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Print articleIndonesia - Capital Contributions in Insurance Companies
November, 2008 -
In May 2008 the government of the Republic of Indonesia issued Government Regulation No. 39 of 2008 regarding the Second Amendment to Government Regulation No. 73 of 1992 regarding Insurance-Related Business Activities (Usaha Perasuransian) in order to anticipate the developing national insurance-related industries, including, among other things, insurance companies (perusahaan asuransi). We highlight below some provision of the regulation particularly concerning insurance companies.
Insurance companies can only engage in loss or life insurance, and can apply syariah principles in doing business. Minimum paid up capital for establishment of an insurance company is Rp. 100 billion, while for those applying syariah principles it is Rp. 50 billion. The paid up capital must be made in cash. Upon establishment, foreign ownership that is made through direct participation must not exceed 80%. Change of ownership beyond this figure is possible based on, among other things, approval of the Minister of Finance and provided that amount of the paid up capital of the Indonesian party is maintained.
An insurance company must also have its own capital (modal sendiri), which comprises, among other things, paid up capital, profit balance, and increased or declined value of commercial paper, in the following minimum amount:
- Rp. 40 billion by no later than 31 December 2008;
- Rp. 70 billion by no later than 31 December 2009;
- Rp. 100 billion by no later than 31 December 2010.
There are also different provisions regarding the minimum amount of capital applicable for insurance companies that apply syariah principles in all their business, and for syariah units of an insurance company. Insurance companies that cannot meet these requirements must submit a business plan to comply with the above schedules by no later than 30 September of the year concerned. Implementation of the business plan must be completed by no later than 31 March of the subsequent year. The Minister of Finance will evaluate the business plan and can revoke the business license of an insurance company which does not submit the business plan.
Insurance companies must also hold guarantee funds (dana jaminan) in the amount equal to at least 20% of the minimum paid up capital, which will be regarded as the ultimate guarantee to protect the policy holder's interest. The amount of the funds is subject to the development of the business volume, which will be determined by the Minister of Finance. The funds can be made in the form of a deposit (deposito berjangka) and/or commercial paper issued by the government, and can be cashed in or sold only upon approval of the Minister of Finance or other authorized officer.
Insurance companies that do not submit an annual financial report, independent auditor report, or annual operational report as required will be subject to various sanctions, including warnings, limitation of business activities, revocation of business license, and an administrative fine of Rp. 1 million per day, with the maximum amount of Rp. 360 million for each delayed report.
Insurance companies can only engage in loss or life insurance, and can apply syariah principles in doing business. Minimum paid up capital for establishment of an insurance company is Rp. 100 billion, while for those applying syariah principles it is Rp. 50 billion. The paid up capital must be made in cash. Upon establishment, foreign ownership that is made through direct participation must not exceed 80%. Change of ownership beyond this figure is possible based on, among other things, approval of the Minister of Finance and provided that amount of the paid up capital of the Indonesian party is maintained.
An insurance company must also have its own capital (modal sendiri), which comprises, among other things, paid up capital, profit balance, and increased or declined value of commercial paper, in the following minimum amount:
- Rp. 40 billion by no later than 31 December 2008;
- Rp. 70 billion by no later than 31 December 2009;
- Rp. 100 billion by no later than 31 December 2010.
There are also different provisions regarding the minimum amount of capital applicable for insurance companies that apply syariah principles in all their business, and for syariah units of an insurance company. Insurance companies that cannot meet these requirements must submit a business plan to comply with the above schedules by no later than 30 September of the year concerned. Implementation of the business plan must be completed by no later than 31 March of the subsequent year. The Minister of Finance will evaluate the business plan and can revoke the business license of an insurance company which does not submit the business plan.
Insurance companies must also hold guarantee funds (dana jaminan) in the amount equal to at least 20% of the minimum paid up capital, which will be regarded as the ultimate guarantee to protect the policy holder's interest. The amount of the funds is subject to the development of the business volume, which will be determined by the Minister of Finance. The funds can be made in the form of a deposit (deposito berjangka) and/or commercial paper issued by the government, and can be cashed in or sold only upon approval of the Minister of Finance or other authorized officer.
Insurance companies that do not submit an annual financial report, independent auditor report, or annual operational report as required will be subject to various sanctions, including warnings, limitation of business activities, revocation of business license, and an administrative fine of Rp. 1 million per day, with the maximum amount of Rp. 360 million for each delayed report.
