OJK Circular Letter No. 22/SEOJK.05/2017 on Asset Valuation Basis for Investment and Non-Investment Assets of Insurance and Reinsurance Companies

To:

1. The Board of Directors of Insurance Companies; and
2. The Board of Directors of Reinsurance Companies,
   At their respective locations.

COPY

CIRCULAR LETTER OF THE FINANCIAL SERVICES AUTHORITY NUMBER 22 /SEOJK.05/2017

CONCERNING

THE BASIS FOR VALUATION OF ASSETS IN THE FORM OF INVESTMENTS AND NON-INVESTMENTS FOR INSURANCE COMPANIES AND REINSURANCE COMPANIES

In relation to the mandate of Article 5 paragraph (5), Article 17 paragraph (3), and Article 27 paragraph (5) of Financial Services Authority Regulation Number 71/POJK.05/2016 concerning the Financial Health of Insurance Companies and Reinsurance Companies (State Gazette of the Republic of Indonesia Year 2016 Number 304, Supplement to the State Gazette of the Republic of Indonesia Number 5994), it is necessary to regulate implementation provisions regarding the basis for valuation of assets in the form of investments and non-investments for insurance companies and reinsurance companies in this Financial Services Authority Circular Letter as follows:

I. GENERAL PROVISIONS

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

1. Company means an insurance company and a reinsurance company.
2. Insurance Company means a general insurance company and a life insurance company as referred to in Law Number 40 of 2014 concerning Insurance.
3. General Insurance Company means a company that conducts risk underwriting service business that provides compensation to the insured or policyholder for losses, damages, costs arising, lost profits, or legal liability to third parties that may be suffered by the insured or policyholder due to the occurrence of an uncertain event.
4. Life Insurance Company means a company that conducts risk management service business that provides payments to the policyholder, insured, or other entitled parties in the event the insured dies or survives, or other payments to the policyholder, insured, or other entitled parties 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 that conducts re-underwriting service business against risks faced by Insurance Companies, guarantee companies, or other Reinsurance Companies.
6. Party means an individual or business entity, whether in the form of a legal entity or not, as referred to in Law Number 40 of 2014 concerning Insurance.
7. Medium Term Notes, hereinafter abbreviated as MTN, are debt instruments issued by companies with a maturity period of one to five years.
8. Bank means a general bank as referred to in Law Number 7 of 1992 concerning Banking as amended by Law Number 10 of 1998 and a Sharia bank as referred to in Law Number 21 of 2008.
9. Rural Credit Bank, hereinafter abbreviated as BPR, means a rural credit bank as referred to in Law Number 7 of 1992 concerning Banking as amended by Law Number 10 of 1998.
10. Sharia People's Financing Bank, hereinafter abbreviated as BPRS, means a Sharia people's financing bank as referred to in Law Number 21 of 2008 concerning Sharia Banking.

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

1. The valuation basis for investment types is as follows:

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

b. deposit certificates at Banks based on cash value;

c. shares:

1. in the event that active shares are traded on the stock exchange, based on market value using the last closing price information at the stock exchange where the shares are listed and traded; or

2. in the event that shares are not actively traded on the stock exchange, based on fair value determined by a securities price valuation institution that has obtained a business license from the Financial Services Authority or a securities price valuation institution that has been recognized internationally;

d. corporate bonds listed on the stock exchange based on fair value determined by a securities price valuation institution that has obtained a business license from the Financial Services Authority or a securities price valuation institution that has been recognized internationally;

e. MTNs based on fair value determined by a securities price valuation institution that has obtained a business license from the Financial Services Authority or a securities price valuation institution that has been recognized internationally. In the event that no fair value exists from a securities price valuation institution that has obtained a business license from the Financial Services Authority or a securities price valuation institution that has been recognized internationally, the value from an appraiser registered with the Financial Services Authority is used;

f. securities issued by the State of the Republic of Indonesia based on fair value determined by a securities price valuation institution that has obtained a business license from the Financial Services Authority or a securities price valuation institution that has been recognized internationally;

g. securities issued by countries other than the State of the Republic of Indonesia based on fair value determined by a securities price valuation institution that has been recognized internationally;

h. securities issued by Bank Indonesia based on market value;

i. securities issued by multinational institutions where the State of the Republic of Indonesia is one of the members or shareholders, based on fair value determined by a securities price valuation institution that has been recognized internationally;

j. mutual funds based on:

1. net asset value; or

2. market value using the last closing price information at the stock exchange where the mutual fund is traded, for exchange traded fund (ETF) type mutual funds;

k. asset-backed securities based on market value using the last closing price information at the stock exchange in Indonesia, for asset-backed securities listed on the stock exchange in Indonesia. In the event that no market value exists, valuation uses fair value determined by a securities price valuation institution that has obtained a business license from the Financial Services Authority or a securities price valuation institution that has been recognized internationally;

l. real estate investment funds in the form of collective investment contracts based on:

1. market value, for real estate investment funds in the form of collective investment contracts that are actively traded on the stock exchange. In the event that real estate investment funds in the form of collective investment contracts are not actively traded on the stock exchange, based on fair value determined by a securities price valuation institution that has obtained a business license from the Financial Services Authority or a securities price valuation institution that has been recognized internationally; or

2. net asset value, for real estate investment funds in the form of collective investment contracts that are not traded on the stock exchange;

m. securities transactions through repurchase agreements (REPO) based on the amortized acquisition cost of the securities with the effective interest rate (amortized cost);

n. direct participation in limited liability companies whose shares are not listed on the stock exchange, valued based on equity value;

o. land, buildings with strata title, or land with buildings, for investment based on the value determined by an appraiser registered with the Financial Services Authority or the Taxable Object Sale Value (NJOP) in the event that no valuation is conducted by a valuation institution;

p. financing through cooperation mechanisms with other Parties in the form of credit provision cooperation (executing) based on the remaining loan value;

q. pure gold based on market value;

r. loans secured by land mortgage rights based on the remaining loan value; and/or

s. policy loans based on the remaining loan value.

2. The provisions on the valuation basis for the Company's investment types as referred to in item 1 also apply to investment types using Sharia principles.

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

The basis for valuation of assets in the form of non-investments is as follows:

1. cash and bank based on nominal value;

2. direct written premium receivables, including co-insurance premium receivables that are part of the Company, based on the remaining receivable value;

3. reinsurance premium receivables based on the remaining receivable value;

4. reinsurance assets:

a. assets sourced from the estimated claim recovery value for the reinsurance portion based on premium reserves, unearned premium reserves, and/or estimated reinsurance claim liability calculated consistently based on the terms and conditions of the reinsurance contract. In the event there are indications of default by the reinsuring Party, the amount of reinsurance assets must be adjusted by forming bad debt expense; and

b. assets sourced from long-term contract agreements of capital-oriented reinsurance programs based on the remaining reinsurance asset value. In the event there are indications of default by the Party providing the capital-oriented reinsurance program, the amount of reinsurance assets is adjusted by forming bad debt expense;

5. co-insurance claim receivables based on the remaining receivable value;

6. reinsurance claim receivables based on the remaining receivable value;

7. investment receivables based on the receivable value;

8. investment income receivables based on the remaining receivable value;

9. buildings with strata title or land with buildings, for own use, based on the value determined by a valuation institution registered with the Financial Services Authority or based on the Taxable Object Sale Value (NJOP) in the event that no valuation is conducted by a valuation institution; and/or

10. deferred acquisition costs (DAC) based on the remaining DAC value after being amortized proportionally for each financial reporting period with a maximum duration of 4 (four) years from the period of DAC formation.

IV. BASIS FOR VALUATION OF ASSETS IN THE FORM OF INVESTMENTS AND NON-INVESTMENTS SOURCED FROM INSURANCE PRODUCTS LINKED WITH INVESTMENTS

The provisions on the basis for valuation of assets in the form of investments and non-investments sourced from insurance products linked with investments are calculated based on the provisions as referred to in Section II and Section III.

This copy is consistent with the original

Legal Director 1
Legal Department signed
Yuliana

V. CLOSING PROVISIONS

The provisions in this Financial Services Authority Circular Letter shall come into force on July 1, 2017.

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