Financial Services Authority (“OJK”) recently issued Circular Letter No. 44/SEOJK.05/2016 on Criteria of Appointment and Determination of the Usage of Statutory Manager and Termination and Replacement of Statutory Manager for Insurance Companies, Sharia Insurance Companies, Reinsurance Companies and Sharia Reinsurance Companies (“SEOJK 44”). SEOJK 44 is an implementing regulation of OJK Regulation No. 41/POJK.05/2015 on Determination Procedure of Statutory Manager in Financial Services Institutions (“POJK 41”).

  1. Appointment of Statutory Manager

Statutory manager is an individual or legal entity appointed by OJK (“Statutory Manager”) to take over the management of Insurance Companies, Sharia Insurance Companies, Reinsurance Companies and Sharia Reinsurance Companies (altogether, the “Company”)[1] if any of the following events occurs:[2]

  1. the financial condition of the Company may harm the interest of consumers, financial service sector, and/or shareholders. The financial condition shall meet the following matters: (i) solvency ratio achievement is below 100%, (ii) investment adequacy ratio is below 100% and/or (iii) equity is below the minimum amount required;
  2. the business implementation of the Company is not in accordance with prevailing regulations in financial service sector, among others: (i) conduct business activity that is not in accordance with the license given by OJK and/or (ii) place the investment in type and/or amount of investment which is prohibited by insurance law and regulations;
  3. the Company has been imposed sanction of limitation of its business activities according to OJK’s assessment can lead to failure of the Company to meet its obligations to consumers, policyholders and/or other parties;
  4. the Company is used by certain party for facilitating and/or conducting criminal act in financial service sector, among others, the Company is used as mean or target for money laundering and/or terrorism financing.
  5. the shareholders, Board of Directors (“BOD”), Board of Commissioners (“BOC”) and/or Sharia Supervisory Board (“SSB”) are alleged to commit criminal act in financial service sector which may harm operation of the Company if potential loss of the Company as the result of such criminal act is valued as material;
  6. BOD, BOC and/or SSB are deemed unable to solve issues arising in the Company, among others they cannot perform and/or settle part or whole of financial health plan as referred to in laws and regulations on financial health of the Company in accordance with a stipulated time period;
  7. the Company does not comply with written order to change the BOD, BOC and/or SSB within a stipulated time period in order to meet criteria under prevailing laws and regulations;
  8. the Company notifies OJK that it is unable to fulfill its obligations or will cease the settlement of overdue obligations;
  9. OJK determines that the Company is unable to fulfill its obligations or will cease the settlement of overdue obligation

In the event that the Statutory Manager has been appointed, members of BOD, BOC and/or SSB are stated non active.[3] The inactive members of BOD, BOC and/or SSB are prohibited to resign from their positions.[4] Instead, they are required to assist the appointed Statutory Manager in performing his or her authorities, functions and duties.[5]

  1. Authority and Duty of Statutory Manager

The Statutory Manager has all powers and functions of BOD, BOC and/or SSB.[6] Duties of the Statutory Manager are as follows:[7]

  1. to save asset and/or fund collection of the financial service institutions (which includes the Company) and/or consumers;
  2. to control and manage the business activities of the Company in accordance with laws and regulations;
  3. to prepare work plan which should at least include rescue steps that will be performed if the Company can still be rescued;
  4. to give recommendation so OJK revokes business license of the Company if the Company cannot be rescued;
  5. to comply with laws and regulations in financial service sector;
  6. to comply with any written instruction from OJK regarding controlling and management of business activities of the Company;
  7. to prevent and decrease loss of consumers, public and financial service sector;
  8. to eradicate financial crime conducted by certain party in financial service sector; and
  9. to its activities to OJK.

Further, in performing authority, function and duty, Statutory Manager can perform the following steps:[8]

  1. save the survival of business of the Company;
  2. annul or terminate any agreement entered by the Company with third party which adverses and/or in the opinion of Statutory Manager such agreement can adverse interest of the Company and/or consumers;
  3. transfer part or whole of asset portfolio or business and/or fund collection of the Company which in the opinion of Statutory Manager can prevent greater loss to the Company.
  4. transfer part or whole of asset portfolio and/or fund collection of consumers which in the opinion of Statutory Manager can prevent greater loss to consumers.

 

  1. Requirement of Statutory Manager

OJK can appoint an individual or a legal entity as a Statutory Manager.[9] The individual to become  Statutory Manager must have capacity to conduct legal action and has no conflict of interest with the Company, shareholders, BOD, BOC and/or SSB.[10] Such individual must also satisfy the following requirements:[11]

  1. own similar requirements of the BOD, BOC and/or SSB in accordance with the authority and function that is being taken over, according to OJK’s assessment;
  2. has relevant knowledge, experience and/or skill, among others in accountancy, legal, actuary, technology and informatics sector, or is an expert or other profession related to insurance; and/or
  3. has experience in management, recovery and/or corporate

The BOD, BOC, SSB and/or officer of the Company who do not cause the Company in trouble can be appointed as Statutory Manager.[12]

Further, the legal entity to become Statutory Manager shall be the same type with the Company and has no conflict of interest with shareholders, BOD, BOC and/or SSB of the Company.[13] The party of the legal entity which is assigned to perform Statutory Manager’s function, duty and authority shall meet requirements for individual Statutory Manager as explained above.[14] The appointed individual or legal entity as Statutory Manager may cooperate with other party in performing its duty and authority.[15]

 

  1. Procedure to Appoint Statutory Manager

Appointment and decision to use Statutory Manager shall be conducted by Board of Commissioners of OJK based on proposal of Chief Executive Supervisory of Insurance, Pension Fund, Financing Insitution and other Financial Services Institutions (“Chief Executive”). The Chief Executive will issue decision of appointment after approved by the Board of Commissioners of OJK. The use of Statutory Manager becomes effective as of the date of decision which is signed by the Chief Executive.[16]

  1. Case of Statutory Manager Appointment

Recently, OJK took step to strengthen one of the oldest insurance companies in Indonesia, AJB Bumiputera 1912, by replacing its management effective as of 21 October 2016.[17] The replacement of AJB Bumiputera 1912’s management is conducted by OJK based on Law No. 21 of 2001 regarding OJK, Insurance Law and POJK 41.

The main task of the new management is to make sure that the operational of AJB Bumiputera 1912 will run well and smoothly as well as to conduct overall restructuring toward AJB Bumiputera 1912 in order to strengthen its financial condition. The new management will immediately prepare strategic steps and submit them to OJK. The new management will be supported, among others, by financial consultant PricewaterhouseCoopers, tax auditor Rustam Consulting, actuary consultant PT Milliman Indonesia, PT BNP Paribas and securities companies such as PT Mandiri Sekuritas, PT Bahana Sekuritas, PT Danareksa Sekuritas and PT BNI Sekuritas Indonesia.

[1] Article 1 point 33 of Law No. 40 of 2014 on Insurance (“Insurance Law”) jo. Article 2(1) of POJK 41

[2] Article 62(1) of Insurance Law jo. Article 2(3) of POJK 41 jo. Part II of SEOJK 44

[3] Article 3(1) letter b of POJK 41

[4] Article 3(3) of POJK 41

[5] Article 3(2) letter b of POJK 41

[6] Article 6(1) of POJK 41

[7] Article 6(2) of POJK 41

[8] Article 6(3) of POJK 41

[9]   Article 5(1) of POJK 41

[10]  Article 5(2) letter b of POJK 41 jo. Part III point 2 of SEOJK 44

[11]  Article 5(2) letter a of POJK 41 jo. Part III point 2(a) and (b) of SEOJK 44

[12]  Article 5(3) of POJK 41

[13]  Article 5(4) of POJK 41 jo. Part III point 5 of SEOJK 44

[14]  Article 5(5) of POJK 41 jo. Part III point 8 of SEOJK 44

[15]  Part III point 4 of SEOJK 44

[16]  Part IV of SEOJK 44

[17] OJK Press Release on 24 October 2016 as stated in SP No. 107/DKNS/OJK/X/2016, Strengthen Insurance Industry, OJK Replaces Management of AJB Bumiputera 1912