22 Sep 2026
Indonesia: OJK Proposes a New Risk-Based Capital and Dedicated Solvency Framework for Insurers and Reinsurers

As part of its continuing efforts to strengthen the prudential framework applicable to the insurance sector, the Indonesian Financial Services Authority (Otoritas Jasa Keuangan or “OJK”) has published a Draft OJK Regulation on the Solvency Calculation of Insurance Companies and Reinsurance Companies (the "Draft Regulation"). This update is based on the version of the Draft Regulation published by OJK for public consultation. The final regulation, once issued, may differ from the current draft. 

According to the OJK, the Draft Regulation aims to, among others, align Indonesia’s solvency framework with evolving international standards and accommodate the implementation of Indonesian Financial Accounting Standards (Pernyataan Standar Akuntansi Keuangan) 117 on insurance contracts.

The proposed framework, commonly referred to as the New Risk-Based Capital ("New RBC") regime, would retain the minimum solvency ratio requirement of 100% of the minimum risk-based capital (Modal Minimum Berbasis Risiko or "MMBR") and the requirement for Companies to establish an internal solvency target of at least 120% of MMBR. However, the Draft Regulation would also introduce a number of significant changes, including a tiered capital framework, capital deductions from available capital, revised treatment of subordinated loans, mandatory own risk and solvency assessment ("ORSA") requirements, and dedicated solvency reporting obligations. Based on its scope, the Draft Regulation appears to apply to conventional insurance and reinsurance companies only and does not apply to insurance and reinsurance companies operating under sharia principles. Subject to the issuance of the final regulation, the framework is expected to apply beginning with the submission of first quarter 2027 financial reports.

At present, the solvency requirements applicable to Indonesian insurance and reinsurance companies are primarily contained in OJK Regulation No. 26 of 2025 on the Management of Assets and Liabilities of Insurance Companies and Reinsurance Companies ("OJK Regulation 26/2025"), rather than in a standalone solvency regulation. By contrast, the Draft Regulation would mark a significant development in Indonesia's insurance regulatory framework by introducing a dedicated solvency regulation that consolidates and expands the existing regime.

1. Solvency Ratio and Higher Internal Targets for Primary PPDP

The Draft Regulation would retain the requirement for Companies to maintain at all times a solvency ratio of at least 100% of the MMBR. MMBR represents the amount of funds that must be maintained to absorb potential losses arising from deviations in the management of a Company’s assets and liabilities. Companies would also continue to be required to determine an annual internal solvency ratio target of at least 120% of MMBR, taking into account their respective risk profile. The Draft Regulation would further elaborate on the methodology for calculating MMBR, including the assessment of credit, liquidity, market, insurance and operational risks.

As for companies designated by OJK as a primary insurance company, guarantee institution or pension fund (Perusahaan Perasuransian, Lembaga Penjamin, dan Dana Pensiun Utama or "Primary PPDP"), the Draft Regulation mandates that such companies would be required to maintain an internal target ranging from 135% to 150% of MMBR. Therefore, while the minimum solvency ratio remains unchanged, companies designated as Primary PPDP may need to maintain additional capital buffers and enhance their capital planning processes to comply with the higher internal solvency ratio targets.

2. Tiered Capital Framework and Deductions from Available Capital

Capital classification. For the purpose of calculating the solvency ratio, the Draft Regulation would classify capital into primary capital and supplementary capital. Primary capital would be further divided into Tier 1 Unlimited and Tier 1 Limited, reflecting differences in permanence, subordination and loss-absorption characteristics. Supplementary capital would comprise Tier 2 capital. The amount recognized for solvency purposes would therefore depend not only on the amount of capital held, but also on the quality and characteristics of the relevant capital instruments.

Deductions. Article 12 of the Draft Regulation identifies amounts that must be deducted from available capital. These include goodwill, intangible assets, deferred tax assets, reciprocal cross-holdings of capital instruments, repurchased Tier 1 instruments, reinsurance assets arising from non-qualifying reinsurers (i.e., reinsurers that do not possess adequate credit quality and/or do not satisfy regulatory requirements), and assets that are not recognized as admissible assets under the applicable OJK regulations on asset and liability management. 

Potential impact. Companies with material goodwill, intangible assets, deferred tax assets, non-admissible assets, or affected reinsurance assets may recognize a lower amount of available capital for solvency purposes, even if their accounting equity remains unchanged.

3. Revised Regulatory Capital Treatment of Subordinated Loans

The Draft Regulation also introduces greater flexibility in the treatment of subordinated loans. Under Article 14, subordinated loans may be recognized as Tier 1 Limited capital if they satisfy the requirements applicable to Tier 1 Limited instruments, or as Tier 2 capital if they satisfy the requirements applicable to Tier 2 instruments. In addition, subordinated loans may be issued through the capital markets in accordance with applicable laws and regulations. 

This represents a departure from the existing framework under OJK Regulation 26/2025, which permits subordinated loans to be excluded from liabilities for solvency purposes if certain conditions are met (including being used to satisfy solvency requirements, having no fixed maturity, and being funded in cash), rather than expressly classifying such instruments within a tiered capital structure. Accordingly, the Draft Regulation provides greater clarity regarding the regulatory capital treatment of subordinated funding instruments and aligns their recognition with the characteristics of the relevant capital tier.

Companies may therefore wish to review their existing subordinated funding arrangements to assess their eligibility for recognition as Tier 1 Limited or Tier 2 capital under the Draft Regulation.

4. Mandatory Own Risk and Solvency Assessment (ORSA)

Another significant change introduced under the Draft Regulation is the requirement for Companies to conduct ORSA as part of their internal solvency management framework. To support the obligation to maintain an internal solvency ratio target, Companies must perform an ORSA that is proportionate to their size, business characteristics, and operational complexity, at least once a year. 

The ORSA must cover, at a minimum: (i) an assessment of the adequacy of the capital risk management framework; (ii) an assessment of the adequacy of the solvency ratio under various stress-testing scenarios; (iii) the formulation of strategies to maintain compliance with applicable solvency ratio requirements; and (iv) ongoing monitoring and reporting. Companies are also required to properly document their ORSA.

In addition, OJK is granted supervisory authority to review the results of the Companies' ORSA. Based on such review, OJK may require Companies to revise their ORSA and/or increase their internal solvency ratio target beyond the minimum levels prescribed under the Draft Regulation. The introduction of ORSA may require Companies to strengthen their internal risk management, stress-testing, governance and capital planning frameworks. 

5. Introduction of Solvency Ratio Reporting Requirements

While OJK Regulation 26/2025 sets out the core solvency requirements, including the minimum solvency ratio and internal solvency ratio targets, it does not provide a dedicated reporting framework for the submission of solvency ratio calculations to the OJK. 

The Draft Regulation expands the existing regime by requiring Companies to submit a solvency ratio calculation report as an integral part of their quarterly and annual periodic financial reports. The report must be submitted in accordance with the applicable OJK regulations on periodic reporting by insurance companies. This enhanced reporting framework reflects OJK's intention to strengthen regulatory oversight by requiring more regular monitoring of insurers' solvency positions and compliance with the revised risk-based solvency requirements.

The Draft Regulation also introduces an administrative sanctions regime for non-compliance with key solvency and reporting requirements. Breaches of the minimum solvency ratio and internal solvency ratio requirements may result in administrative sanctions ranging from written warnings, business activity restrictions, product marketing restrictions, downgrades of a company's soundness rating, and prohibitions on serving as controlling shareholders, directors, commissioners or other key officers of insurance companies. Similar sanctions may also be imposed for failures to prepare and submit solvency ratio calculation reports as required. Notably, for companies affected by the implementation of the new framework, administrative sanctions for breaches of the solvency ratio requirements would only become applicable from 1 January 2028 pursuant to the transitional provisions.

Accordingly, Companies may need to strengthen their internal compliance and reporting processes to ensure timely preparation and submission of solvency ratio calculation reports and avoid potential regulatory sanctions.

ABNR Commentary:

The Draft Regulation would shift the solvency framework from a regime focused principally on a minimum risk-based capital ratio toward a broader assessment of capital quality, asset admissibility, institution-specific risk and continuing solvency monitoring. Although the minimum ratio would remain at 100% of MMBR, compliance with that threshold alone may no longer provide a complete indication of a Company’s position under the proposed framework. While the core requirement to maintain a minimum solvency ratio remains broadly unchanged, the Draft Regulation introduces a more comprehensive and risk-sensitive regime through the implementation of a tiered capital framework, capital deduction factors, ORSA requirements, enhanced treatment of subordinated instruments, and dedicated solvency reporting obligations. 

These changes may require Companies to reassess not only the adequacy of their capital levels, but also the composition and quality of their capital, as well as their internal risk management, capital planning, and reporting processes. In particular, the introduction of ORSA and periodic solvency ratio reporting reflects OJK's shift towards a more forward-looking supervisory approach, under which insurers will be expected to continuously assess and demonstrate their solvency position. 

Pursuant to the transitional provisions, the new solvency ratio framework will apply beginning with the submission of the first quarter 2027 financial reports, while solvency ratio reports for each quarter of 2027 must be submitted within 45 days after the end of the relevant quarter. In addition, subordinated loans existing prior to the effectiveness of the Draft Regulation may continue to be recognized as Tier 1 Limited capital provided that they satisfy the applicable eligibility requirements. Companies may therefore wish to assess the impact of the new framework on their existing capital structure, subordinated instruments, and reporting arrangements ahead of the 2027 implementation timeline.

Early assessment may be particularly important for Companies whose current solvency position depends materially on subordinated funding, intangible assets, deferred tax assets, reinsurance assets, or other assets that may be subject to eligibility restrictions or deductions under the Draft Regulation.

By partners Ayik C. Gunadi (agunadi@abnrlaw.com), Muhammad Muslim (mmuslim@abntlaw.com), associate Arian Hasyim (ahasyim@abnrlaw.com), trainee associate Chatherine Colose (ccolose@abnrlaw.com).

This ABNR client alert is intended solely to provide a general overview, for informational purposes, of selected recent developments in Indonesian law. It does not constitute legal advice and should not be relied upon as such. ABNR accepts no liability of any kind in respect of any statement, opinion, view, error or omission that may be contained in this update. You are strongly advised to consult a licensed Indonesian legal practitioner before taking any action that could affect your rights and obligations under Indonesian law.