Second Amendment to Financial Services Authority Regulation Number 14/POJK.05/2015 on Self-Retention and Domestic Reinsurance Support

FINANCIAL SERVICES AUTHORITY
REPUBLIC OF INDONESIA
COPY
FINANCIAL SERVICES AUTHORITY REGULATION
REPUBLIC OF INDONESIA
NUMBER 39 /POJK.05/2020
ON
THE SECOND AMENDMENT TO THE FINANCIAL SERVICES AUTHORITY REGULATION NUMBER 14/POJK.05/2015 CONCERNING SELF-RETENTION AND DOMESTIC REINSURANCE SUPPORT BY THE GRACE OF GOD THE ALMIGHTY THE COMMISSIONERS OF THE FINANCIAL SERVICES AUTHORITY,

Considering:
a. that in order to increase the effectiveness of risk spreading through reinsurance programs, it is necessary to gradually provide flexibility to insurance industry players in implementing reinsurance support programs while still paying attention to adequate risk management practices; b. that in order to increase the competitiveness of the national economy in international trade, it is necessary to adjust regulations regarding self-retention and domestic reinsurance support;
c. that based on the considerations as referred to in letters a and b, it is necessary to establish a Financial Services Authority Regulation on the Second Amendment to the Financial Services Authority Regulation Number 14/POJK.05/2015 concerning Self-Retention and Domestic Reinsurance Support;

Recalling:

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);
3. Financial Services Authority Regulation Number 14/POJK.05/2015 concerning Self-Retention and Domestic Reinsurance Support (State Gazette of the Republic of Indonesia Year 2015 Number 265, Supplement to the State Gazette of the Republic of Indonesia Number 5754) as amended by Financial Services Authority Regulation Number 19/POJK.05/2019 concerning Amendment to the Financial Services Authority Regulation Number 14/POJK.05/2015 concerning Self-Retention and Domestic Reinsurance Support (State Gazette of the Republic of Indonesia Year 2019 Number 152, Supplement to the State Gazette of the Republic of Indonesia Number 6376);

DECIDING:

To establish: A FINANCIAL SERVICES AUTHORITY REGULATION ON THE SECOND AMENDMENT TO THE FINANCIAL SERVICES AUTHORITY REGULATION NUMBER 14/POJK.05/2015 CONCERNING SELF-RETENTION AND DOMESTIC REINSURANCE SUPPORT.

Article I

Several provisions in the Financial Services Authority Regulation Number 14/POJK.05/2015 concerning Self-Retention and Domestic Reinsurance Support (State Gazette of the Republic of Indonesia Year 2015 Number 265, Supplement to the State Gazette of the Republic of Indonesia Number 5754) as amended by Financial Services Authority Regulation Number 19/POJK.05/2019 concerning Amendment to the Financial Services Authority Regulation Number 14/POJK.05/2015 concerning Self-Retention and Domestic Reinsurance Support (State Gazette of the Republic of Indonesia Year 2019 Number 152, Supplement to the State Gazette of the Republic of Indonesia Number 6376), are amended as follows:

1. The provision of Article 7 is amended to read as follows:

Article 7
(1) Insurance Companies and Sharia Insurance Companies are required to obtain 100% (one hundred percent) reinsurance support from domestic reinsurers for coverages with simple risks. (2) Insurance Companies and Sharia Insurance Companies are required to obtain reinsurance support of at least 50% (fifty percent) from domestic reinsurers for coverages with simple risks after June 30, 2020. (3) The provisions regarding the percentage of reinsurance support from domestic reinsurers as referred to in paragraph (1) and paragraph (2) shall not apply after December 31, 2020.

2. The provisions of paragraph (1) and paragraph (2) of Article 8 are amended to read as follows:

Article 8
(1) The obligation to obtain reinsurance support from domestic reinsurers with the percentage as referred to in Article 7 paragraph (1) and paragraph (2) is exempted for General Insurance Companies and Sharia General Insurance Companies for:
a. insurance products that are global (worldwide); and/or b. insurance products that are specifically designed for multinational companies.
(2) The obligation to obtain reinsurance support from domestic reinsurers with the percentage as referred to in Article 7 paragraph (1) and paragraph (2) is exempted for Life Insurance Companies and Sharia Life Insurance Companies for:
a. insurance products that are global (worldwide); b. insurance products that are specifically designed for multinational companies; and/or
c. new insurance products whose product development is supported by foreign reinsurers.
(3) New insurance products whose product development is supported by foreign reinsurers as referred to in paragraph (2) letter c, may obtain reinsurance support from foreign reinsurers for a maximum period of 4 (four) years since the insurance product was reported to the OJK.

3. The provisions of paragraph (1) and paragraph (3) of Article 10 are amended, 1 (one) paragraph is inserted between paragraph (3) and paragraph (4) of Article 10, namely paragraph (3a), and the explanation of paragraph (3) of Article 10 is amended as contained in the Article-by-Article Explanation so that Article 10 reads as follows:

Article 10
(1) Insurance Companies and Sharia Insurance Companies are required to have automatic reinsurance support for coverages with simple risks and non-simple risks.
(2) Automatic reinsurance support as referred to in paragraph (1) must be carried out by prioritizing placement with domestic reinsurers.
(3) The placement of automatic reinsurance support with priority to domestic reinsurers as referred to in paragraph (2), for coverages with non-simple risks, must follow the minimum size of placement of automatic reinsurance support with priority to domestic reinsurers. (3a) The provisions regarding the obligation to follow the minimum size of placement of automatic reinsurance support with priority to domestic reinsurers for coverages with non-simple risks as referred to in paragraph (3) shall not apply after December 31, 2022. (4) Further provisions regarding the minimum size of placement of automatic reinsurance support with priority to domestic reinsurers as referred to in paragraph (3) are regulated in an OJK Circular.

4. The provision of paragraph (1) letter c is amended and Article 12 paragraph (2) is deleted, so that Article 12 reads as follows:

Article 12
(1) In obtaining automatic reinsurance support as referred to in Article 10, General Insurance Companies must follow the priority order as follows:
a. automatic reinsurance support is obtained from at least 2 (two) Domestic Reinsurance Companies; b. in the event that automatic reinsurance support as referred to in letter a is not obtained, automatic reinsurance support is obtained from at least 1 (one) Domestic Reinsurance Company and 1 (one) Domestic General Insurance Company; and
c. in the event that automatic reinsurance support from domestic reinsurers as referred to in letters a and b is not obtained, automatic reinsurance support may be obtained entirely from foreign reinsurance companies.
(2) Deleted.

5. The provision of paragraph (1) letter b of Article 13 is amended and Article 13 paragraph (2) is deleted so that Article 13 reads as follows:

Article 13
(1) In obtaining automatic reinsurance support as referred to in Article 10, Life Insurance Companies must follow the priority order as follows:
a. automatic reinsurance support is obtained from at least 2 (two) Domestic Reinsurance Companies; b. in the event that automatic reinsurance support as referred to in letter a is not obtained, automatic reinsurance support may be obtained entirely from foreign reinsurance companies. (2) Deleted.

6. The provision of paragraph (1) letter c of Article 14 is amended and Article 14 paragraph (2) is deleted so that Article 14 reads as follows:

Article 14
(1) In obtaining automatic reinsurance support as referred to in Article 10, Sharia General Insurance Companies must follow the priority order as follows:
a. automatic reinsurance support is obtained from at least 2 (two) Domestic Sharia Reinsurance Companies; b. in the event that automatic reinsurance support as referred to in letter a is not obtained, automatic reinsurance support is obtained from at least 1 (one) Domestic Sharia Reinsurance Company and 1 (one) Domestic Sharia General Insurance Company; and
c. in the event that automatic reinsurance support from domestic reinsurers as referred to in letters a and b is not obtained, automatic reinsurance support may be obtained entirely from foreign Sharia reinsurance companies.
(2) Deleted.

7. The provision of paragraph (1) letter b of Article 15 is amended and Article 15 paragraph (2) is deleted so that Article 15 reads as follows:

Article 15
(1) In obtaining automatic reinsurance support as referred to in Article 10, Sharia Life Insurance Companies must follow the priority order as follows:
a. automatic reinsurance support is obtained from at least 2 (two) Domestic Sharia Reinsurance Companies; b. in the event that automatic reinsurance support as referred to in letter a is not obtained, automatic reinsurance support may be obtained entirely from foreign Sharia reinsurance companies. (2) Deleted.

8. The provisions of paragraph (1) and paragraph (3) of Article 18 are amended, 1 (one) paragraph is inserted between paragraph (3) and paragraph (4) of Article 18, namely paragraph (3a), and the explanation of paragraph (3) of Article 18 is amended as contained in the Article-by-Article Explanation so that Article 18 reads as follows:

Article 18
(1) In the event that:
a. automatic reinsurance support is not obtained or is not required due to circumstances as referred to in Article 17 paragraph (1); or b. automatic reinsurance support is insufficient for the risks accepted by the Insurance Company or Sharia Insurance Company, Insurance Companies and Sharia Insurance Companies are required to obtain facultative reinsurance support for coverages with simple risks and non-simple risks. (2) Facultative reinsurance support as referred to in paragraph (1) must be carried out by prioritizing placement with domestic reinsurers. (3) The placement of facultative reinsurance support with priority to domestic reinsurers as referred to in paragraph (2), for coverages with non-simple risks, must follow the minimum size of placement of facultative reinsurance support with priority to domestic reinsurers. (3a) The provisions regarding the obligation to follow the minimum size of placement of facultative reinsurance support for coverages with non-simple risks with priority to domestic reinsurers as referred to in paragraph (3) shall not apply after December 31, 2022. (4) Further provisions regarding the minimum size of placement of facultative reinsurance support with priority to domestic reinsurers as referred to in paragraph (3) are regulated in an OJK Circular.

9. The provision of paragraph (1) letter c of Article 19 is amended and Article 19 paragraph (2) is deleted so that Article 19 reads as follows:

Article 19
(1) In obtaining facultative reinsurance support as referred to in Article 18, General Insurance Companies must follow the priority order as follows:
a. facultative reinsurance support is obtained from at least 2 (two) Domestic Reinsurance Companies; b. in the event that facultative reinsurance support as referred to in letter a is not obtained, facultative reinsurance support is obtained from at least 1 (one) Domestic Reinsurance Company and 1 (one) Domestic General Insurance Company; and
c. in the event that facultative reinsurance support from domestic reinsurers as referred to in letters a and b is not obtained, facultative reinsurance support may be obtained entirely from foreign reinsurers.
(2) Deleted.

10. The provision of paragraph (1) letter b of Article 20 is amended and Article 20 paragraph (2) is deleted so that Article 20 reads as follows:

Article 20
(1) In obtaining facultative reinsurance support as referred to in Article 18, Life Insurance Companies must follow the priority order as follows:
a. facultative reinsurance support is obtained from at least 2 (two) Domestic Reinsurance Companies; b. in the event that facultative reinsurance support as referred to in letter a is not obtained, facultative reinsurance support may be obtained entirely from foreign reinsurance companies. (2) Deleted.

11. The provision of paragraph (1) letter c of Article 21 is amended and Article 21 paragraph (2) is deleted so that Article 21 reads as follows:

Article 21
(1) In obtaining facultative reinsurance support as referred to in Article 18, Sharia General Insurance Companies must follow the priority order as follows:
a. facultative reinsurance support is obtained from at least 2 (two) Domestic Sharia Reinsurance Companies; b. in the event that facultative reinsurance support as referred to in letter a is not obtained, facultative reinsurance support is obtained from at least 1 (one) Domestic Sharia Reinsurance Company and 1 (one) Domestic Sharia General Insurance Company; and
c. in the event that facultative reinsurance support as referred to in letters a and b is not obtained, facultative reinsurance support may be obtained entirely from foreign Sharia reinsurance companies or foreign reinsurance companies.
(2) Deleted.

12. The provision of paragraph (1) letter b of Article 22 is amended and Article 22 paragraph (2) is deleted so that Article 22 reads as follows:

Article 22
(1) In obtaining facultative reinsurance support as referred to in Article 18, Sharia Life Insurance Companies must follow the priority order as follows:
a. facultative reinsurance support is obtained from at least 1 (one) Domestic Sharia Reinsurance Company; and b. in the event that facultative reinsurance support as referred to in letter a is not obtained, facultative reinsurance support may be obtained entirely from Sharia reinsurance companies or foreign reinsurance companies. (2) Deleted.

13. 1 (one) article is inserted between Article 27 and Article 28, namely Article 27A so that it reads as follows:

Article 27A
The provisions regarding the non-application of:
a. the percentage of reinsurance support from domestic reinsurers for coverages with simple risks as referred to in Article 7 paragraph (2) and paragraph (3); b. the obligation to follow the minimum size of placement of automatic reinsurance support for coverages with non-simple risks with priority to domestic reinsurers as referred to in Article 10 paragraph (3a); and
c. the obligation to follow the minimum size of placement of facultative reinsurance support for coverages with non-simple risks with priority to domestic reinsurers as referred to in Article 18 paragraph (3a),
may only be implemented with the condition that reinsurance support from foreign reinsurers is obtained from foreign reinsurers domiciled in a partner country that has a bilateral agreement with Indonesia.

14. The provision of paragraph (1) of Article 35 is amended so that Article 35 reads as follows:

Article 35
(1) Violations of the provisions of Article 2, Article 4, Article 7 paragraph (1), paragraph (2), Article 10 paragraph (1), paragraph (2) and paragraph (3), Article 11 paragraph (1) and paragraph (4), Article 12, Article 13, Article 14, Article 15, Article 16, Article 17 paragraph (2), Article 18 paragraph (1), paragraph (2) and paragraph (3), Article 19, Article 20, Article 21, Article 22, Article 23, Article 24, Article 25 paragraph (1), Article 26, Article 27 paragraph (2), Article 27A, Article 28 paragraph (1) and paragraph (3), Article 30, Article 31 paragraph (1) and paragraph (5), and/or Article 33 paragraph (1) shall be subject to administrative sanctions. (2) Administrative sanctions as referred to in paragraph (1) consist of:
a. written warning; b. fines;
c. obligation for the Board of Directors or equivalent to undergo a new fit and proper test;
d. restriction on business activities; and/or e. revocation of business license.
(3) Sanctions as referred to in paragraph (2) letter b, letter c, letter d, or letter e, may be imposed with or without prior imposition of written warning sanctions as referred to in paragraph (2) letter a. (4) The amount of fines as referred to in paragraph (2) letter b is determined by the OJK based on regulations regarding administrative sanctions in the form of fines applicable to Companies. (5) The OJK may announce the imposition of administrative sanctions as referred to in paragraph (2) to the public.

Article II
This Financial Services Authority Regulation shall come into force on the date of its enactment.

This copy is in accordance with the original
Deputy Director of Legal Consultation and
Harmonization of Banking Regulations 1
Legal Directorate 1
Legal Department signed
Wiwit Puspasari

In order that everyone knows it, it is ordered to promulgate this Financial Services Authority Regulation by placing it in the State Gazette of the Republic of Indonesia.

Established in Jakarta on June 15, 2020
CHAIRMAN OF THE COMMISSIONERS
FINANCIAL SERVICES AUTHORITY
REPUBLIC OF INDONESIA, signed
WIMBOH SANTOSO

Promulgated in Jakarta on June 18, 2020
MINISTER OF LAW AND HUMAN RIGHTS
REPUBLIC OF INDONESIA, signed
YASONNA H. LAOLY

STATE GAZETTE OF THE REPUBLIC OF INDONESIA YEAR 2020 NUMBER 150

EXPLANATION
OF
FINANCIAL SERVICES AUTHORITY REGULATION
REPUBLIC OF INDONESIA
NUMBER 39 /POJK.05/2020
ON
THE SECOND AMENDMENT TO THE FINANCIAL SERVICES AUTHORITY REGULATION NUMBER 14/POJK.05/2015 CONCERNING SELF-RETENTION AND DOMESTIC REINSURANCE SUPPORT

I. GENERAL
Law Number 21 of 2011 concerning the Financial Services Authority mandates that the supervisory and regulatory functions over all activities in the financial services sector operating in Indonesia are carried out by the OJK, and the purpose of establishing the OJK is to ensure that all financial services activities are conducted in an orderly, fair, transparent, and accountable manner, and are able to realize a financial system that grows sustainably and stably and is able to protect consumer and public interests.

In line with the OJK's objectives, the formation of Law Number 40 of 2014 concerning Insurance aims to create a healthier, more reliable, trustworthy, and generally competitive insurance industry, carried out through the establishment of new regulations and the improvement of existing regulations. These efforts are carried out, among others, by improving regulations regarding self-retention and domestic reinsurance support.

Based on the mandate of Article 36 and Article 37 of Law Number 40 of 2014 concerning Insurance, the OJK may provide support to insurance and reinsurance industry players in Indonesia to optimize the utilization of domestic insurance, Sharia insurance, reinsurance, and/or Sharia reinsurance capacity, which has hitherto been felt to be suboptimal.

Furthermore, in order to increase the effectiveness of risk spreading through reinsurance programs, it is necessary to gradually provide flexibility to insurance industry players in implementing reinsurance support programs while still paying attention to adequate risk management practices, and in order to increase the competitiveness of the national economy in international trade, it is necessary to adjust regulations regarding self-retention and domestic reinsurance support.

In order to achieve these objectives, the OJK has been mandated to regulate self-retention and domestic reinsurance support. Therefore, this OJK Regulation is expected to provide guidelines for Insurance Companies, Sharia Insurance Companies, Reinsurance Companies, and Sharia Reinsurance Companies in implementing self-retention and domestic reinsurance support strategies in order to optimize the utilization of insurance, Sharia insurance, reinsurance, and/or Sharia reinsurance capacity.

II. ARTICLE-BY-ARTICLE EXPLANATION

Article I
Number 1
Article 7
Paragraph 1
What is meant by "100% (one hundred percent) reinsurance support from domestic reinsurers" in this provision is the full placement of automatic and/or facultative reinsurance support with domestic reinsurers. Simple risks in this provision are motor vehicle insurance, health insurance, personal accident insurance, credit insurance, death insurance, suretyship, and liability insurance implemented based on Law Number 34 of 1964 concerning the Compulsory Road Traffic Accident Compensation Fund.

In addition to the business lines mentioned above, the following are not included as simple risks: property insurance, cargo insurance, hull insurance for ships, hull insurance for aircraft, satellite insurance, onshore energy insurance, offshore energy insurance, engineering insurance, liability insurance, and miscellaneous insurance, provided that the value of the coverage exceeds the provisions regarding the minimum domestic reinsurance support limit.

Paragraph 2
Clear enough.

Paragraph 3
Clear enough.

Number 2
Article 8
Paragraph (1)
Letter a
What is meant by "products that are global (worldwide)" in this provision are insurance products whose coverage area applies internationally. Examples include: health insurance products that offer benefits for treatment in hospitals abroad, and international travel insurance products.

Letter b
Clear enough.

Paragraph (2)
The exclusion criteria referred to in this provision do not exempt Life Insurance Companies and Sharia Life Insurance Companies from the obligation to place reinsurance support with domestic reinsurers, even if they fall within the exclusion criteria, there must still be reinsurance support from domestic reinsurers.

Paragraph (3)
Clear enough.

Number 3
Article 10
Paragraph (1)
Clear enough.

Paragraph (2)
Clear enough.

Paragraph (3)
Coverages with non-simple risks in this provision are generally found in the business lines of property insurance, cargo insurance, hull insurance for ships, hull insurance for aircraft, satellite insurance, onshore energy insurance, offshore energy insurance, engineering insurance, liability insurance, and miscellaneous insurance.

Paragraph (3a)
Clear enough.

Paragraph (4)
Clear enough.

Number 4
Article 12
Paragraph (1)
Clear enough.

Paragraph (2)
Deleted.

Number 5
Article 13
Paragraph (1)
Clear enough.

Paragraph (2)
Deleted.

Number 6
Article 14
Paragraph (1)
Clear enough.

Paragraph (2)
Deleted.

Number 7
Article 15
Paragraph (1)
Clear enough.

Paragraph (2)
Deleted.

Number 8
Article 18
Paragraph (1)
Letter a
What is meant by "not obtaining or not requiring automatic reinsurance support" in this provision includes not obtaining automatic reinsurance support from both domestic and foreign reinsurers.

Letter b
Clear enough.

Paragraph (2)
Clear enough.

Paragraph (3)
Coverages with non-simple risks in this provision are generally found in the business lines of property insurance, cargo insurance, hull insurance for ships, hull insurance for aircraft, satellite insurance, onshore energy insurance, offshore energy insurance, engineering insurance, liability insurance, and miscellaneous insurance.

Paragraph (3a)
Clear enough.

Paragraph (4)
Clear enough.

Number 9
Article 19
Paragraph (1)
Clear enough.

Paragraph (2)
Deleted.

Number 10
Article 20
Paragraph (1)
Clear enough.

Paragraph (2)
Deleted.

Number 11
Article 21
Paragraph (1)
Clear enough.

Paragraph (2)
Deleted.

Number 12
Article 22
Paragraph (1)
Clear enough.

Paragraph (2)
Deleted.

Number 13
Article 27A
What is meant by "bilateral agreement" is an agreement between 2 (two) countries where one of the contents of the agreement regulates Indonesia's commitment to allow insurance companies and companies

Sharia insurance obtains reinsurance support from a reinsurer domiciled in a partner country.

Number 14

Article 35
Clearly stated.

Article II
Clearly stated.

SUPPLEMENT TO THE GAZETTE OF THE REPUBLIC OF INDONESIA NUMBER 6528