Indonesia Financial Services Authority issues regulations relating to financial health of insurance companies

27 June 2023

The Indonesia Financial Services Authority (Otoritas Jasa Keuangan or “OJK”) has issued new regulations to maintain the financial health of insurance companies and optimise insurance investment performance. The two regulations are POJK 5/2023 and POJK 6/2023. The regulations came into force on 6 April 2023.

The regulations seek to amend Regulation POJK Number 71/POJK.05/2016 concerning the Financial Health of Insurance Companies and Reinsurance Companies and Regulation POJK Number 72/POJK.05/2016 concerning the Financial Health of Insurance Companies and Reinsurance Companies with Shariah Principles.

The regulations adjust the investment limit provisions to encourage companies to exercise more caution in placing investments by taking into account the company’s capital ability to bear risks related to investment placement. Companies must maintain their level of risk exposure to related parties as well as to a single party and a single group of investment recipients who are not related parties.

“The risk exposure must be adjusted to the ability of the company’s capital to bear the risk,” said OJK Chairman Mahendra Saragih in a press release.

OJK noted that the issuance of the regulations was motivated by the consideration that the provisions on the maximum limit on investment in related parties for assets other than Insurance Products Associated with Investments were considered to be too broad and the risk of excessive concentration could not be prevented. For example, there was no maximum investment limit for related parties and non-related parties in relation to investment-linked insurance products (“PAYDI”) assets. This resulted in policyholders having the potential to face high concentration risks and the potential for PAYDI assets to be misused.

The changes brought about in the regulations will also harmonise with the provisions regarding related parties in the banking sector so that a more appropriate risk assessment is obtained in an integrated/conglomerate manner.