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05 Mar 2013
REGULATION ON GOOD CORPORATE GOVERNANCE FOR INSURANCE COMPANIES

The Minister of Finance issued, on 3 October 2012, Regulation No. 152/PMK.010/2012 regarding Good Corporate Governance for Insurance Companies (“MOF Regulation”). This Regulation is the implementing regulation for Government Regulation No. 73 of 1992 which has been severally amended, lastly by Government Regulation No. 81 of 2008 on Insurance Business.

The MOF Regulation applies to insurance companies (life insurance and casualty insurance companies), reinsurance companies, insurance business supporting companies and insurance agent companies  (collectively referred to as “Insurance Business Companies”).  It stipulates 5 good corporate governance principles for these companies, i.e. transparency, accountability, responsibility, independency and fairness.

We highlight the following provisions:

1. Board of Directors (“BoD”)

  • Insurance and reinsurance companies must have at least 3 directors, while insurance business supporting companies must have at least 2 directors.
  • At least half of the members of the BoD of an insurance company or reinsurance company must have knowledge and experience in risk management.
  • All directors of Insurance Business Companies must reside in Indonesia.
  • Directors of Insurance Business Companies are prohibited from holding any position in other companies, with the exception of the position of Commissioner in another Insurance Business Company.

2. Board of Commissioners (“BoC”)

  • Insurance and reinsurance companies must have at least 3 commissioners (at least 1 of them must be an independent commissioner), while insurance business supporting companies must have at least 2 commissioners.
  • At least half of the commissioners of Insurance Business Companies must reside in Indonesia.
  • Commissioners of Insurance Business Companies are prohibited from holding the position of director, commissioner or member of a sharia supervisory board in more than 1 other company.

3.  Insurance companies and reinsurance companies which operate on the basis of Sharia principles must have a Sharia supervisory board. The Sharia supervisory board is to comprise 1 or more Sharia experts who are appointed by the General Meeting of Shareholders on the basis of the recommendation of Majelis Ulama Indonesia.

4. Insurance companies and reinsurance companies are required to set out their investment policies and strategies in writing, and to evaluate them periodically.

5. Insurance companies are required to have an agency agreement with their marketing agents.

6. Insurance Business Companies are required to have a code of conduct that sets forth their rules of conduct and business ethics.
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All Insurance Business Companies which obtained their business license prior to the issuance of this MOF Regulation are required to comply with the provisions of this MOF Regulation at the latest 6 (six) months as of October 4, 2012. (by: Adri Yudistra Dharma)

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[1]   The MOF Regulation does not apply to individual insurance agents.