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Indonesia: New Regulation on Reinsurance

The Indonesian Financial Services Authority (Otoritas Jasa Keuangan, or “OJK”) has issued new regulations regarding domestic reinsurance support. The new regulations are effective as of 1 January 2016.

Mon 25 Apr 2016

New Requirements

Under the new regulations, Indonesian insurers are required to place all reinsurance of motor, health, personal accident, credit, life and suretyship business (“simple risks”) with domestic Indonesian reinsurers.

For other insurance business (“non simple risks”), a minimum of 25% of reinsurance of that business must be placed with domestic reinsurers and up to 75% may be placed with off-shore reinsurers.

However, subject to approval by the OJK, there are three exceptions to the 100% local cession requirement for “simple risks”. If the OJK grants an exemption, a maximum offshore cession of 75% may be permitted, with a minimum cession to domestic reinsurers of 25% (similar to “non-simple risks”).

Exemptions for Simple Risks

The exemptions that will be considered by the OJK are:

  1. Products specifically designed for multinational companies
    This may be relevant for group and employment benefit insurance.
  2. Medical reimbursement products with global coverage
  3. New products developed by a foreign reinsurer
    A new product designed by a foreign reinsurer can be reinsured with the foreign reinsurer for a maximum of four years, after which the new policies will be subject to the local cession rules. In-force policies sold during the four year period can remain with the foreign reinsurer.

Facultative and Treaty Reinsurance

For general insurance, the following offering process must take place:

  1. Offer business to at least two domestic reinsurers.
  2. If both domestic reinsurers decline to give support, then business must additionally be offered to at least one domestic reinsurer and one domestic general insurer.

If business is not accepted under steps 1 and 2, then reinsurance support can be sought from foreign reinsurers, provided that:

  • the insurance product is a “non-simple risk”; or
  • the insurance product is an exempted “simple risk” product; or
  • all domestic reinsurers and two domestic general insurers have declined to give support.

The above requirements apply, no matter whether the reinsurance is treaty or facultative.

Effective Date

Underwriters should note that these new requirements will apply to any new policies issued or renewed from now onwards.

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