In August 2017, the regulatory harmonization team which consists of Ministry of Justice and Human Rights, Ministry of Finance, State Secretariat, Coordinating Ministry for Economic Affairs, Capital Investment Coordinating Board (BKPM) and the Financial Services Authority (OJK) has finalized the Draft of Government Regulation on the Foreign Ownership of Insurance Companies (Draft GR). The Draft GR is derived from Law Number 40 of 2014 on the Insurance.

The Draft GR stipulates among others on the ownership of an insurance company by a foreign citizen or a foreign legal entity, requirements of the foreign legal entity and maximum foreign ownership of the insurance company before and after its incorporation.

New provision on a foreign citizen to own an insurance company is introduced by the Draft GR. Such ownership can only be done through transaction in the Indonesia Stock Exchange. While, a foreign legal entity to own an insurance company can be done through direct participation, transaction in the Indonesia Stock Exchange or participation in an Indonesian legal entity which owns an insurance company through direct participation or transaction in the Indonesia Stock Exchange.

The aforementioned Draft GR also regulates requirements of a foreign legal entity to own an insurance company as follow: (i) the foreign legal entity has a similar business of insurance or the foreign legal entity is a holding company which one of its subsidiaries is engaged in a similar business of insurance, (ii) has equity of at least 5 times from the amount of direct investment in the insurance company at the time of incorporation and upon change of ownership of the insurance company and (iii) meet other requirements stipulated by OJK. However, such provision shall not apply if the foreign legal entity owns the insurance company through transaction in the Indonesia Stock Exchange or the foreign legal entity owns the insurance company through transaction in the Indonesia Stock Exchange in an Indonesian legal entity which owns the insurance company. The Draft GR is silent on reguirements of a foreign citizen to own the insurance company.

The Draft GR further sets up the maximum limitation of foreign ownership of an insurance company as 80%. Such limitation of foreign ownership is to avoid disruption of the national insurance industry, because, derived from the information we had obtained from OJK, there are about 25 (twenty-five) insurance companies with foreign ownership of more than 80%.

Further, the 80% foreign ownership limitation only applies to a newly incorporated insurance company or an insurance company which foreign ownership has not yet reached 80% of the paid up capital of the insurance company after the issuance of the Draft GR. However, such provision shall not apply if the insurance company is a publicly-listed insurance company or the foreign ownership of any non-publicly-listed insurance company has exceeded 80% of the paid up capital of the insurance company prior to the issuance of the Draft GR. The insurance company is also prohibited to increase the percentage of the foreign ownership after the issuance of the Draft GR.

The Draft GR also provides more stringet rule in case of increasing the foreign shareholder’s ownership in the insurance company by way of capital injection (i.e. cash remittance). Under this rule, if such increase occurs, Indonesian legal entity and/or Indonesian citizen shall own at least 20% of the additional paid up capital of the insurance company (i.e. Indonesian legal entity means directly or indirectly owned by Indonesian citizen) or at least 20% of the additional paid up capital of the insurance company is made through the initial public offering (IPO) of shares in Indonesia.

In the event of the increase of the paid up capital of the insurance company is performed by way of other than cash remittance, among others, from dividend of shares and reclassification of other equity elements, the foreign ownership in the insurance company shall remain within the ownership limitation permitted after the Draft GR is issued (i.e. more than 80% of the paid up capital of the insurance company) because the additional paid up capital shall not alter or increase the percentage of foreign ownership in the insurance company.

The Draft GR also imposes obligation to an insurance company to identify and report the foreign ownership and fulfillment of foreign legal entity requirements to OJK. In relation to such report, OJK will issue a regulation to stipulate the procedure for such report.

Until to date, the Draft GR and OJK regulation have not yet issued.