25 Mar 2015
CHANGES TO BANKRUPTCY LAW IN RESPECT TO INSURANCE COMPANIES
The Government has revoked the applicability of the bankruptcy provisions of Law No. 37 of 2004 concerning Bankruptcy and Suspension of Payment to insurance companies and re-insurance companies. The revocation is done through Law No. 40 of 2014 concerning Insurance (“Law 40/2014”), which also provides that the prevailing implementing regulations of the old Insurance Law will remain effective to the extent that they are not contradictory to Law 40/2014.
Among Law 40/2014’s provisions of note are the following:
- Limited business scopes. Article 2 of this law restricts the business activities of the different insurance companies. For instance, general insurance companies may only conduct:
An insurance company may be established in the form of:
- General Insurance Business, which includes health insurance and personal accident business lines; and
- Reinsurance Business for other general insurance risks. Life insurance companies may only conduct the activities of life insurance business line, which includes annuity, health and personal accident business lines. Reinsurance companies may only engage in reinsurance business The business scopes may be expanded in line with the public demand;
An insurance company may only be owned by :
- a limited liability company;
- a cooperative (koperasi); or
- a joint venture upon the enactment of the Law 40/2014;
Individual foreign citizens can become owners of insurance companies through the stock exchange;
A person can only be a controlling shareholder in 1 (one) life insurance company, 1 (one) general insurance company, 1 (one) life syariah insurance company, 1 (one) general syariah insurance company and 1 (one) re-insurance syariah company. This restriction does not apply to the Republic of Indonesia as a shareholder. Persons who are currently controlling shareholder in multiple insurance companies must be in compliance with this restrictive clause at the latest 3 (three) years as of the enactment of Law 40/2014.
The authority in charge of the insurance business is the Financial Services Authority (locally known as Otoritas Jasa Keuangan or “OJK”). Under this Law 40/2014 the OJK has the authority to, among others:
- Indonesian citizens and/or an Indonesian legal entity which is directly or indirectly fully owned by Indonesian citizens; or
- Indonesian citizens and/or an Indonesian legal entity meant in a) above, together with foreign citizen(s), or a foreign insurance company engaging in similar business activities, or a foreign holding company having a subsidiary engaging in a similar insurance business activities;
Mergers or consolidations may only be executed between and among insurance companies with the prior approval of the OJK. Changes in the shareholding composition of an insurance company must be reported to the OJK;
Insurance companies must be members of an association of insurance companies which has been approved by OJK. OJK may delegate certain of its supervisional authorities to such insurance association.
- approve or reject the application of business licenses for insurance companies;
- revoke business licenses;
- require insurance companies to submit periodical reports;
- approve a person/legal entity to be a controlling shareholder in an insurance company, or revoke the approval;
- conduct investigation on insurance companies or on parties which are affiliated with an insurance company;
- run the fit and proper test on an insurance company’s Board of Directors and Board of Commissioners;
- de-activate members of the Board of Directors and Board Board of Commissioners of an insurance company;
- order an insurance company to do or not to do a particular action in the framework of compliance with Law 40/2014;
- replace an officer of an insurance company with a more qualified person.
Law 40/2014 became effective on 17 October 2014, which is date of its enactment. (by: Ilham Wahyu)