IX
FINANCIAL HEALTH REHABILITATION PLAN

Article 50

A Company that does not meet the internal Solvability Target as referred to in Article 3 paragraph (3) and paragraph (4):

a. is required to submit a financial health rehabilitation plan; and

b. is prohibited from distributing dividends or providing compensation in any form to shareholders.

Article 51

(1) The financial health rehabilitation plan as referred to in Article 50 letter a must be submitted to the OJK no later than 1 (one) month since it was known that the Internal Solvability Target as referred to in Article 3 paragraph (5) was not met.

(2) The financial health rehabilitation plan as referred to in paragraph (1) must contain at least financial health rehabilitation steps accompanied by specific timeframes required to meet the internal Solvability Target provisions as referred to in Article 3 paragraph (5).

(3) The financial health rehabilitation steps as referred to in paragraph (2) contain action plans as follows:

a. asset and/or liability restructuring;

b. increase in paid-up capital;

c. provision of subordinated loans;

d. increase in premium rates;

e. transfer of part or all of the insurance portfolio;

f. business entity merger; and/or

g. other actions.

(4) The financial health rehabilitation plan as referred to in paragraph (1) must be signed by all members of the Board of Directors and Board of Commissioners or equivalent.

(5) The financial health rehabilitation plan as referred to in paragraph (1) must first be approved by the General Meeting of Shareholders or equivalent in the event that the rehabilitation plan contains an action plan to increase paid-up capital or an action plan for business entity merger.

(6) In the event that the financial health rehabilitation plan as referred to in paragraph (1) is assessed by the OJK as insufficient to overcome the problems, the Company is required to improve the financial health rehabilitation plan no later than 1 (one) month since notification from the OJK.

(7) The financial health rehabilitation plan as referred to in paragraph (1) and paragraph (6) must obtain a statement of no objection from the OJK.

(8) The OJK provides a statement of no objection for the financial health rehabilitation plan submitted by the Company as referred to in paragraph (7) by considering the conditions of the problems faced by the Company no later than 14 (fourteen) working days calculated from the date of receipt of the complete financial health rehabilitation plan.

(9) If within the timeframe as referred to in paragraph (8) the OJK does not provide a statement of no objection or response, the Company may implement the financial health rehabilitation plan as referred to in paragraph (1) and/or paragraph (6).

Article 52

(1) The Company is required to submit to the OJK a report on the implementation of the financial health rehabilitation plan no later than the 15th of the following month.

(2) The report on the implementation of the financial health rehabilitation plan as referred to in paragraph (1) must contain at least:

a. monthly financial reports prepared according to the form and structure of quarterly financial reports;

b. realization of action plans consisting of:

1. financial health rehabilitation plans that have been implemented according to the set target time;

2. financial health rehabilitation plans that could not be implemented according to the set target time; and

3. reasons for the inability to implement the rehabilitation plan according to the set target time; and

c. supporting documents proving that financial health rehabilitation actions have been implemented.

(3) If the 15th is a holiday, the final deadline for submitting the implementation report of the rehabilitation plan as referred to in paragraph (1) is the first working day after the 15th.

Article 53

(1) In the event that the Company estimates that the Company's Solvability Ratio will not be met within the timeframe as set in the financial health rehabilitation plan, the Company may make changes to the financial health rehabilitation plan.

(2) Changes to the financial health rehabilitation plan as referred to in paragraph (1) must first obtain approval from the OJK.

(3) The OJK provides a statement of no objection for changes to the financial health rehabilitation plan submitted by the Company no later than 14 (fourteen) working days calculated from the date of receipt of the complete changes to the financial health rehabilitation plan.

(4) If within the timeframe as referred to in paragraph (3) the OJK does not provide a statement of no objection or response, the Company may implement the changes to the financial health rehabilitation plan as referred to in paragraph (1).

Article 54

The OJK may order the Company to transfer part or all of the insurance portfolio to another Company, in the event that the Company cannot meet the Solvability Ratio as referred to in Article 3 paragraph (1) and/or is subject to sanctions restricting business activities.

CHAPTER X
SANCTIONS

Article 55

(1) A Company that does not meet the provisions in Article 2 paragraph (1), Article 3 paragraph (1), paragraph (2), and paragraph (6), Article 4 paragraph (2), Article 5 paragraph (1), Article 10, Article 12 paragraph (3), Article 14 paragraph (1) and paragraph (2), Article 19 paragraph (1) and paragraph (2), Article 20 paragraph (2) and paragraph (3), Article 21 paragraph (2), Article 24, Article 25 paragraph (1), Article 26, Article 27 paragraph (1) and paragraph (3), Article 28, Article 30, Article 31 paragraph (1) and paragraph (4), Article 32 paragraph (1), Article 33, Article 34, Article 35, Article 36, Article 37 paragraph (2), paragraph (4), and paragraph (5), Article 38 paragraph (1), Article 39, Article 40 paragraph (4), paragraph (5), and paragraph (8), Article 41 paragraph (2), Article 42 paragraph (1) and paragraph (3), Article 44 paragraph (1), paragraph (2), paragraph (3), and paragraph (6), Article 46, Article 47 paragraph (1), Article 48 paragraph (1), paragraph (2), and paragraph (3), Article 49, Article 50, Article 51 paragraph (1), paragraph (6), and paragraph (7), Article 52 paragraph (1), and Article 53 paragraph (2) of this OJK Regulation shall be subject to administrative sanctions in the form of:

a. written warning;

b. restriction of business activities, for part or all of the business activities; and/or

c. revocation of business license.

(2) Administrative sanctions as referred to in paragraph (1) are carried out progressively.

(3) In addition to administrative sanctions as referred to in paragraph (1), the OJK may add additional sanctions in the form of:

a. prohibition on marketing insurance products for certain business lines;

b. re-evaluation of competence and propriety for controllers, Directors, or Board of Commissioners, or equivalent in the Company;

c. prohibition for the Company to become a shareholder or equivalent to a shareholder, and/or controller in a legal entity in the form of a cooperative or joint venture, in an insurance company; and/or

d. prohibition for shareholders, controllers, Directors, and/or Board of Commissioners, or equivalent to shareholders, Directors, and/or Board of Commissioners of the Company to become shareholders, controllers, Directors, and/or Board of Commissioners, or equivalent to shareholders, Directors, and/or Board of Commissioners in a legal entity in the form of a cooperative or joint venture, in an insurance company.

Article 56

The OJK may impose a business license revocation sanction:

a. without prior imposition of other administrative sanctions; or

b. without prior imposition of progressive administrative sanctions as referred to in Article 55 paragraph (2),

in the event that the Company has a Solvability Ratio of less than 40% (forty percent) and based on OJK supervision results is assessed to be dangerous to policyholders or insured parties.

Article 57

(1) A Company that violates the provisions of Article 47 paragraph (1) letter a or letter b shall be subject to additional sanctions in the form of an administrative fine of Rp1,000,000.00 (one million Rupiah) per day of delay and at most Rp360,000,000.00 (three hundred sixty million Rupiah) for each report.

(2) A Company that violates the provisions of Article 48 paragraph (1) shall be subject to additional sanctions in the form of an administrative fine of Rp2,500,000.00 (two million five hundred thousand Rupiah) per day and at most Rp50,000,000.00 (fifty million Rupiah).

CHAPTER XI
TRANSITIONAL PROVISIONS

Article 58

(1) Companies must meet the provisions in Article 42 no later than in the financial report for the period December 31, 2017.

(2) Assessment of Liabilities in the form of technical reserves as referred to in Article 19 and signing of actuarial reports as referred to in Article 44 paragraph (5) for General Insurance Companies may be carried out by:

a. Company employees who have a general insurance analyst certificate (certified non-life analyst) from the Indonesian Actuaries Association; or

b. an actuarial consultant registered with the OJK and not affiliated with the Company,

no later than until December 31, 2017.

Article 59

(1) Every administrative sanction that has been imposed on a Company based on the Regulation of the Minister of Finance of the Republic of Indonesia Number 53/PMK.010/2012 concerning the Financial Health of Insurance and Reinsurance Companies is declared valid and applicable.

(2) Companies that have not been able to overcome the causes of the imposition of administrative sanctions as referred to in paragraph (1) shall be subject to further sanctions in accordance with this OJK Regulation.

CHAPTER XII
CLOSING PROVISIONS

Article 60

At the time this OJK Regulation comes into force, provisions concerning the financial health of Insurance and Reinsurance Companies shall be subject to this OJK Regulation.

Article 61

(1) This OJK Regulation does not apply to Companies that conduct all of their business with Sharia principles or to the Sharia units of Companies that conduct part of their business with Sharia principles.

(2) Provisions on financial health for Companies that conduct all of their business with Sharia principles or for Sharia units of Companies that conduct part of their business with Sharia principles are regulated by an OJK Regulation concerning the financial health of Insurance and Reinsurance Companies with Sharia principles.

Article 62

Provisions regarding the form and structure of reports, calculation of the Minimum Solvency Margin, basis for assessing investments and non-investments, and formation of technical reserves are declared to remain valid insofar as they do not conflict with the provisions in this OJK Regulation.

Article 63

This OJK Regulation comes into force on July 1, 2017.

In order that everyone may know it, it is ordered to promulgate this OJK Regulation by placing it in the State Gazette of the Republic of Indonesia.

Established in Jakarta on December 23, 2016

CHAIRMAN OF THE BOARD OF COMMISSIONERS
FINANCIAL SERVICES AUTHORITY,

signed
MULIAMAN D. HADAD

Promulgated in Jakarta on December 28, 2016

MINISTER OF LAW AND HUMAN RIGHTS
REPUBLIC OF INDONESIA,

signed
YASONNA H. LAOLY

STATE GAZETTE OF THE REPUBLIC OF INDONESIA YEAR 2016 NUMBER 304

A copy in accordance with the original
Director of Law 1
Ministry of Law

signed
Yuliana

EXPLANATION
OF
FINANCIAL AUTHORITY REGULATION
NUMBER 71 /POJK.05/2016
ON
FINANCIAL HEALTH
OF INSURANCE COMPANIES AND REINSURANCE COMPANIES

I. GENERAL

Law Number 21 of 2011 concerning the Financial Services Authority mandates that the supervision and regulation functions regarding all activities within the financial services sector operating in Indonesia are carried out by the OJK, and the purpose of establishing the OJK is so that all financial services activities are conducted in an orderly, fair, transparent, and accountable manner, and are capable of protecting consumer and public interests. Consistent with the OJK's objectives, the establishment of Law Number 40 of 2014 concerning Insurance aims to create a healthier, reliable, trustworthy, and competitive insurance industry, generally achieved through the establishment of new provisions or the improvement of existing provisions. These efforts include, among other things, the improvement of provisions regarding financial health.

This Financial Authority Regulation is a mandate of Law Number 40 of 2014 concerning Insurance, specifically contained in Article 19 paragraph (4), Article 20 paragraph (5), Article 21 paragraph (4), and Article 22 paragraph (5). The provisions in these articles mandate regulations regarding:
a. financial health and risk mitigation methods to maintain financial health; b. Guarantee Fund;
c. separation of assets and Liabilities; and
d. reporting.

In addition to these materials, efforts were also made to improve the content of previously applicable regulations, namely the Minister of Finance Regulation Number 53/PMK.010/2012 concerning Financial Health of Insurance Companies and Reinsurance Companies. This is an effort to meet the legal needs of the insurance industry.

Therefore, this Financial Authority Regulation is expected to provide guidelines for Insurance Companies and Reinsurance Companies in carrying out operational activities, particularly in maintaining the financial health of Insurance Companies and Reinsurance Companies.

II. ARTICLE BY ARTICLE EXPLANATION

Article 1
Sufficiently clear.

Article 2
Sufficiently clear.

Article 3
Paragraph (1)
Sufficiently clear.

Paragraph (2)
Sufficiently clear.

Paragraph (3)
The Company's risk profile considers, among other things, geographic location, the Company's products, business plans, and claims experience in measuring the risk profile, and considers scenario changes (stress tests). Furthermore, the Company may consider other risks that may arise, including those originating from strategic changes and/or business development plans of the Company.

Paragraph (4)
Sufficiently clear.

Paragraph (5)
Sufficiently clear.

Paragraph (6)
Sufficiently clear.

Article 4
Paragraph (1)
Credit risk, liquidity risk, and market risk are part of asset and Liability risks present in the risk level assessment of non-bank financial service institutions.

Paragraph (2)
Sufficiently clear.

Paragraph (3)
Sufficiently clear.

Article 5
Paragraph (1)
What is meant by "prudent principle" is the placement of investments considering safety, optimal returns, liquidity needs, and the Company's Liability profile.

Paragraph (2)
Letter a
Sufficiently clear.

Letter b
What is meant by "certificate of deposit" is deposits in the form of certificates of deposit, including those based on Sharia principles, where the certificate of deposit evidence can be transferred.

Letter c
Sufficiently clear.

Letter d
Sufficiently clear.

Letter e
Sufficiently clear.

Letter f
Sufficiently clear.

Letter g
Sufficiently clear.

Letter h
Sufficiently clear.

Letter i
Sufficiently clear.

Letter j
Sufficiently clear.

Letter k
Sufficiently clear.

Letter l
Sufficiently clear.

Letter m
Sufficiently clear.

Letter n
Sufficiently clear.

Letter o
Sufficiently clear.

Letter p
Sufficiently clear.

Letter q
Sufficiently clear.

Letter r
Sufficiently clear.

Letter s
Sufficiently clear.

Paragraph (3)
Sufficiently clear.

Paragraph (4)
Sufficiently clear.

Paragraph (5)
Sufficiently clear.

Article 6
Paragraph (1)
What is meant by "investment grade" is the eligibility granted to types of investments issued by companies that have received ratings from rating agencies recognized by the OJK or equivalent to BBB.

Paragraph (2)
Sufficiently clear.

Paragraph (3)
Sufficiently clear.

Paragraph (4)
Sufficiently clear.

Paragraph (5)
Sufficiently clear.

Paragraph (6)
Sufficiently clear.

Paragraph (7)
Sufficiently clear.

Paragraph (8)
Sufficiently clear.

Paragraph (9)
Sufficiently clear.

Paragraph (10)
Sufficiently clear.

Article 7
Sufficiently clear.

Article 8
Sufficiently clear.

Article 9
Sufficiently clear.

Article 10
Sufficiently clear.

Article 11
Sufficiently clear.

Article 12
Paragraph (1)
Sufficiently clear.

Paragraph (2)
What is meant by "investment in one Party or several Parties that are affiliated but such Parties are not affiliated with the Company" is investment in several Parties that are mutually affiliated but there is no affiliation relationship with the Company.

Paragraph (3)
Sufficiently clear.

Paragraph (4)
Sufficiently clear.

Paragraph (5)
Sufficiently clear.

Article 13
Paragraph (1)
Sufficiently clear.

Paragraph (2)
Letter a
Sufficiently clear.

Letter b
What is meant by "family relationship due to marriage or descent up to the second degree, both horizontally and vertically" refers to Parties as follows:

1. biological/step/adopted parents;
2. biological/step/adopted siblings;
3. biological/step/adopted children;
4. biological/step/adopted grandparents;
5. biological/step/adopted grandchildren;
6. biological/step/adopted siblings of parents;
7. husband or wife;
8. parents-in-law or siblings-in-law;
9. husband or wife of biological/step/adopted children;
10. grandparents of husband or wife;
11. husband or wife of biological/step/adopted grandchildren;
12. biological/step/adopted siblings of husband or wife, along with the husband or wife of the respective sibling.

Letter c
Sufficiently clear.

Letter d
Sufficiently clear.

Letter e
Sufficiently clear.

Letter f
Sufficiently clear.

Paragraph (3)
Sufficiently clear.

Article 14
Sufficiently clear.

Article 15
Sufficiently clear.

Article 16
Sufficiently clear.

Article 17
Paragraph (1)
Letter a
Sufficiently clear.

Letter b
Sufficiently clear.

Letter c
Sufficiently clear.

Letter d
Sufficiently clear.

Letter e
Sufficiently clear.

Letter f
Sufficiently clear.

Letter g
Sufficiently clear.

Letter h
Sufficiently clear.

Letter i
Sufficiently clear.

Letter j
What is meant by "acquisition costs" are commission costs, policy costs, and overriding commission costs.

Paragraph (2)
Sufficiently clear.

Paragraph (3)
Sufficiently clear.

Article 18
Sufficiently clear.

Article 19
Sufficiently clear.

Article 20
Paragraph (1)
Letter a
Number 1
Sufficiently clear.

Number 2
What is meant by "other benefits" includes, for example, return of premium and no-claim bonus.

Letter b
Sufficiently clear.

Letter c
Reserves for PAYDI, for example, reserves for unit-link and universal life products.

Letter d
Sufficiently clear.

Letter e
What is meant by "disaster risk" is the risk of losses arising from natural phenomena or pure accident risks that cause significant losses to the Company.

Paragraph (2)
Sufficiently clear.

Paragraph (3)
Sufficiently clear.

Paragraph (4)
Sufficiently clear.

Paragraph (5)
Sufficiently clear.

Paragraph (6)
Sufficiently clear.

Paragraph (7)
Sufficiently clear.

Article 21
Sufficiently clear.

Article 22
What will be regulated in an OJK Circular includes, among other things, the formation methods for each type of technical reserve and the assumptions used.

Article 23
Sufficiently clear.

Article 24
Sufficiently clear.

Article 25
Paragraph (1)
What is meant by "other Liabilities to policyholders or insured parties" includes, among other things, premium deposits.

Paragraph (2)
Sufficiently clear.

Article 26
Sufficiently clear.

Article 27
Sufficiently clear.

Article 28
Sufficiently clear.

Article 29
Sufficiently clear.

Article 30
Sufficiently clear.

Article 31
Sufficiently clear.

Article 32
Sufficiently clear.

Article 33
Sufficiently clear.

Article 34
Sufficiently clear.

Article 35
Sufficiently clear.

Article 36
Sufficiently clear.

Article 37
Sufficiently clear.

Article 38
Sufficiently clear.

Article 39
Sufficiently clear.

Article 40
Sufficiently clear.

Article 41
Sufficiently clear.

Article 42
Paragraph (1)
Sufficiently clear.

Paragraph (2)
Sufficiently clear.

Paragraph (3)
Disclosure of the separation of assets and Liabilities in the Company's financial reports based on provisions of legislation in the field of insurance.

Paragraph (4)
Sufficiently clear.

Article 43
Sufficiently clear.

Article 44
Paragraph (1)
Sufficiently clear.

Paragraph (2)
Sufficiently clear.

Paragraph (3)
Sufficiently clear.

Paragraph (4)
Sufficiently clear.

Paragraph (5)
Sufficiently clear.

Paragraph (6)
Sufficiently clear.

Paragraph (7)
Letter a
Sufficiently clear.

Letter b
Sufficiently clear.

Letter c
Sufficiently clear.

Letter d
Sufficiently clear.

Letter e
Sufficiently clear.

Letter f
Sufficiently clear.

Letter g
Sufficiently clear.

Letter h
Sufficiently clear.

Letter i
Sufficiently clear.

Letter j
Sufficiently clear.

Letter k
What is meant by "additional reports" includes, among other things, reports regarding the Guarantee Fund, health ratios other than MMBR, education and training ratios, and other reports.

Paragraph (8)
Sufficiently clear.

Article 45
Sufficiently clear.

Article 46
Sufficiently clear.

Article 47
Sufficiently clear.

Article 48
Sufficiently clear.

Article 49
Sufficiently clear.

Article 50
Sufficiently clear.

Article 51
Sufficiently clear.

Article 52
Sufficiently clear.

Article 53
Sufficiently clear.

Article 54
Sufficiently clear.

Article 55
Sufficiently clear.

Article 56
Sufficiently clear.

Article 57
Sufficiently clear.

Article 58
Sufficiently clear.

Article 59
Sufficiently clear.

Article 60
Sufficiently clear.

Article 61
Sufficiently clear.

Article 62
Sufficiently clear.

Article 63
Sufficiently clear.

SUPPLEMENT TO THE GAZETTE OF THE REPUBLIC OF INDONESIA NUMBER 5994