Changes in insurance regulation: China / Hong Kong / Singapore / Indonesia / Vietnam July – September 2016
Contents Changes in insurance regulation: China
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Changes in insurance regulation: Hong Kong
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Changes in insurance regulation: Singapore
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General overview: Insurance in Indonesia
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Changes in insurance regulation: Indonesia
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Changes in insurance regulation: Vietnam
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Our Asia insurance team
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Changes in insurance regulation
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Changes in insurance regulation: China July – September 2016
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CIRC's Draft Guidelines for the Articles of Association of Insurance Companies
On 30 August 2016, the CIRC commenced public consultation on the Guidelines for the Articles of Association of Insurance Companies (Draft for Comments) (the "Draft Guidelines").
The Draft Guidelines were issued on 30 August 2016 for public consultation until 6 September 2016
http://www.circ.gov .cn/web/site0/tab51 68/info4041895.ht m
Effective 2 September 2016
The Life Insurance Notice: http://www.circ.gov .cn/web/site0/tab51 76/info4042649.ht m
CIRC's accompanying notice to the Draft Guidelines includes the following notes: Although the Draft Guidelines specifically apply to insurance companies limited by shares, they act as reference for other types of insurance companies and insurance asset management companies;
CIRC's Notice to Strengthen Supervision of Life Insurance Products
The Draft Guidelines only set out essential clauses of the articles of association. Insurance companies may make reasonable adjustments and changes as long as the principles of the Draft Guidelines remain unchanged;
Apart from the content required by the Company Law and these Draft Guidelines, insurance companies may add other clauses depending on their specific situation; and
Specific rules for listed insurance companies as otherwise set out in relevant laws and regulations shall be followed.
On 2 September 2016, the CIRC published on its official website the Notice on Strengthening the Supervision of Life Insurance Products (the "Life Insurance Notice"). According to the Life Insurance Notice, CIRC will adopt ex post record-filing requirements and ex post spot checks on life insurance products. Unless prior examination and approval are explicitly required, all life insurance products developed and designed by an insurance company should be filed with the CIRC within ten days after the commencement
(CIRC's official notice in Chinese)
(CIRC's official notice in Chinese)
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Effective 2 September 2016
The Actuarial System Notice: http://www.circ.gov .cn/web/site0/tab51 76/info4042644.ht m
of the sale of such products. The Life Insurance Notice also sets out the mechanism of, and requirements for, product withdrawals, provisions regarding liability, product review and information disclosure regarding life insurance products, as well as requirements for enhanced monitoring of universal life insurance products by insurance companies. CIRC Improves the Actuarial System of Life Insurance
On 2 September 2016, the CIRC published on its official website the Notice on Further Improving Relevant Matters regarding the Actuarial System of Life Insurance (the "Actuarial System Notice"). The Actuarial System Notice enhances certain prudential requirements with regard to life insurance, focusing on the following main points:
The required minimum ratio of the insured amount to the aggregate premium paid/account value has been increased from 105% to 120%.
The required ratio of the insured amount to the aggregate premium paid/ account value of death insurance for the predominant age group (i.e. from 18 - 40) has been increased from 120% to 160%.
The upper limit of the valuation interest rate for universal life insurance liability reserve funds is reduced to 3%. (The rate requirement for ordinary life insurance products remains at 3.5%.)
From 2019, short-to-medium term business should account for no more than 50% in a company's business structure, and such percentage shall be further adjusted to 40% in 2020 and 30% in 2021 respectively.
(CIRC's official notice in Chinese)
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CIRC Amends the Measures for the Administration of Equity in Insurance Companies
It has been reported that the CIRC is planning to amend the Measures for the Administration of Equity in Insurance Companies (promulgated 15 April 2014, effective 1 June 2014) and to consult with the industry on the amended version (the "Amended Measures").
Media reports dated 31 August 2016
http://news.cnstock .com/paper,201608-31,718834.htm#
According to media reports, key features of the Amended Measures are as follows:
Re-classify shareholders of an insurance company into the following categories based on their shareholding ratio and control over the operation of the insurance company: 1.
Financial shareholders: with a shareholding ratio of less than 10% and no major influence on the operation of the insurance company;
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Strategic shareholders: with a shareholding percentage between 10% and one-third of the shareholding of the insurance company, or less than 10% but with a relatively important influence on the operation of the insurance company; and
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Controlling shareholders: with a shareholding percentage of more than one-third of the shareholding of the insurance company and a major influence on the operation of the insurance company.
Further specific requirements and conditions for each of the above three types of shareholders: for example, the total assets of a controlling shareholder for the past year shall not be lower than RMB 10 billion, its net assets shall not be lower than 30% of its total assets, and its debt to asset ratio and financial leverage ratio shall not be significantly higher than the industry average; and if the investor is an insurance company, it can only act as a
(Media Report in Chinese)
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The Licensing Draft was issued on 25 August 2016 for public consultation until 2 September 2016
http://www.circ.gov .cn/web/site0/tab51 68/info4041722.ht m
controlling shareholder of one other insurance company.
CIRC's Draft Notice on Properly Granting Licenses to Professional Insurance Intermediary Business
Contributions to an insurance company shall be made in cash and must not come from investment funds generated from insurance companies.
Equity interests in an insurance company shall be subject to a lock-up period varying from 1 to 3 years (depending on the type of shareholder).
The CIRC has also strengthened the relevant penalties and administrative sanctions imposed on investors who do not comply with the relevant legislation and rules.
On 25 August 2016, the China Insurance Regulatory Commission (the "CIRC") commenced public consultation on the Draft Notice on Properly Granting Licenses to Professional Insurance Intermediary Business (the "Licensing Draft"). The Licensing Draft sets out six key requirements for professional insurance intermediaries (the "PIIs"), as follows:
Shareholder(s) of PIIs shall make capital contributions using self-owned and legal funds, and shall not use bank loans and other forms of funds that are not self-owned;
The registered capital of PIIs shall be deposited with a custodian bank before the license application and shall be maintained in such custodial account throughout the term of the licence;
PIIs shall procure full and effective professional liability insurance coverage;
Business models of PIIs shall be reasonable and feasible;
Corporate governance of PIIs shall be sound and well implemented; and
(CIRC's official notice in Chinese)
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CIRC Strengthens the Administration of Settlement Services for Insurance Claims
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CIRC notice dated 21 July 2016
http://www.circ.gov .cn/web/site0/tab52 25/info4037209.ht m
The risk assessments of PIIs shall meet the relevant requirements.
On 26 July 2016, the CIRC published on its website the Notice to Strengthen the Administration of Settlement Services for Insurance Claims (the "Notice"), which mainly aims to prevent insurance companies from requesting customers to provide unreasonable documents of proof for their claims.
(CIRC's official notice in Chinese)
The Notice requires insurance companies to:
Strictly comply with provisions in insurance contracts, and not unilaterally impose additional requirements on proof of claims; and
Conduct a self-examination on their internal systems and rectify any problems identified.
The Notice further requires the local arms of the CIRC to enhance their supervision of the provision of claims management services by insurance companies, and to conduct targeted spot checking. Insurance industry associations should continue to ensure compliance with industry regulations and take effective measures to resolve complaints involving claim settlement issues. CIRC's Notice on Further Strengthening of the Disclosure of Insurance Companies' Share Related Information
Further to the Draft Notice on Further Strengthening the Disclosure of Insurance Companies' Share Related Information (the "Draft Share Related Information Disclosure Notice" issued on 5 May 2016, as mentioned in our regulatory tracker for the second quarter of 2016), the CIRC published on 26 July 2016 the official Notice on Further Strengthening the Disclosure of Insurance Companies' Share Related Information ("Official Notice"). Compared to the Draft Share Related Information Disclosure Notice, the Official Notice introduces two main revisions:
The Official Notice dated 15 July 2016 Effective 26 July 2016
http://www.circ.gov .cn/web/site0/tab51 68/info4037210.ht m (CIRC's official notice in Chinese) http://www.circ.gov .cn/web/site0/tab52 07/info4037212.htm (CIRC's Q&A issued on 26 July 2016.)
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CIRC notice dated 9 August 2016
http://www.circ.gov .cn/web/site0/tab51 68/info4039844.ht m
1. Information relevant to the establishment of new insurance companies will be disclosed on the CIRC's official website or a unified information platform as designated by the CIRC; and 2. In addition to the insurance company itself, its investors are also responsible for ensuring that the disclosed information is true, accurate, complete and specific. CIRC Launches SelfRegistration Platform for Property Insurance Companies' Products subject to Record-filing
On 12 August 2016, the CIRC published on its website the Notice on Launching a SelfRegistration Platform for Property Insurance Companies' Products subject to Record-filing (the "Notice"), which became effective from 15 August 2016. The Notice provides that the selfregistration platform (the "Platform") was officially launched on 15 August 2016. Scope of self-registration: Self-registration applies to all types of products that are subject to record-filing, except for agricultural insurance, agriculture related insurance which is supported by government policies, and other insurance products as specified by the relevant regulations. Method of self-registration: Each property insurance company shall register on the Platform on a real-time basis. The registration documents will be reviewed automatically and be registered once the documents are complete. The products can only be used after they are registered. There is no need to submit filing documents to the CIRC separately. Usage of the Platform: Each property insurance company can check online the product registration process and the status of its registered products. The public can log on to the website of the China Insurance Association to search for registered products and their respective details, as well as basic corporate
Effective from 15 August 2016
(CIRC's official news in Chinese) http://cxcx.iachina. cn (The Platform's search interface for products registered)
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http://news.cnstock .com/news/sns_bw kx/201609/3893135 .htm
information and the sales plan of the respective insurance companies. CIRC's Special Inspection of the Effectiveness of Insurance Institutions' Risk Prevention Systems
According to a news report dated 5 September 2016, the CIRC circulated an internal notice requesting insurance institutions to carry out a special inspection on the effectiveness of their risk prevention systems. Such inspection focuses on more than 200 issues, including for example whether there are any related party transactions that damage the interests of an insurance company, whether the insurance company's investments have exceeded its reasonable capacity, and whether the controlling shareholder(s) have been illegally interfering with the insurance company's operation and management.
Media reports dated 5 September 2016
CIRC Issues the Supervision Standard on the Investment in Shanghai-Hong Kong Stock Connect Pilot Using Insurance Funds
On 8 September 2016, the CIRC published on its official website a news report relating to the issuance of the Supervision Standard on Investment in ShanghaiHong Kong Stock Connect Pilot Using Insurance Funds (the "Supervision Standard"). The Supervision Standard makes provisions regarding the investment of insurance funds in Hong Kong's capital market.
CIRC's news dated 8 September 2016
(Shanghai Securities News' report in Chinese)
http://www.circ.gov .cn/web/site0/tab51 71/info4042930.ht m (CIRC's news in Chinese)
The Supervision Standard makes certain provisions to minimise market risks and investment risks, including:
CIRC Implements Administrative Measures for Record-filing of
Insurance companies that directly make investments in the ShanghaiHong Kong Stock Connect must have the necessary capability; and
Insurance asset management product portfolios set up by insurance asset management institutions are allowed to invest in the Shanghai-Hong Kong Stock Connect.
On 1 August 2016, the CIRC sought public comments on the Draft Implementing Administrative Measures (the "Draft Record-filing Measures") for Recordfiling of the Qualifications of Senior
The Draft Record-filing Measures were issued on 1 August
http://www.circ.gov .cn/web/site0/tab51 68/info4037912.ht m (CIRC's official
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Senior Management Personnel of Insurance Institutions' Branch Offices in Three Cities as a Pilot Scheme
Management Personnel of Insurance Institutions' Branch Offices in Beijing, Tianjin and Hebei (the "Jing-Jin-Ji region"). On 27 October 2016, the CIRC released on its official website the final version of the Draft Implementing Measures (the "Pilot Record-filing Measures").
2016 for public consultation until 5 August 2016
notice on the Draft Record-filing Measures in Chinese)
Applicable Senior Management Personnel The Pilot Record-filing Measures simplify the administrative approval formalities (by moving from a qualification examination regime to a qualification record-filing regime) for certain senior management personnel1 who will be transferred amongst branch offices of the same type of insurance company on the same or lower administrative level located within the Jing-Jin-Ji region, subject to certain requirements and exceptions.
The official Pilot Recordfiling Measures were issued on and effective from 27 October 2016
http://www.circ.gov .cn/web/site0/tab52 16/info4048290.ht m (CIRC's official notice on the Pilot Record-filing Measures in Chinese)
Applicable Branch Offices The Pilot Record-filing Measures apply to an insurance company's branch offices established in the Jing-Jin-Ji region, including branches, central sub-branches, sub-branches and sales departments. Branches of a Chinese reinsurance company or a foreign insurance company and captive institutions are excluded from the Pilot Record-filing Measures. If the senior management personnel will be transferred to outside the Jing-Jin-Ji region, the standard qualification examination formalities must be followed.
In accordance with the Administrative Provisions on Qualifications of Directors, Supervisors and Senior Management Personnel of Insurance Companies, as revised by the CIRC in 2014, senior management personnel of branch offices refers to (i) the general manager, deputy general manager and general manager's assistant of branches and central sub-branches of an insurance company; and (ii) manager(s) of sub-branches and sales departments of an insurance company. 1
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Changes in insurance regulation: Hong Kong July – September 2016
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The Office of the Commissioner of Insurance ("OCI") issues revised Guidance Note 10 on corporate governance of authorised insurers ("GN10")
On 7 October 2016, the OCI published a revised guidance note on corporate governance of authorised insurers ("GN10").
Published on 7 October 2016
http://www .oci.gov.hk/ download/g n10eng_201610 07.pdf
Key changes from the previous guidance note are as follows: 1. With the exception of small authorised insurers, all insurers must have a Board level Risk Committee, to be distinct from the Audit Committee. This committee is responsible for independently overseeing the establishment and operation of the risk management system, together with the implementation of the risk appetite set by the Board. The majority of members of the Risk Committee should be independent non-executive directors ("INEDs"). 2. The requirements regarding the independence of directors have been tightened. A director is no longer considered independent if (i) he has been an employee of the insurer or of one of its group companies within the last three years, or (ii) if he is a director or controller of a corporation that has significant financial interests in the insurer or one of its group companies, for instance, a major service provider. 3. A Chief Risk Officer may be appointed to carry out the operation of the risk management function. The CRO's role should be distinct from other executive functions, i.e. he or she should not report to the Chief Financial Officer or vice versa. 4. Insurers must have a prudent and effective remuneration policy which does not induce inappropriate or excessive risk taking. The scope of the policy has been extended to apply to all directors, senior management, key persons in control functions
The effective date for the changes to requirements for the minimum number of INEDs, establishment of the Risk Committee and remuneration policy is 1 January 2018 The provisions applicable to Key Persons in Control Functions will take effect at Stage 2 of the commencement date of the Insurance Companies (Amendment) Ordinance 2015 All other changes take effect from 1 January 2017
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("KPCFs") and material risk-taking employees. KPCFs include persons responsible for risk management, actuarial matters, financial control and compliance. The Remuneration Committee, which should be chaired by an INED, would be responsible for assessing the impacts of the policy. GN10 also provides guidance for the development of a good remuneration structure and appropriate criteria for performance measurement. 5. The Audit Committee should be chaired by an INED and preferably have an INED majority. 6. Each of the positions of Chairman, Chief Executive and appointed actuary should be held by different individuals. 7. At least one-third of the Board members must be INEDs, increased from the former requirement of onefifth. Small authorised insurers with less than five directors should have at least one INED. An insurer must seek approval from the Insurance Authority where the number of INEDs is temporarily lower under exceptional circumstances. 8. Other revisions in relation to the Board: a.
The Board may delegate tasks to certain committees or groups, provided it is done under a clear mandate and in a manner which allows it to be effectively monitored.
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The appointment and removal of Board members must be transparent and ideally be overseen by a Nomination Committee, which must now include at least one INED.
c.
Where it is inevitable that conflicts of interest may arise, this should be managed by clear
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The IFS-MP came into effect on 1
Circular issued by the OCI on
procedures such as disclosure to the Board, abstention or prior approval by the Board or shareholders. 9. Senior management is responsible for carrying out the day-to-day business of the insurer and implementing systems and controls in accordance with the business strategies and policies set by the board of directors. It may delegate some of its responsibilities to KPCFs provided that clear lines of accountability and reporting are established. 10. KPCFs should be 'fit and proper' and must report to the Board, Board committees or senior management. 11. Insurers should formulate a business continuity policy and business continuity plans. These should identify contingency measures that the insurer would take to restore the business in times of crisis as well as precautionary measures. 12. Proper policies and procedures should be implemented to guard against and manage cyber threats. These should be regularly reviewed and communicated to staff. GN10 applies to Hong Kong incorporated insurers (with the exception of certain insurers in run-off) and overseas incorporated insurers which have over 50% annual gross premium income pertaining to their Hong Kong insurance business (reduced from 75% previously). Captive insurers (insurance companies that are wholly owned and controlled by their insureds), who were previously exempted, are now encouraged to adopt the GN10 requirements. The OCI issues the Important Facts Statement
On 8 July 2016, the OCI issued the Important Facts Statement for Mainland Policyholder (“IFS-MP”) which must be
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for Mainland Policyholder (“IFS-MP”)
provided to and signed by Mainland customers seeking to buy long term insurance policies of classes A to F (i.e. all except retirement scheme management) in Hong Kong.
September 2016
8 July 2016
The IFS-MP, written in Chinese, reminds Mainland customers of the factors and risks involved in taking out long term insurance policies in Hong Kong. The following main points are covered in the document:
The entire sale and purchase process of the insurance policy should take place in Hong Kong and the relevant documents must be signed in Hong Kong
The policy must be sold by a registered insurance intermediary in Hong Kong
Unless specified, the estimated returns and dividends as referred to in the policy brochure and illustration document are not guaranteed
Premium payments already paid may be entirely forfeited if the policy is terminated before the maturity date
If the amounts payable under the policy are not in RMB, the customer should be aware of the exchange rate risk involved
The insurer may require customers to provide a proof of income source when purchasing the insurance policy
Insurers must adopt the IFS-MP in full as a separate form, although additional disclosures may be added to reflect the risks associated with specific insurance products. Intermediaries must go through the IFSMP on a point by point basis with the Mainland customers at the point of sale and a copy of the signed form must be delivered no later than the date the policy
http://www .oci.gov.hk/ download/c ir_2016070 8.pdf The IFS-MP http://www .oci.gov.hk/ download/if s-mp.pdf
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is delivered. If the basic insurance plan was taken out before implementation of the IFS-MP, the insurer should normally ask the Mainland customers to sign the IFS-MP for top-ups or rider additions. The IFS-MP mirrors similar statements issued by the CIRC in respect of overseas insurance policies (see our previous trackers). The OCI sets up a platform to liaise with Fintech industry
The OCI has established a Fintech Liaison Team to enhance communication with Hong Kong businesses involved in the development and use of financial technology (Fintech). It aims to facilitate the Fintech community’s understanding of the current regulatory regime and provide a platform for exchanging ideas on Fintech initiatives among key stakeholders. A dedicated email account has been set up to promote a closer dialogue with market participants. Any Fintech proposals or enquiries regarding the regulatory landscape for the insurance sector in Hong Kong may be submitted to the Liaison Team by emailing
[email protected].
http://www .oci.gov.hk/ about/index 11.html
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Changes in insurance regulation: Singapore July – September 2016
No material updates for this quarter.
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General overview: Insurance in Indonesia
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Regulatory Framework
In October 2014, the Government of Indonesia enacted Law No. 40 of 2014 on Insurance ("Insurance Law"), which came into effect on 17 October 2014. The Insurance Law revokes the 1992 insurance law. All implementing regulations of the 1992 insurance law are still valid, as long as they do not contradict with the provisions of the Insurance Law. Insurance companies must also comply with regulations issued by the Financial Services Authority (Otoritas Jasa Keuangan/"OJK").
Regulatory Body
Insurance companies in Indonesia are under the supervision of and monitored by the OJK.
Type of Insurance Businesses
The Insurance Law divides the insurance sector into two categories: 1. Insurance companies:
General insurance company;
Sharia insurance company;
Re-insurance company;
Sharia re-insurance company;
Insurance broker company;
Re-insurance broker company; and
Insurance adjuster company.
2. Insurance supporting services, such as:
Actuary consultant;
Public accountant;
Appraiser; and
Other professions as may be decided by the OJK. Scope of Business
The following companies can only provide insurance services that are included in their scope of business, as follows: General insurance company: (a) general insurance (including health and accident insurance2), and (b) re-insurance business for other general insurance companies. Life insurance company: limited to life insurance, including annuity, health, and accident insurance. Re-insurance company: limited to re-insurance. Insurance broker company: limited to insurance brokerage. Re-insurance broker company: limited to re-insurance brokerage. Insurance adjuster company: limited to insurance adjuster.
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In practice, health and accident insurance are provided by both general insurance and life insurance companies.
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Restrictions of Ownership and Control
Single presence policy
In general, insurance and re-insurance companies are open for 80% foreign direct investment. A joint venture between an Indonesian citizen or legal entity3 and foreign investors has to comply with the following: a)
If with foreign legal entity(ies), then the foreign legal entity(ies) must be (i) an insurance company operating a similar insurance business; or (ii) a parent company of an insurance company operating a similar insurance business; and (iii) the foreign legal entity must have a minimum rating of A or equivalent from an internationally recognized rating agency.
b)
If with foreign individual(s), then the shares may only be acquired through the capital market.
Any change of ownership requires prior approval from the OJK and certain conditions have to be observed which are aimed at protecting policy holders, i.e. the changes will not reduce the rights of policy holders. A single shareholder is only allowed to be the controlling shareholder4 of one of each of the following types of insurance companies (i.e. the same party cannot be the controlling shareholder of two life insurance companies, but such party would be allowed to be the controlling shareholder of a life insurance company and a general insurance company, etc.): life insurance company; general insurance company; re-insurance company; sharia life insurance company; sharia general insurance company; sharia re-insurance company.
License
Any party who provides insurance services must obtain a business license from the OJK. Such services include sharia insurance, re-insurance or sharia re-insurance, risk management, marketing and distribution of insurance/sharia insurance products, consultation and insurance brokerage, and insurance or sharia insurance adjusters. Insurance supporting professions (see section Type of Insurance Businesses) must register with the OJK.
Legal status
To provide insurance services, a business must be in one of the following forms: 1. Limited liability company;
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Indonesian shareholders must be either (i) Indonesian citizens or (ii) Indonesian legal entities wholly owned, directly or indirectly, by Indonesian citizens. "Controlling shareholder" means any party who directly owns 25% of shares in the company or less but has the ability to directly or indirectly control the company.
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2. Cooperative (Koperasi); or Mutual ownership (usaha bersama), which was established prior to the enactment of the Insurance Law5. Minimum capital
Insurance companies are required to have a minimum paid up capital of at least: IDR 150 billion for general insurance companies; IDR 300 billion for re-insurance companies; IDR 100 billion for sharia insurance companies; IDR 175 billion for sharia re-insurance companies; IDR 3 billion for insurance broker companies; and
Priority of local insurance and reinsurance
Management and governance
IDR 5 billion for re-insurance broker companies. Insurance objects in Indonesia can only be insured with insurance companies holding a license from the OJK, except in the following events: a)
No insurance company in Indonesia (jointly or severally) assumes the risks or sharia risks of the relevant objects;
b)
No insurance company in Indonesia is willing to provide insurance for the designated insurance objects.
Board of Directors/Board of Commissioners: The board of directors ("BOD") and board of commissioners ("BOC") of insurance and reinsurance companies must have at least three members each. All members of the BOD must be domiciled in Indonesia. For the BOC, at least half of its members must be domiciled in Indonesia. Controller: Insurance companies, sharia insurance companies, reinsurance companies and sharia re-insurance companies must have at least one controller. A controller is a party who, directly or indirectly, has the power to appoint and/or influence the actions of members of the BOD/BOC (or comparable organs in case of a cooperative and other form of joint ownership). A party who becomes a controller must be reported to the OJK. Compliance of key members: Certain key members, such as members of the BOD and the BOC, should comply with the fit and proper criteria set out by the OJK. Employing experts: Insurance companies are obliged to employ sufficient experts relevant to their business in order to ensure the implementation of good insurance management. General and life insurance companies must at least employ one expert in their respective companies.
Policy Guarantee Fund
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A Guarantee Fund (Dana Jaminan or "GF") is a part of the protective measures to safeguard the position of policy holders. Insurance companies, sharia insurance companies, re-insurance companies and sharia re-
This particular legal entity will be further regulated by the Government. Currently, only one insurance company carries out insurance business in the form of mutual ownership in Indonesia.
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insurance companies must have a GF to cover the rights of their policy holders/insured parties/participants in the event of a liquidation of the business. Insurance and re-insurance companies must have a GF of at least 20% of the minimum paid up capital requirement (see section Minimum Capital) when submitting their application for a business license and place such funds in a time deposit at a custodian bank. The GF may only be placed in time deposits and/or securities issued by the Government of Indonesia. The GF can only be withdrawn after obtaining approval from the OJK in limited circumstances, including where the company is being liquidated, its license is being revoked or the amount of the GF has exceeded the mandatory threshold. Statutory management
A statutory manager will be appointed by the OJK to take over the management of an insurance company under certain circumstances, such as: The OJK suspends the insurance company's business license; The insurance company does not follow written instructions to change members of the BOD, BOC, or Sharia Supervisory Board. The insurance company, in the OJK's view: (i) fails to comply with the applicable insurance laws and regulations, (ii) is deemed to be financially unsound, or (iii) is used by a third party to facilitate, or is involved in, criminal actions.
Reporting
Insurance companies are required to submit information, data and documents to the OJK. Reports that must be submitted include annual financial, quarterly financial, monthly financial, and annual actuarial reports. Insurance companies are also required to submit incidental reports such as with regard to amendments of articles of association, changes of capital, and changes of the company’s domicile to the OJK within 15 days of the effective date of such changes.
Mandatory Reinsurance
Each insurance company must be supported by re-insurance by way of automatic (i.e. obligatory) re-insurance agreements/treaty reinsurance. The OJK requires insurance companies to give priority to domestic reinsurance companies to cover their automatic re-insurance. Facultative reinsurance shall be used if an insurance company cannot obtain or is exempted from obtaining automatic re-insurance, under the following circumstances: No re-insurer is willing to reinsure the products; The insurance company intends to sell new products/ line of insurance; The insurance company intends to sell new insurance products specifically to cater to the needs of its customer's request for a comprehensive insurance coverage; and/or The risks to be covered do not exceed the self-retention capacity. In the event re-insurance is provided by a foreign re-insurance company,
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such company should have a good rating (at least BBB or equivalent) from an international and independent rating agency. The re-insurance agreement must be made in writing and should not guarantee any profit to the re-insurer. For minor risk coverage (e.g. business lines such as motor insurance, health insurance, accident insurance, credit insurance, etc.), insurance companies are only allowed to cover their risk with local re-insurers. Change of ownership, M&A, consolidation
Any change of ownership, merger or consolidation of an insurance company requires prior approval from the OJK. In the event such change of ownership is in the form of foreign direct investment, the foreign party must be an insurance company or a parent company of an insurance company operating a similar business (see section on Ownership and Control above). Change of ownership through transactions on the capital market does not need to be approved by the OJK, except in the event of a change of control6. The Insurance Law requires insurance companies that have a sharia unit to spin off their sharia business into a sharia insurance or re-insurance company if the value of their 'tabarru' funds7 and the value of participants' investments has reached at least 50% of the aggregate of (i) insurance funds, (ii) 'tabarru' funds, and (iii) participants' funds in their parent company or 10 years after the enactment of the Insurance Law.
Sanctions
Criminal Sanctions Operating an insurance, sharia insurance, re-insurance or sharia reinsurance business without a business license is punishable by a prison sentence of up to 15 years and a fine with a maximum of IDR 200 billion. Operating an insurance broker or re-insurance broker business without a business license is punishable by a prison sentence of up to 10 years and a fine with a maximum of IDR 3 billion. Operating an insurance adjuster business without a business license is punishable by a prison sentence of up to 3 years and a fine with a maximum of IDR 1 billion. Administrative sanctions Certain violations of the Insurance Law, such as a breach of foreign ownership restrictions or non-compliance with the fit and proper criteria for key members, are subject to administrative sanctions. Such sanctions include: a written warning; limitation of business activities;
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See footnote 3. 'Tabarru funds' means a collection of funds originating from contributions of members whose utilisation mechanism is subject to the respective sharia insurance agreement.
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a prohibition to market certain insurance products; revocation of licenses; cancellation of its registration statement for insurance brokers, reinsurance brokers, and insurance agents; an administrative fine; prohibition from holding certain positions in the company (e.g. shareholder, controller, member of BOD, BOC, etc.).
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Changes in insurance regulation: Indonesia July – September 2016
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Placement in government securities
OJK Regulation No. 1/POJK.05/2016, as amended by OJK regulation No. 36/POJK.05/2016, requires insurance companies to maintain a certain portion of their investments in government securities (Surat Berharga Negara) as follows:
12 Jan 2016 and 14 November 2016 (effective)
http://www.ojk .go.id/id/kanal /iknb/regulasi/ asuransi/perat uranojk/Pages/POJ K-Nomor1.POJK.05.201 6.aspx
1 Sept 2016 (effective)
http://www.oj k.go.id/id/kan al/iknb/regula si/asuransi/su rat-edaranojk/Pages/Sur at-EdaranOJK-tentangSaluranPemasaranProdukAsuransiMelalui-KerjaSama-DenganBank(Bancassuranc e).aspx
At least 20% of the company's total investments for general insurance and re-insurance companies. At least 30% of the company's total investments for life insurance companies. For existing insurance companies, these requirements are to be fulfilled by 31 December 2017. Non compliance is subject to administrative sanction(s). The regulation is aimed at providing stability to Indonesia's bond market. To increase investors’ participation in national development, non-bank financial companies, including insurance companies, may also place their investments in bonds and/or sukuk issued by state-owned enterprises, local government enterprises, and/or subsidiaries of state-owned enterprises for infrastructure developments. Bancassurance
OJK Circular Letter No. 32/SEOJK.05/2016 provides limitations and conditions for cooperation between banks and insurance companies to market insurance products (bancassurance), among others: Each bancassurance agreement can only cover one business model (i.e. referral, distribution partnership, or integrated product/bundling) for one insurance product or one bundled product. Insurance companies that market their products through bancassurance models should obtain prior approval from the OJK. The insurance period must be at least the same as the period of the relevant
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banking product. The OJK may instruct insurance companies to cease distribution through bancassurance in the event of any violation of the provisions of the circular letter. Fit and proper
Pursuant to OJK Circular Letter No. 31/SEOJK.05/2016, the OJK has set fit and proper criteria for key members of insurance companies, such as members of the BOD, the BOC, controlling shareholder, and controller. The fit and proper criteria include: integrity, financial reputation, competency, and financial feasibility. Key members should also commit to abide by the prevailing regulations and support the OJK's policies. The new circular expands the parties who are required to meet the fit and proper test (i.e. not only BOD/BOC but also other positions such as internal auditors and actuary) and enhances the criteria of the fit and proper test to become more extensive.
30 Aug 2016 (effective)
http://www.oj k.go.id/id/kan al/iknb/regula si/asuransi/su rat-edaranojk/Pages/SE OJKPenilaianKemampuandanKepatutanBagi-PihakUtamaLembagaJasaKeuanganNonBank.aspx
Insurance companies should also perform a self assessment on the key members prior to submitting the fit and proper test performed by the OJK. Such assessment is to be conducted by the body in charge of the nomination and remuneration of the key members. Legal form of mutual relationship
On the legal status of an insurance company, the Decision of the Constitutional Court No. 32/PUU-XI/2013 dated 3 April 2014 states that the Government and the House of Representatives should enact a new law regarding mutual ownership (see section Legal Status above) at the latest 2.5 half years after the date of the decision. However, at the date of this publication, no new regulation has been issued in this respect yet.
http://ditjenp p.kemenkumh am.go.id/arsip /mk/2013/32 %20PUU-XI2013.pdf
Microinsurance
Microinsurance means insurance designed to protect low income earners. The OJK has issued a draft circular letter on
http://www.oj k.go.id/id/reg ulasi/otoritas-
Changes in insurance regulation
January 2017
Subject
Remarks microinsurance products which will regulate, among others, characteristics, marketing channels, marketing agreements, and requirements for companies that offer microinsurance products. At the date of this publication, the draft circular letter has not yet been enacted.
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Key Date Link jasakeuangan/ranc anganregulasi/Docu ments/RSEOJ K-AsuransiMikro.pdf
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New decree on insurance business
On 1 July 2016, the Government issued Decree 73/2016/ND-CP ("Decree 73") providing guidelines for implementation of the Law on Insurance Business. Decree 73 took effect from 1 July 2016, and replaced Decree 45/2007/ND-CP dated 27 March 2007, Decree 46/2007/ND-CP dated 27 March 2007, Decree 123/2011/ND-CP dated 28 December 2011 and Decree 68/2014/ND-CP dated 9 July 2014 of the Government.
Decree 73 was issued on 1 July 2016 and took effect on the same day.
http://cong bao.chinhp hu.vn/noidung-vanban-so73_2016_N %C4%90CP(20252)?cbi d=20250
The key new points of Decree 73 are as follows: General requirements for obtaining an establishment and operation license for insurance enterprises, foreign branches and insurance broker enterprises: An investor must use their cash and must not use loan or entrusted investment capital from other organisations or individuals to contribute to the charter capital of the established company; An institutional investor contributing 10% or more of the charter capital of the established company must have conducted a profitable business for three preceding years before the year of submitting the application for issuance of a license and must not have incurred cumulative losses at the time of the submission; An institutional investor operating in a sector which requires a legal capital must ensure that the amount of its intended capital contribution to the charter capital of the established company plus the statutory legal capital with respect to such investor must be at least equal to its owner's equity; An investor which is an insurance enterprise, an insurance brokerage enterprise, a commercial bank, a financial company or a securities
Changes in insurance regulation
January 2017
Subject
Update company must satisfy and maintain financial safety conditions and obtain permission for the investment from a competent agency to contribute capital to the established company. Assessment of insurance enterprises’, foreign branches’ and insurance brokerage enterprises’ equity: Decree 73 requires the assessment of owners’ equity to be done quarterly instead of annually as previously regulated. If the owner's equity goes below the requirements (which is (i) the owner's equity must not be less than the statutory legal capital level and (ii) the solvency margin must be higher than the minimum solvency margin), the relevant insurance enterprise, foreign branch or insurance brokerage enterprise must supplement the equity to reach the requirements within six months from the end of the relevant quarter. Technical reserves: In addition to the technical reserves for life insurance and non-life insurance, Decree 73 now regulates technical reserves for health insurance and reinsurance. Restriction on investment of capital: Decree 73 tightens the restriction on insurance enterprises’, foreign branches’ and insurance brokerage enterprises’ investment of capital. Notably, insurance enterprises, foreign branches and brokerage enterprises are not permitted (i) to borrow for purposes of direct investment or entrusted investment in securities, real estate, or capital contribution to other enterprises; (ii) to reinvest in any form in their shareholders/members or a related party of their shareholders/members, except for deposits at shareholders/members which are credit institutions; and (iii) to invest more than thirty (30) per cent of its investment capital sources in companies within one group or within
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Update one group of companies having mutual cross ownership relationships, noting that this shall not apply to deposits at credit institutions and offshore investment capital sources in the form of establishment of enterprises or branches overseas.
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Changes in insurance regulation
January 2017
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