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Legal Updates | Insurance Companies Must Follow Requirement on Ultimate Shareholders

The Indonesian Insurance Law (Law No. 40 of 2014 regarding Insurance) introduced a significant change regarding the shareholding composition of insurance companies. Breaking from the previous policy, the Insurance Law specifically mandates that the local shareholders in an insurance company must be ultimately owned by Indonesian individuals.  

After the enactment of the Insurance Law, the dual-layer PMA (Penanaman Modal Asing or Foreign Direct Investment) structure that foreign entities had utilised to ultimately own 100% of an Indonesian insurance company is no longer allowed.

Existing insurance companies whose local shareholders are not ultimately owned by Indonesians are not grandfathered; they must comply with this requirement under the Insurance Law by either (i) transferring the foreign-owned shares to Indonesian(s), or (ii) going public (if the first option is unsuccessful).

Insurance companies that find themselves in the position of having to make changes in order to comply with this local shareholders requirement must prepare an action plan containing planned steps to achieve compliance and the schedule for such steps. This action plan must be approved by a general meeting of shareholders and then submitted to the Financial Services Authority (Otoritas Jasa Keuangan or “OJK”) at the latest by June this year. The OJK will approve the action plan or ask that is be revised and re-submitted.

Meanwhile, the rules on foreign ownership of insurance companies remain unsettled. There have been numerous discussions regarding foreign ownership limits in the Indonesian insurance sector, and it was expected that a government regulation on this matter would be issued by April 2017. However, as of this writing, i.e. June 2017, the government regulation is still being discussed at the House of Representatives (DPR) and has yet to be issued. 

We understand from media reports that the government regulation, when it is issued, will be more stringent than current rules in terms of both the maximum foreign shareholding in insurance companies and the prohibition on local shareholders diluting their shareholding as long as the company is in operation. We also understand that existing insurance companies whose foreign ownership exceeds the proposed limit, which is expected to be 80%, will be grandfathered in. However, we will have to await the enactment of the government regulation to see exactly how foreign ownership in insurance companies in Indonesia will be regulated going forward.

SSEK - 19th june 2017

icone share

Indonesia Finance Snapshot - Insurance

Total Assets: 853 trillion IDR (2015)
Life Insurance Growth: 17% (Q2 015)
General Insurance Growth: 10% (2015)
Number of Life Insurance Companies: 50
Number of General Insurance Companies: 81 (2015)
Conventional Insurance Penetration : 2.51% (2015)
Islamic Insurance Penetration: 0.08% (2015)
Government Bodies: Bank Indonesia, Ministry of Finance, Financial Services Authority (OJK).
Relevant Law: Presidential Regulation No. 39 of 2014 on the Negative Investment List permits foreign ownership up to 80% in the sector, excluding pensions, and the 2014 Insurance Law introduced increased protection for policyholders.

Useful Documents

Law No. 40 of 2014