Insurance and Reinsurance Companies - Financial Soundness, Fund Guarantees, and Asset Assessments

With a view to perfecting the provisions of fund guarantees and asset assessments for insurance and reinsurance companies during a period of financial uncertainty, the Minister of Finance has issued a second series of amendments to Regulation No. 424/KMK.06/ 2003. The amendments are contained in Regulation No. 158/PMK.010/2008.

The primary changes to the Regulation are the insertion of a number of additional articles that address the issues of fund guarantees and asset assessments.

The first of these articles is Article 26A. Article 26A allows insurance and reinsurance companies to use an alternative valuation for State Debt Certificates, other Commercial Paper, and securities when the market is maintaining an unreasonable price valuation. The alternative valuation will be what the insurance and reinsurance companies consider to be reasonable.

However, when the market returns to some semblance of normalcy then the Capital Market and Financial Services Supervisory Agency (Bapepam-LK) will determine what is a reasonable value and then insurance and reinsurance companies will use that value.

Article 36 has been amended and sets out for both insurance and reinsurance companies the percentage that needs to be set aside for fund guarantees. When an insurance or reinsurance company has insufficient funds, then the relevant company has five working days to rectify the problem.

Another inserted article is Article 36A. Article 36A states that fund guarantees can be in the form of debt certificates, commercial paper, or deposits. If the guarantee is in the form of a debt certificate then that certificate must be valid for a period of three years from the date that it is used as a guarantee.

Articles 37A, 37B, 37C, and 37D have also been inserted into the Regulation. These articles deal with matters relating to custodian banks and reporting. For example, the Regulation requires reporting to take place on 31 March, 30 June, 30 September, and 31 December.

All insurance and reinsurance companies must be in compliance with the provisions of this Regulation within two months.

The Regulation has been in force since 28 October 2008.