Guidelines for Calculating Risk-Based Minimum Tabarru’ and Tanahud Funds and Risk-Based Minimum Capital for 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 your location.

COPY
CIRCULAR LETTER OF THE FINANCIAL SERVICES AUTHORITY NUMBER 25 /SEOJK.05/2017 CONCERNING GUIDELINES FOR CALCULATING THE AMOUNT OF RISK-BASED MINIMUM TABARRU’ AND TANAHUD FUNDS AND RISK-BASED MINIMUM CAPITAL FOR SHARIA INSURANCE AND REINSURANCE COMPANIES

In accordance with the mandate of Article 12 paragraph (4) of Financial Services Authority Regulation Number 72/POJK.05/2016 concerning Financial Health of Sharia Insurance and 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 guidelines regarding the calculation of risk-based minimum Tabarru’ and Tanahud funds and risk-based minimum capital for Sharia insurance and reinsurance companies in this Financial Services Authority Circular as follows:

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

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

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

3. 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.

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

5. Party means a person or business entity, whether incorporated or unincorporated, as referred to in Law Number 40 of 2014 concerning Insurance.

6. Insurance Products Linked to Investment, hereinafter referred to as PAYDI, is an insurance product that provides the least protection against death risk and provides benefits referring to the investment results of a fund specifically formed for the insurance product, whether in unit or non-unit form.

7. Permitted Assets, hereinafter abbreviated as AYD, are assets calculated in the solvency ratio calculation.

8. Risk-Based Minimum Capital, hereinafter abbreviated as MMBR, is the amount of funds needed to anticipate potential losses resulting from deviations in the management of assets and liabilities from the Company's funds.

9. Risk-Based Minimum Tabarru’ and Tanahud Funds, hereinafter abbreviated as DTMBR, is the amount of funds needed to anticipate potential losses resulting from deviations in the management of assets and liabilities from Tabarru’ and Tanahud funds.

10. Tabarru’ and Tanahud Funds Solvency Ratio is the difference between the amount of AYD from Tabarru’ and Tanahud funds minus the liabilities from the management of Tabarru’ and Tanahud funds.

11. Company Funds Solvency Ratio is the difference between the amount of AYD from Company funds minus the liabilities from the management of Company funds.

12. Liabilities are obligations as referred to in insurance legislation.

II. CALCULATION OF RISK-BASED MINIMUM TABARRU’ FUNDS AND RISK-BASED MINIMUM CAPITAL

1. DTMBR and MMBR for Companies are determined based on the magnitude of potential losses resulting from deviations in the management of assets and liabilities from the management of Tabarru’ funds and Company funds.

2. The calculation of the fund amounts as referred to in item 1 must be performed based on the guidelines as referred to in the Appendix, which is an integral part of this Financial Services Authority Circular.

III. CLOSING PROVISIONS

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

2. Upon the taking effect of this Financial Services Authority Circular, the Capital Market Supervisory Board and Financial Institutions Chairman Regulation Number PER-07/BL/2011 concerning Guidelines for Calculating the Amount of Funds Required to Anticipate Losses from the Management of Tabarru’ Funds and Calculating the Amount of Funds Companies Must Provide to Anticipate Losses That May Arise in the Conduct of Sharia Insurance and Reinsurance Business, is repealed and declared invalid.

Established in Jakarta
On June 13, 2017

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

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

APPENDIX
CIRCULAR LETTER OF THE FINANCIAL SERVICES AUTHORITY NUMBER 25 /SEOJK.05/2017 CONCERNING GUIDELINES FOR CALCULATING THE AMOUNT OF RISK-BASED MINIMUM TABARRU’ AND TANAHUD FUNDS AND RISK-BASED MINIMUM CAPITAL FOR SHARIA INSURANCE AND REINSURANCE COMPANIES

GUIDELINES FOR CALCULATING THE AMOUNT OF RISK-BASED MINIMUM TABARRU’ AND TANAHUD FUNDS AND RISK-BASED MINIMUM CAPITAL FOR SHARIA INSURANCE AND REINSURANCE COMPANIES

I. General Guidelines for Calculating DTMBR and MMBR Amounts

1. The calculation of solvency ratios, DTMBR, and MMBR for PAYDI is performed with the following provisions:
   a. For the portion of assets and Liabilities originating from the protection element of PAYDI 1, asset and liability records are included in the financial position report as traditional insurance products in Tabarru’ funds. b. For the portion of assets and Liabilities originating from the accumulation of funds for PAYDI that are guaranteed or have guaranteed minimum returns, the solvency ratio and MMBR calculations are performed as described in this Appendix.
   c. For the portion of assets and Liabilities originating from the accumulation of funds for PAYDI that are not guaranteed, where investment results fully refer to market performance or there is no guarantee of minimum investment returns, no solvency ratio, DTMBR, or MMBR calculations are performed.

2. For Sharia Insurance Companies selling PAYDI that guarantee the principal investment value, the total MMBR of such Sharia Insurance Company is the sum of the MMBR for traditional (non-PAYDI) products and the MMBR for guaranteed PAYDI.

3. DTMBR is calculated by summing the funds required to anticipate potential losses resulting from deviations in the management of assets and liabilities from Tabarru’ funds. These risks consist of:
   a. Credit Risk; b. Liquidity Risk;
   c. Market Risk;
   d. Insurance Risk; and e. Operational Risk.

1 In accordance with regulations, PAYDI always contains a protection element.

4. MMBR is calculated by summing the funds required to anticipate potential losses resulting from deviations in the management of assets and liabilities from Company funds. These risks consist of:
   a. Credit Risk; b. Liquidity Risk;
   c. Market Risk; and
   d. Operational Risk.

5. The provisions for using ratings for investment and non-investment instruments in calculating risk magnitudes as referred to in items 3 and 4 are as follows:
   a. The ratings referred to in these regulations are ratings issued by securities rating agencies recognized by the Financial Services Authority or those that have obtained international recognition. b. For each investment instrument, the rating used is the instrument's rating for each reporting period. If the instrument's rating is unavailable, the most recent rating for a similar instrument issued by the same issuer or the rating of the issuer itself may be used.
   c. For investment instruments issued by Indonesian legal entities or special purpose vehicles (SPVs) abroad established by Indonesian legal entities, the investment instrument rating may be based on:

1. ratings issued by securities rating agencies recognized by the Financial Services Authority;
2. ratings issued by securities rating agencies affiliated with securities rating agencies recognized by the Financial Services Authority;
3. ratings of similar instruments issued by the issuer that have been rated by securities rating agencies recognized by the Financial Services Authority; or
4. ratings issued by internationally recognized securities rating agencies.

d. For investment instruments issued by foreign legal entities, the rating used is the rating issued by internationally recognized securities rating agencies. e. The grouping of ratings issued by securities rating agencies recognized by the Financial Services Authority and internationally is as follows:

Rating Cluster

1. AAA or equivalent
2. AA or equivalent
3. A or equivalent
4. BBB or equivalent
5. Below BBB or equivalent, or unrated

II. Guidelines for Calculating DTMBR and MMBR for Companies

1. Credit Risk
   a. Credit risk for DTMBR and MMBR is the risk of potential loss or depreciation of assets caused by:

1. the failure or inability of debtors, reinsurers, and/or other Parties to fulfill obligations to the Company; and
2. the failure/inability of the reinsurer to fulfill its obligations to the Company.
   b. The amount of funds required to anticipate risk:
3. for DTMBR and MMBR, the failure of debtors and/or other Parties to fulfill obligations to the Company is determined by multiplying the AYD value by the risk factor (FR) for specific asset types according to the type of Tabarru’, Tanahud, and Company funds.
   Amount of Funds = ∑(AYD_i × FR_i)
   AYD_i = AYD of asset type i
   FR_i = risk factor of asset type i

a) The ratings used refer to the provisions in Roman I item 5 letter e. b) Risk factors for each specific type of AYD for investment assets are as follows:

(1) Time deposits at Sharia Banks and BPRS, including deposit on call and time deposits with a term of less than or equal to 1 (one) month, and certificates of deposit (negotiable certificate deposit) at Sharia Banks; (a) Risk Factor Category Risk Factor
i. Special Category 0.0%
ii. Other Categories, according to the rating of the Sharia Bank and BPRS

• Cluster 1 Rating 1.2%
• Cluster 2 Rating 2.1%
• Cluster 3 Rating 3.0%
• Cluster 4 Rating 4.5%
• Cluster 5 Rating 9.0%

(b) Deposits/certificates of deposit included in the special category are deposits/certificates of deposit at one Sharia Bank or deposits at one BPRS that meet guarantee requirements (including investment return limits) up to the maximum amount guaranteed by the Deposit Insurance Agency. (c) Deposits/certificates of deposit included in other categories according to the Sharia Bank's rating are deposits/certificates of deposit at one Sharia Bank or deposits at one BPRS that do not meet guarantee requirements, i.e., amounts exceeding the maximum amount guaranteed by the Deposit Insurance Agency.

(2) Sukuk or Sharia corporate bonds, Sharia Medium Term Notes, and Sharia securities issued by countries other than the Republic of Indonesia; Category Risk Factor
i. Cluster 1 Rating 1.6%
ii. Cluster 2 Rating 2.8%
iii. Cluster 3 Rating 4.0%
iv. Cluster 4 Rating 6.0%
v. Cluster 5 Rating 12.0%

(3) Sharia securities issued by:
(a) The Republic of Indonesia;
(b) Bank Indonesia; and
(c) multinational institutions of which the Republic of Indonesia is a member or shareholder, including the World Bank, International Monetary Fund, International Development Bank, and ASIAN Development Bank; risk factor is 0% (zero percent).

(4) Sharia securities transactions through Repurchase Agreement (REPO), risk factor 1% (one percent).

(5) Financing through cooperation mechanisms with other Parties in the form of financing cooperation agreements (executing); Financial Health Level of Sharia Financing Companies* Risk Factor
i. Very Healthy 1.6%
ii. Healthy 2.8%
iii. Less Healthy 4.0%
iv. Unhealthy 6.0%
*: obtained from the Financial Services Authority, through data requests from Sharia financing companies to the Financial Services Authority at the reporting date.

(6) Sharia financing guaranteed by land rights (hak tanggungan) (a) the risk factor for Sharia financing guaranteed by land rights is classified based on the loan to value (LTV) ratio and property usage type; (b) LTV is calculated based on the financing balance and the market value of the property bound by land rights; and (c) risk factors for each category are as follows:
Category Risk Factor
i. Residential Property

• LTV < 65% 2.8%
• 65% < LTV < 75% 4.0%
  ii. Other Commercial Property
• LTV < 65% 5.6%
• 65% < LTV < 75% 8.0%
  iii. Unused Property 12.0%

c) Risk factors for each type of AYD for non-investment assets are as follows:
Asset Type Category Risk Factor
Cash and Bank 0.00%
Direct closing contribution receivables, including co-insurance contribution receivables that are part of the Company 8.00% Direct closing ujrah receivables, including ujrah receivables on co-insurance that are part of the Company 8.00% Reinsurance Contribution Receivables Domestic Companies 2.8% Foreign Companies

• Cluster 1 Rating 2.8%
• Cluster 2 Rating 4.0%
• Cluster 3 Rating 6.0%
• Cluster 4 Rating 12.0%
• Cluster 5 Rating 15.0%
  Tabarru’ and Tanahud Funds Reinsurance Assets (assets originating from the estimated claim recovery value of the reinsurance portion) 0% Company Funds Reinsurance Assets (assets originating from long-term contract agreements (longterm contract) capital-oriented reinsurance programs for PAYDI where acquisition costs are paid in advance by the Company (back-end loading)) 30% Co-insurance Claim Receivables Domestic Co-insurers 2.8% Foreign Co-insurers
• Cluster 1 Rating 2.8%
• Cluster 2 Rating 4.0%
• Cluster 3 Rating 6.0%
• Cluster 4 Rating 12.0%
• Cluster 5 Rating 15.0%
  Reinsurance Claim Receivables
  Domestic Reinsurers 2.8%
  Foreign Reinsurers
• Cluster 1 Rating 2.8%
• Cluster 2 Rating 4.0%
• Cluster 3 Rating 6.0%
• Cluster 4 Rating 12.0%
• Cluster 5 Rating 15.0%
  Investment Receivables
  Investments not yet received by the due date 2.0% Investments that default on the due date or upon redemption 25.0% Investment Result Receivables 2.0%

2. The failure/inability of the reinsurer to fulfill its obligations to the insurance company is determined by multiplying the reinsurance exposure amount (ER) by the risk factor (FR).
   a) The reinsurance exposure amount is calculated from the technical reserves for reinsurer liabilities (reinsurance assets) in Tabarru’ and Tanahud funds, i.e., the portion of reinsurance assets originating from the estimated claim recovery value of the reinsurance portion minus reinsurance deposits consisting of all forms of deposits placed by the reinsurer with the insurer, including reserves retained by the insurer where the insurer has full authority to use such deposits. b) The risk factors used are as follows:
   Category Company/Reinsurer Risk Factor
   Domestic 2.8%
   Foreign

• Cluster 1 Reinsurer Rating 2.8%
• Cluster 2 Reinsurer Rating 4.0%
• Cluster 3 Reinsurer Rating 6.0%
• Cluster 4 Reinsurer Rating 12.0%
• Cluster 5 Reinsurer Rating 15.0%

3. Credit risk on DTMBR is the sum of the calculations in item 1) and item 2). Credit risk on MMBR is the calculation result from item 1).

2. Liquidity Risk
   a. Liquidity risk (LR) for DTMBR and MMBR is the risk of imbalance between projected asset cash flows and liability cash flows arising from mismatches between the amount and maturity of assets and the amount and maturity of liabilities. Amount of Funds = ∑(ER_i × FR_i) ER_i = reinsurance exposure for reinsurer i FR_i = Risk Factor for Reinsurer i

b. To calculate Liquidity Risk, the AYD and liabilities of Tabarru’, Tanahud, and Company funds are grouped by maturity, namely:

1. Maturity within less than 1 (one) year;
2. Maturity within more than 1 (one) year but less than 3 (three) years;
3. Maturity within more than 3 (three) years but less than 5 (five) years;
4. Maturity within more than 5 (five) years but less than 10 (ten) years; and
5. Maturity within 10 (ten) years or more.

c. AYD in the form of traded instruments valued at market value (including stocks) are classified as assets maturing within less than 1 (one) year.
d. AYD intended to be held until maturity are classified according to their remaining life. e. The amount of funds required to anticipate LR is calculated as follows:

LR = ∑ 4.0% × (Max (L_i − AYD_i), 0)
AYD_i = AYD value maturing in period i
L_i = Liability value maturing in period i

3. Market Risk
   a. Market risk for DTMBR and MMBR is the risk of potential losses due to changes in market prices of Company assets, foreign currency exchange rate changes, and changes in investment returns resulting from market volatility and Liquidity. b. The amount of funds required to anticipate risk:

1. Changes in market prices of Company assets (PHP) are determined by multiplying the AYD value by the risk factor (FR) for specific asset types according to the type of Tabarru’, Tanahud, and Company funds.
   PHP = ∑(AYD_i × FR_i)
   AYD_i = AYD of asset type i
   FR_i = Risk factor of asset type i

a) The ratings used refer to the provisions in Roman I item 5 letter e. b) Risk factors for each asset type and example calculations of capital charges for each investment asset type are as follows:

(1) Stocks listed on the stock exchange;
(a) Risk Factor
Description Risk Factor
i. Stocks included in the Jakarta Islamic Index (JII) or IDX30. 15.0%
ii. Stocks not included in the Jakarta Islamic Index (JII) or IDX30. 20.0%
iii. Stocks listed on foreign stock exchanges 30.0%

• Stocks constituting the main index of major stock exchanges in Asia-Pacific and European countries that are members of the World Federation of Exchanges 20.0%
• Other stocks 30.0%

(b) The value of stocks subject to risk factors is the net value after considering hedging components.

(2) Mutual Funds
Mutual Fund Securities Portfolio Risk Factor
i. Fully consisting of Sharia State Securities (SBSN) 0.00%
ii. Fully consisting of Sukuk and/or Money Market Securities 6.00%
iii. Fully consisting of Sharia Equity Securities or Sharia Index 16.00%
iv. Mixed Portfolio Weighted Average based on the composition of mutual fund securities portfolios for mixed mutual funds with portfolios partly consisting of cash, categorized as part of its largest portfolio.

(3) Sharia Asset-Backed Securities
EBA Rating Risk Factor
i. Cluster 1 Rating 1.6%
ii. Cluster 2 Rating 2.8%
iii. Cluster 3 Rating 4.0%
iv. Cluster 4 Rating 6.0%
v. Cluster 5 Rating 12.0%

(4) Sharia Real Estate Investment Funds in the form of collective investment contracts, risk factor 10.0% (ten point zero percent).

(5) Direct investments in companies whose stocks are not listed on the stock exchange (a) Risk factors for direct investments are classified by category, as follows:
Category Risk Factor
Under the Supervision of the Financial Services Authority 10.0% Not Under the Supervision of the Financial Services Authority 20.0%

(b) Direct investments in special purpose vehicles (SPVs) or holding companies that do not conduct operations, risk factors are adjusted according to the dominant business field of subsidiary companies, weighted by company assets.

(6) Land, buildings with strata titles (strata title), or land with buildings, for investment; (a) Risk factors for land, buildings with strata titles (strata title), or land with buildings, for investment are classified based on the investment return obtained, as follows:
Group Risk Factor
Annual net investment return more than 4% 7.0% Annual net investment return between 2% to 4% 15.0% Annual net investment return less than 2% 40.0%

(b) Annual net investment returns do not consider profits from the sale or revaluation of buildings with strata titles (strata title) or land with buildings.

(7) Pure gold, risk factor 3% (three percent)

c) Risk factors for non-investment AYD in the form of buildings with strata titles or land with buildings, for own use, are 4.0% (four point zero percent).

2. Changes in foreign currency exchange rates
   a) Changes in foreign currency exchange rates (PNTMUA) arise from differences in asset and liability values in foreign currencies, as well as fluctuations in foreign currency exchange rates against the rupiah. Changes in foreign currency exchange rates are calculated as follows:

AYD_i – L_i Risk Factor PNTMUA
Less than or equal to zero 30% ∑ 30% x (L_i – AYD_i) More than zero but not exceeding 20% of Total Liabilities 0% Zero Exceeding 20% of Total Liabilities 10% 10% x ∑ (AYD_i – (120% x L_i))

AYD_i = AYD value of currency i
L_i = Liability value of currency i

b) The calculated fund amounts in letter a) are converted into rupiah according to the Bank Indonesia middle exchange rate on the reporting date. c) Insurance contracts containing provisions for converting foreign currency to rupiah using specific exchange rates established in the contract must be treated as insurance contracts in rupiah. d) In the event of hedging contracts, the asset and liability values are the net asset and liability values that have considered hedging.

3. Changes in investment return rates
   Changes in investment return rates (PHI) arise from differences between assumed investment returns in contribution determinations and actual investment returns, resulting in insufficient contributions to pay insurance benefits. a) Changes in investment return rates on DTMBR are calculated as follows:

b) Changes in investment yield on MMBR are calculated as follows:
c) The risk-free investment yield refers to the average 3 (three) year SUN yield of the benchmark series with a maturity period appropriate to the average policy maturity at the Company level. d) PHI Factor (FPHI), at 15% (fifteen percent).
c. Total Market Risk is the sum of letter b, item 1), item 2), and item 3).

4. Insurance Risk
   a. Insurance Risk (IR) for DTMBR is the risk of the Company's potential failure to meet obligations to policyholders or participants due to insufficient risk selection (underwriting), contribution setting (pricing), and/or claims handling. b. The amount of funds required to anticipate risk:

1. Calculation of Insurance Risk (IR) for contribution reserves for insurance products with a term of more than 1 (one) year whose policy terms and conditions are not renewable (non-renewable) at each policy anniversary, as well as for products with a term of more than 1 (one) year whose policy terms and conditions are renewable (renewable) and provide other benefits after a certain period, is determined using the following formula:

PHI = FPHI Max((PKrf - PK0), 0)
FPHI = PHI factor
PKrf = contribution reserve calculated with risk-free investment yield PK0 = contribution reserve calculated by the Company's actuary (contribution reserve presented in the financial position report/balance sheet)

PHI = FPHI Max((PUrf - PU0), 0)
FPHI = PHI factor
PUrf = ujrah reserve calculated with risk-free investment yield PU0 = ujrah reserve calculated by the Company's actuary (contribution reserve presented in the financial position report/balance sheet)

A stress test to achieve a 95% (ninety-five percent) confidence level is performed on all variables forming the calculation of contribution reserves, except for the investment yield variable (the investment yield variable stress test is calculated in market risk).

2. Calculation of IR for reserves on unearned contributions for insurance 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 are renewable (renewable) at each policy anniversary, is determined using the following formula:

RA = max ((PK* - PK), 0)
PK* = contribution reserve calculated with the best estimate plus margin for adverse deviation with a 95% (company level) confidence level for reserve adequacy. PK = contribution reserve according to the financial position report (balance sheet) and according to the Company's actuary calculation.

3. Calculation of IR for claim reserves is determined using the following formula:

RA = ∑ (( PAKYBMPi – ARi )fpki)
PAKYBMPi = reserve on unearned contributions for business line i ARi = reinsurance assets for PAKYBMP for business line i Fpki = risk factor for reserves on unearned contributions for business line i

4. Calculation of IR for disaster risk reserves is determined using the following formula:

RA = ∑ ((PKi– ARi )fcki)
PKi = claim reserve for business line i
ARi = reinsurance assets for claim reserves for business line i Fcki = risk factor for claim reserves for business line i

5. The magnitude of Fpk, Fck, and Fcb for each insurance business line is as follows:

Insurance Branch	Risk Factor Fpk	Risk Factor Fck	Risk Factor Fcb
Property	25%	20%	25%
Motor Vehicle (own damage, third party liability, and personal accident)	25%	20%	25%
Marine Cargo	30%	25%	30%
Marine Hull	30%	25%	30%
Aviation Hull	30%	25%	30%
Satellite	25%	20%	25%
Onshore Energy (oil and gas)	35%	30%	35%
Offshore Energy (oil and gas)	35%	30%	35%
Engineering	25%	20%	25%
Liability	35%	30%	35%
Personal Accident	25%	20%	25%
Health	25%	20%	25%
Miscellaneous	30%	25%	30%
Life	25%	20%	25%

c. Total Insurance Risk is the sum of letter b, items 1) through 4).

5. Operational Risk
   a. Operational Risk (OR) for DTMBR and MMBR is the risk of potential failure caused by insufficient and/or non-functioning internal processes, human resource errors, system failures, and/or external issues affecting Company operations, including the management of investment funds sourced from PAYDI. The more complex the Company's structure, the higher the operational risk.

RA = ∑ ((PRBi – ARi )fcbi)
PRBi = reserve on disaster risk for business line i ARi = Reinsurance assets for disaster risk reserves for business line i Fcbi = risk factor for disaster risk reserves for business line i

b. Operational Risk (OR) consists of:

1. Company operational risk; and
2. PAYDI operational risk (if having PAYDI)

c. The amount of funds required to anticipate risk:

1. Company Operational Risk (OR) is determined by calculating the proxy for operational complexity multiplied by the Company's Operational Risk (OR) factor. The proxy for operational complexity is calculated from:
   a) General and Administrative Expenses (BUA) after deducting Education and Training Expenses (BPL). The calculation of the aforementioned expenses uses information from the last 4 (four) quarterly report periods. b) Deferred Acquisition Cost (DAC).

2. Tabarru' Fund Operational Risk (RODT) is determined by multiplying the amount of Tabarru' investment funds by the Tabarru' Fund Operational Risk factor.

3. PAYDI Operational Risk (ROPAYDI) is determined by multiplying the amount of PAYDI funds managed by the Company by the PAYDI Operational Risk factor.

d. Total DTMBR operational risk is the result of the calculation in letter c, item 2). e. Total MMBR operational risk is the sum of letter c, item 1), letter a), and letter b), and item 3).

III. Guidelines for Calculating MMBR for Sharia Insurance Companies Selling PAYDI that Guarantee Principal Investment Value

1. Sharia Insurance Companies selling PAYDI that guarantee principal investment value must determine the magnitude of its Minimum Liability to policyholders or participants for the investment component based on the guarantee provided in the policy. If the Company does not specifically determine the Minimum Liability to policyholders or participants for the investment component based on the guarantee provided in the policy, then the Minimum Liability is calculated by accumulating the contribution portion for the investment component using a minimum yield rate equivalent to the guarantee in the policy.

2. The amount of AYD used for PAYDI solvency calculation is the accumulated amount of AYD.

3. For Sharia Insurance Companies selling PAYDI that guarantee principal investment value, the total MMBR of such Sharia Insurance Company is the sum of the MMBR calculated according to the guidelines in Roman II plus the MMBR for PAYDI that guarantees principal investment value.

4. Companies selling PAYDI that guarantee principal investment value must ensure the adequacy of the value of guaranteed PAYDI assets to meet the Liabilities guaranteed by the Company by considering the risks faced by the Company in managing the guaranteed PAYDI assets. If the value of guaranteed PAYDI assets is smaller than the Liabilities guaranteed by the Company (principal investment value), the Company must have fund support sourced from Company funds to anticipate the aforementioned condition, namely the amount of MMBR for PAYDI that guarantees principal investment value.

5. MMBR for PAYDI that guarantees principal investment value is calculated using the formula:

MMBR PG = MMBR for PAYDI that guarantees principal investment value.
Risiko PG = risk in the management of PAYDI assets that guarantee principal investment value.
Liabilitas PG = Liabilities guaranteed by the Company on the guaranteed PAYDI, namely the principal investment value.
Aset PG = assets from participant investment funds on PAYDI that guarantee principal investment value.

MMBR PG = Max (0; (120% X Risiko PG) + Liabilitas PG – Aset PG)

6. Risiko PG is the sum of the following components:
   a. credit risk; b. market risk; and
   c. liquidity risk.

IV. Calculation methods for each component as referred to in Roman III item 6 are as follows:
a. Credit Risk

1. The credit risk factor calculated is only for loss or depreciation of assets caused by debtor and/or other party failure to meet obligations to the Company.
2. The provisions and procedures for calculating the amount of funds considered in MMBR for this component are the same as those described in Roman II item 1 letter b item 1).
3. The amount of AYD used for MMBR calculation is the accumulated amount of AYD.

b. Market Risk

1. The market risk factor calculated is only for losses resulting from changes in market prices of Company assets and changes in foreign exchange rates.
2. The provisions and procedures for calculating the amount of funds considered in MMBR for this component are the same as those described in Roman II item 3 letter b item 1) and item 2), as well as Roman II item 5 letter b item 3).
3. The amount of AYD used for MMBR calculation is the accumulated amount of AYD.

c. Liquidity Risk

1. Liquidity risk is the risk of imbalance between asset cash flow projections and liability cash flows arising from mismatches between the magnitude and maturity of Liabilities with the magnitude and maturity of assets.
2. The amount of funds considered in MMBR to cover this imbalance risk is determined at 1% (one percent) of the amount of Liabilities used for PAYDI solvency calculation.

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

Determined 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