Changes in insurance

regulation: China / Hong Kong /

Singapore / Indonesia /
Vietnam
July – September 2016
Contents

Changes in insurance regulation: China 1

Changes in insurance regulation: Hong Kong 9

Changes in insurance regulation: Singapore 14

General overview: Insurance in Indonesia 15

Changes in insurance regulation: Indonesia 21

Changes in insurance regulation: Vietnam 24

Our Asia insurance team 27

Changes in insurance regulation January 2017 1

Changes in insurance regulation: China

July – September 2016

Subject Update Key date Link

CIRC's Draft On 30 August 2016, the CIRC commenced The Draft http://www.circ.gov
Guidelines for public consultation on the Guidelines for Guidelines .cn/web/site0/tab51
the Articles of the Articles of Association of Insurance were issued 68/info4041895.ht
Association of Companies (Draft for Comments) (the on 30 August m
Insurance "Draft Guidelines"). 2016 for
Companies public (CIRC's official
CIRC's accompanying notice to the Draft consultation notice in Chinese)
Guidelines includes the following notes: until 6
 Although the Draft Guidelines September
specifically apply to insurance 2016
companies limited by shares, they act
as reference for other types of
insurance companies and insurance
asset management companies;
 The Draft Guidelines only set out
essential clauses of the articles of
association. Insurance companies may
make reasonable adjustments and
changes as long as the principles of the
Draft Guidelines remain unchanged;
 Apart from the content required by the
Company Law and these Draft
Guidelines, insurance companies may
add other clauses depending on their
specific situation; and
 Specific rules for listed insurance
companies as otherwise set out in
relevant laws and regulations shall be
followed.
CIRC's Notice to On 2 September 2016, the CIRC published Effective 2 The Life Insurance
Strengthen on its official website the Notice on September Notice:
Supervision of Strengthening the Supervision of Life 2016 http://www.circ.gov
Life Insurance Insurance Products (the "Life Insurance .cn/web/site0/tab51
Products Notice"). 76/info4042649.ht
m
According to the Life Insurance Notice,
CIRC will adopt ex post record-filing (CIRC's official
requirements and ex post spot checks on notice in Chinese)
life insurance products. Unless prior
examination and approval are explicitly
required, all life insurance products
developed and designed by an insurance
company should be filed with the CIRC
within ten days after the commencement
2 Hogan Lovells

Subject Update Key date Link

of the sale of such products.
The Life Insurance Notice also sets out the
mechanism of, and requirements for,
product withdrawals, provisions regarding
liability, product review and information
disclosure regarding life insurance
products, as well as requirements for
enhanced monitoring of universal life
insurance products by insurance
companies.
CIRC Improves On 2 September 2016, the CIRC published Effective 2 The Actuarial
the Actuarial on its official website the Notice on September System Notice:
System of Life Further Improving Relevant Matters 2016 http://www.circ.gov
Insurance regarding the Actuarial System of Life .cn/web/site0/tab51
Insurance (the "Actuarial System 76/info4042644.ht
Notice"). m
The Actuarial System Notice enhances (CIRC's official
certain prudential requirements with notice in Chinese)
regard to life insurance, focusing on the
following main points:
 The required minimum ratio of the
insured amount to the aggregate
premium paid/account value has been
increased from 105% to 120%.
 The required ratio of the insured
amount to the aggregate premium
paid/ account value of death insurance
for the predominant age group (i.e.
from 18 - 40) has been increased from
120% to 160%.
 The upper limit of the valuation
interest rate for universal life insurance
liability reserve funds is reduced to 3%.
(The rate requirement for ordinary life
insurance products remains at 3.5%.)
 From 2019, short-to-medium term
business should account for no more
than 50% in a company's business
structure, and such percentage shall be
further adjusted to 40% in 2020 and
30% in 2021 respectively.
Changes in insurance regulation January 2017 3

Subject Update Key date Link

CIRC Amends It has been reported that the CIRC is Media http://news.cnstock
the Measures planning to amend the Measures for the reports dated .com/paper,2016-
for the Administration of Equity in Insurance 31 August 08-31,718834.htm#
Administration Companies (promulgated 15 April 2014, 2016
of Equity in (Media Report in
effective 1 June 2014) and to consult with
Insurance Chinese)
the industry on the amended version (the
Companies "Amended Measures").
According to media reports, key features of
the Amended Measures are as follows:
 Re-classify shareholders of an
insurance company into the following
categories based on their shareholding
ratio and control over the operation of
the insurance company:
1. Financial shareholders: with a
shareholding ratio of less than 10%
and no major influence on the
operation of the insurance
company;
2. Strategic shareholders: with a
shareholding percentage between
10% and one-third of the
shareholding of the insurance
company, or less than 10% but
with a relatively important
influence on the operation of the
insurance company; and
3. Controlling shareholders: with a
shareholding percentage of more
than one-third of the shareholding
of the insurance company and a
major influence on the operation of
the insurance company.
 Further specific requirements and
conditions for each of the above three
types of shareholders: for example, the
total assets of a controlling shareholder
for the past year shall not be lower
than RMB 10 billion, its net assets shall
not be lower than 30% of its total
assets, and its debt to asset ratio and
financial leverage ratio shall not be
significantly higher than the industry
average; and if the investor is an
insurance company, it can only act as a
4 Hogan Lovells

Subject Update Key date Link

controlling shareholder of one other
insurance company.
 Contributions to an insurance
company shall be made in cash and
must not come from investment funds
generated from insurance companies.
 Equity interests in an insurance
company shall be subject to a lock-up
period varying from 1 to 3 years
(depending on the type of
shareholder).
 The CIRC has also strengthened the
relevant penalties and administrative
sanctions imposed on investors who do
not comply with the relevant
legislation and rules.
CIRC's Draft On 25 August 2016, the China Insurance The Licensing http://www.circ.gov
Notice on Regulatory Commission (the "CIRC") Draft was .cn/web/site0/tab51
Properly commenced public consultation on the issued on 25 68/info4041722.ht
Granting Draft Notice on Properly Granting August 2016 m
Licenses to Licenses to Professional Insurance for public
Professional consultation (CIRC's official
Intermediary Business (the "Licensing
Insurance until 2 notice in Chinese)
Draft"). The Licensing Draft sets out six
Intermediary key requirements for professional September
Business insurance intermediaries (the "PIIs"), as 2016
follows:
 Shareholder(s) of PIIs shall make
capital contributions using self-owned
and legal funds, and shall not use bank
loans and other forms of funds that are
not self-owned;
 The registered capital of PIIs shall be
deposited with a custodian bank before
the license application and shall be
maintained in such custodial account
throughout the term of the licence;
 PIIs shall procure full and effective
professional liability insurance
coverage;
 Business models of PIIs shall be
reasonable and feasible;
 Corporate governance of PIIs shall be
sound and well implemented; and
Changes in insurance regulation January 2017 5

Subject Update Key date Link

 The risk assessments of PIIs shall meet
the relevant requirements.

CIRC On 26 July 2016, the CIRC published on CIRC notice http://www.circ.gov

Strengthens the its website the Notice to Strengthen the dated 21 July .cn/web/site0/tab52
Administration Administration of Settlement Services for 2016 25/info4037209.ht
of Settlement Insurance Claims (the "Notice"), which m
Services for mainly aims to prevent insurance
Insurance (CIRC's official
companies from requesting customers to
Claims notice in Chinese)
provide unreasonable documents of proof
for their claims.
The Notice requires insurance companies
to:
 Strictly comply with provisions in
insurance contracts, and not
unilaterally impose additional
requirements on proof of claims; and
 Conduct a self-examination on their
internal systems and rectify any
problems identified.
The Notice further requires the local arms
of the CIRC to enhance their supervision
of the provision of claims management
services by insurance companies, and to
conduct targeted spot checking.
Insurance industry associations should
continue to ensure compliance with
industry regulations and take effective
measures to resolve complaints involving
claim settlement issues.
CIRC's Notice on Further to the Draft Notice on Further The Official http://www.circ.gov
Further Strengthening the Disclosure of Insurance Notice dated .cn/web/site0/tab51
Strengthening of Companies' Share Related Information 15 July 2016 68/info4037210.ht
the Disclosure of (the "Draft Share Related m
Insurance Effective 26
Information Disclosure Notice"
Companies' July 2016 (CIRC's official
issued on 5 May 2016, as mentioned in our
Share Related notice in Chinese)
regulatory tracker for the second quarter
Information of 2016), the CIRC published on 26 July http://www.circ.gov
2016 the official Notice on Further .cn/web/site0/tab52
Strengthening the Disclosure of Insurance 07/info4037212.htm
Companies' Share Related Information
("Official Notice"). (CIRC's Q&A issued
on 26 July 2016.)
Compared to the Draft Share Related
Information Disclosure Notice, the Official
Notice introduces two main revisions:
6 Hogan Lovells

Subject Update Key date Link

1. Information relevant to the
establishment of new insurance
companies will be disclosed on the
CIRC's official website or a unified
information platform as designated by
the CIRC; and
2. In addition to the insurance company
itself, its investors are also responsible
for ensuring that the disclosed
information is true, accurate, complete
and specific.
CIRC Launches On 12 August 2016, the CIRC published on CIRC notice http://www.circ.gov
Self- its website the Notice on Launching a Self- dated 9 .cn/web/site0/tab51
Registration Registration Platform for Property August 2016 68/info4039844.ht
Platform for Insurance Companies' Products subject to m
Property Effective
Record-filing (the "Notice"), which
Insurance from 15 (CIRC's official news
became effective from 15 August 2016.
Companies' August 2016 in Chinese)
Products subject The Notice provides that the self-
registration platform (the "Platform") http://cxcx.iachina.
to Record-filing cn
was officially launched on 15 August 2016.
Scope of self-registration: Self-registration (The Platform's
applies to all types of products that are search interface for
subject to record-filing, except for products registered)
agricultural insurance, agriculture related
insurance which is supported by
government policies, and other insurance
products as specified by the relevant
regulations.
Method of self-registration: Each property
insurance company shall register on the
Platform on a real-time basis. The
registration documents will be reviewed
automatically and be registered once the
documents are complete. The products
can only be used after they are registered.
There is no need to submit filing
documents to the CIRC separately.
Usage of the Platform: Each property
insurance company can check online the
product registration process and the status
of its registered products. The public can
log on to the website of the China
Insurance Association to search for
registered products and their respective
details, as well as basic corporate
Changes in insurance regulation January 2017 7

Subject Update Key date Link

information and the sales plan of the
respective insurance companies.
CIRC's Special According to a news report dated 5 Media http://news.cnstock
Inspection of the September 2016, the CIRC circulated an reports dated .com/news/sns_bw
Effectiveness of internal notice requesting insurance 5 September kx/201609/3893135
Insurance institutions to carry out a special 2016 .htm
Institutions' inspection on the effectiveness of their risk
Risk Prevention (Shanghai Securities
prevention systems. Such inspection
Systems News' report in
focuses on more than 200 issues, including
Chinese)
for example whether there are any related
party transactions that damage the
interests of an insurance company,
whether the insurance company's
investments have exceeded its reasonable
capacity, and whether the controlling
shareholder(s) have been illegally
interfering with the insurance company's
operation and management.
CIRC Issues the On 8 September 2016, the CIRC published CIRC's news http://www.circ.gov
Supervision on its official website a news report dated 8 .cn/web/site0/tab51
Standard on the relating to the issuance of the Supervision September 71/info4042930.ht
Investment in Standard on Investment in Shanghai- 2016 m
Shanghai-Hong Hong Kong Stock Connect Pilot Using
Kong Stock (CIRC's news in
Insurance Funds (the "Supervision
Connect Pilot Chinese)
Standard"). The Supervision Standard
Using Insurance makes provisions regarding the investment
Funds of insurance funds in Hong Kong's capital
market.
The Supervision Standard makes certain
provisions to minimise market risks and
investment risks, including:
 Insurance companies that directly
make investments in the Shanghai-
Hong Kong Stock Connect must have
the necessary capability; and
 Insurance asset management product
portfolios set up by insurance asset
management institutions are allowed
to invest in the Shanghai-Hong Kong
Stock Connect.
CIRC On 1 August 2016, the CIRC sought public The Draft http://www.circ.gov
Implements comments on the Draft Implementing Record-filing .cn/web/site0/tab51
Administrative Administrative Measures (the "Draft Measures 68/info4037912.ht
Measures for Record-filing Measures") for Record- were issued m
Record-filing of filing of the Qualifications of Senior on 1 August
(CIRC's official
8 Hogan Lovells

Subject Update Key date Link

Senior Management Personnel of Insurance 2016 for notice on the Draft
Management Institutions' Branch Offices in Beijing, public Record-filing
Personnel of Tianjin and Hebei (the "Jing-Jin-Ji consultation Measures in
Insurance region"). On 27 October 2016, the CIRC until 5 August Chinese)
Institutions' released on its official website the final 2016
Branch Offices http://www.circ.gov
version of the Draft Implementing
in Three Cities The official .cn/web/site0/tab52
Measures (the "Pilot Record-filing
as a Pilot Pilot Record- 16/info4048290.ht
Measures"). filing m
Scheme
Applicable Senior Management Personnel Measures
were issued (CIRC's official
The Pilot Record-filing Measures simplify on and notice on the Pilot
the administrative approval formalities (by effective from Record-filing
moving from a qualification examination 27 October Measures in
regime to a qualification record-filing 2016 Chinese)
regime) for certain senior management
personnel1 who will be transferred
amongst branch offices of the same type of
insurance company on the same or lower
administrative level located within the
Jing-Jin-Ji region, subject to certain
requirements and exceptions.
Applicable Branch Offices
The Pilot Record-filing Measures apply to
an insurance company's branch offices
established in the Jing-Jin-Ji region,
including branches, central sub-branches,
sub-branches and sales departments.
Branches of a Chinese reinsurance
company or a foreign insurance company
and captive institutions are excluded from
the Pilot Record-filing Measures.
If the senior management personnel will
be transferred to outside the Jing-Jin-Ji
region, the standard qualification
examination formalities must be followed.

1 In accordance with the Administrative Provisions on Qualifications of Directors, Supervisors and Senior Management Personnel of
Insurance Companies, as revised by the CIRC in 2014, senior management personnel of branch offices refers to (i) the general manager,
deputy general manager and general manager's assistant of branches and central sub-branches of an insurance company; and (ii)
manager(s) of sub-branches and sales departments of an insurance company.
Changes in insurance regulation January 2017 9

Changes in insurance regulation: Hong Kong

July – September 2016

Subject Update Key date Link

The Office of the On 7 October 2016, the OCI published a Published on 7 http://www
Commissioner of revised guidance note on corporate October 2016 .oci.gov.hk/
Insurance governance of authorised insurers download/g
("OCI") issues ("GN10"). The effective n10-
revised Guidance date for the eng_201610
Note 10 on Key changes from the previous 07.pdf
changes to
corporate guidance note are as follows:
requirements
governance of 1. With the exception of small authorised
authorised for the
insurers, all insurers must have a minimum
insurers Board level Risk Committee, to be
("GN10") number of
distinct from the Audit Committee.
INEDs,
This committee is responsible for
establishment
independently overseeing the
establishment and operation of the risk of the Risk
management system, together with the Committee
implementation of the risk appetite set and
by the Board. The majority of members remuneration
of the Risk Committee should be policy is 1
independent non-executive directors January 2018
("INEDs").
The provisions
2. The requirements regarding the applicable to
independence of directors have been Key Persons in
tightened. A director is no longer Control
considered independent if (i) he has Functions will
been an employee of the insurer or of take effect at
one of its group companies within the
Stage 2 of the
last three years, or (ii) if he is a director
or controller of a corporation that has commencement
significant financial interests in the date of the
insurer or one of its group companies, Insurance
for instance, a major service provider. Companies
(Amendment)
3. A Chief Risk Officer may be appointed
Ordinance 2015
to carry out the operation of the risk
management function. The CRO's role All other
should be distinct from other executive changes take
functions, i.e. he or she should not effect from 1
report to the Chief Financial Officer or January 2017
vice versa.
4. Insurers must have a prudent and
effective remuneration policy which
does not induce inappropriate or
excessive risk taking. The scope of the
policy has been extended to apply to all
directors, senior management, key
persons in control functions
10 Hogan Lovells

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("KPCFs") and material risk-taking
employees. KPCFs include persons
responsible for risk management,
actuarial matters, financial control and
compliance. The Remuneration
Committee, which should be chaired
by an INED, would be responsible for
assessing the impacts of the policy.
GN10 also provides guidance for the
development of a good remuneration
structure and appropriate criteria for
performance measurement.
5. The Audit Committee should be
chaired by an INED and preferably
have an INED majority.
6. Each of the positions of Chairman,
Chief Executive and appointed actuary
should be held by different individuals.
7. At least one-third of the Board
members must be INEDs, increased
from the former requirement of one-
fifth. Small authorised insurers with
less than five directors should have at
least one INED. An insurer must seek
approval from the Insurance Authority
where the number of INEDs is
temporarily lower under exceptional
circumstances.
8. Other revisions in relation to the
Board:
a. The Board may delegate tasks to
certain committees or groups,
provided it is done under a clear
mandate and in a manner which
allows it to be effectively
monitored.
b. The appointment and removal of
Board members must be
transparent and ideally be
overseen by a Nomination
Committee, which must now
include at least one INED.
c. Where it is inevitable that
conflicts of interest may arise,
this should be managed by clear
Changes in insurance regulation January 2017 11

Subject Update Key date Link

procedures such as disclosure to
the Board, abstention or prior
approval by the Board or
shareholders.
9. Senior management is responsible for
carrying out the day-to-day business of
the insurer and implementing systems
and controls in accordance with the
business strategies and policies set by
the board of directors. It may delegate
some of its responsibilities to KPCFs
provided that clear lines of
accountability and reporting are
established.
10. KPCFs should be 'fit and proper' and
must report to the Board, Board
committees or senior management.
11. Insurers should formulate a business
continuity policy and business
continuity plans. These should
identify contingency measures that the
insurer would take to restore the
business in times of crisis as well as
precautionary measures.
12. Proper policies and procedures should
be implemented to guard against and
manage cyber threats. These should be
regularly reviewed and communicated
to staff.
GN10 applies to Hong Kong incorporated
insurers (with the exception of certain
insurers in run-off) and overseas
incorporated insurers which have over
50% annual gross premium income
pertaining to their Hong Kong insurance
business (reduced from 75% previously).
Captive insurers (insurance companies
that are wholly owned and controlled by
their insureds), who were previously
exempted, are now encouraged to adopt
the GN10 requirements.
The OCI issues On 8 July 2016, the OCI issued the The IFS-MP Circular
the Important Important Facts Statement for Mainland came into issued by
Facts Statement Policyholder (“IFS-MP”) which must be effect on 1 the OCI on
12 Hogan Lovells

Subject Update Key date Link

for Mainland provided to and signed by Mainland September 8 July 2016
Policyholder customers seeking to buy long term 2016
(“IFS-MP”) insurance policies of classes A to F (i.e. all http://www
.oci.gov.hk/
except retirement scheme management) in
download/c
Hong Kong. ir_2016070
The IFS-MP, written in Chinese, reminds 8.pdf
Mainland customers of the factors and
risks involved in taking out long term
The IFS-MP
insurance policies in Hong Kong.
The following main points are covered in http://www
the document: .oci.gov.hk/
download/if
 The entire sale and purchase process of s-mp.pdf
the insurance policy should take place
in Hong Kong and the relevant
documents must be signed in Hong
Kong
 The policy must be sold by a registered
insurance intermediary in Hong Kong
 Unless specified, the estimated returns
and dividends as referred to in the
policy brochure and illustration
document are not guaranteed
 Premium payments already paid may
be entirely forfeited if the policy is
terminated before the maturity date
 If the amounts payable under the
policy are not in RMB, the customer
should be aware of the exchange rate
risk involved
 The insurer may require customers to
provide a proof of income source when
purchasing the insurance policy
Insurers must adopt the IFS-MP in full as
a separate form, although additional
disclosures may be added to reflect the
risks associated with specific insurance
products.
Intermediaries must go through the IFS-
MP on a point by point basis with the
Mainland customers at the point of sale
and a copy of the signed form must be
delivered no later than the date the policy
Changes in insurance regulation January 2017 13

Subject Update Key date Link

is delivered.
If the basic insurance plan was taken out
before implementation of the IFS-MP, the
insurer should normally ask the Mainland
customers to sign the IFS-MP for top-ups
or rider additions.

The IFS-MP mirrors similar statements

issued by the CIRC in respect of overseas
insurance policies (see our previous
trackers).

The OCI sets up a The OCI has established a Fintech Liaison http://www
platform to liaise Team to enhance communication with .oci.gov.hk/
with Fintech Hong Kong businesses involved in the about/index
industry 11.html
development and use of financial
technology (Fintech). It aims to facilitate
the Fintech community’s understanding of
the current regulatory regime and provide
a platform for exchanging ideas on Fintech
initiatives among key stakeholders.
A dedicated email account has been set up
to promote a closer dialogue with market
participants. Any Fintech proposals or
enquiries regarding the regulatory
landscape for the insurance sector in Hong
Kong may be submitted to the Liaison
Team by emailing fintech@oci.gov.hk.
14 Hogan Lovells

Changes in insurance regulation: Singapore

July – September 2016

No material updates for this quarter.

Changes in insurance regulation January 2017 15

General overview: Insurance in Indonesia

Subject Remarks
Regulatory In October 2014, the Government of Indonesia enacted Law No. 40 of 2014
Framework on Insurance ("Insurance Law"), which came into effect on 17 October
2014. The Insurance Law revokes the 1992 insurance law. All
implementing regulations of the 1992 insurance law are still valid, as long
as they do not contradict with the provisions of the Insurance Law.
Insurance companies must also comply with regulations issued by the
Financial Services Authority (Otoritas Jasa Keuangan/"OJK").
Regulatory Body Insurance companies in Indonesia are under the supervision of and
monitored by the OJK.
Type of Insurance The Insurance Law divides the insurance sector into two categories:
Businesses
1. Insurance companies:
 General insurance company;
 Sharia insurance company;
 Re-insurance company;
 Sharia re-insurance company;
 Insurance broker company;
 Re-insurance broker company; and
 Insurance adjuster company.
2. Insurance supporting services, such as:
 Actuary consultant;
 Public accountant;
 Appraiser; and
Other professions as may be decided by the OJK.
Scope of Business The following companies can only provide insurance services that are
included in their scope of business, as follows:
 General insurance company: (a) general insurance (including
health and accident insurance2), and (b) re-insurance business for other
general insurance companies.
 Life insurance company: limited to life insurance, including
annuity, health, and accident insurance.
 Re-insurance company: limited to re-insurance.
 Insurance broker company: limited to insurance brokerage.
 Re-insurance broker company: limited to re-insurance brokerage.
 Insurance adjuster company: limited to insurance adjuster.

2 In practice, health and accident insurance are provided by both general insurance and life insurance companies.
16 Hogan Lovells

Restrictions of In general, insurance and re-insurance companies are open for 80%
Ownership and foreign direct investment. A joint venture between an Indonesian citizen or
Control legal entity3 and foreign investors has to comply with the following:
a) If with foreign legal entity(ies), then the foreign legal entity(ies)
must be (i) an insurance company operating a similar insurance
business; or (ii) a parent company of an insurance company
operating a similar insurance business; and (iii) the foreign legal
entity must have a minimum rating of A or equivalent from an
internationally recognized rating agency.
b) If with foreign individual(s), then the shares may only be acquired
through the capital market.
Any change of ownership requires prior approval from the OJK and certain
conditions have to be observed which are aimed at protecting policy
holders, i.e. the changes will not reduce the rights of policy holders.
Single presence A single shareholder is only allowed to be the controlling shareholder4 of
policy one of each of the following types of insurance companies (i.e. the same
party cannot be the controlling shareholder of two life insurance
companies, but such party would be allowed to be the controlling
shareholder of a life insurance company and a general insurance company,
etc.):
 life insurance company;
 general insurance company;
 re-insurance company;
 sharia life insurance company;
 sharia general insurance company;
 sharia re-insurance company.
License Any party who provides insurance services must obtain a business license
from the OJK. Such services include sharia insurance, re-insurance or
sharia re-insurance, risk management, marketing and distribution of
insurance/sharia insurance products, consultation and insurance
brokerage, and insurance or sharia insurance adjusters.
Insurance supporting professions (see section Type of Insurance
Businesses) must register with the OJK.
Legal status To provide insurance services, a business must be in one of the following
forms:
1. Limited liability company;

3 Indonesian shareholders must be either (i) Indonesian citizens or (ii) Indonesian legal entities wholly owned, directly or
indirectly, by Indonesian citizens.
4 "Controlling shareholder" means any party who directly owns 25% of shares in the company or less but has the ability to
directly or indirectly control the company.
Changes in insurance regulation January 2017 17

2. Cooperative (Koperasi); or
Mutual ownership (usaha bersama), which was established prior to the
enactment of the Insurance Law5.
Minimum capital Insurance companies are required to have a minimum paid up capital of at
least:
 IDR 150 billion for general insurance companies;
 IDR 300 billion for re-insurance companies;
 IDR 100 billion for sharia insurance companies;
 IDR 175 billion for sharia re-insurance companies;
 IDR 3 billion for insurance broker companies; and
IDR 5 billion for re-insurance broker companies.
Priority of local Insurance objects in Indonesia can only be insured with insurance
insurance and re- companies holding a license from the OJK, except in the following events:
insurance
a) No insurance company in Indonesia (jointly or severally) assumes
the risks or sharia risks of the relevant objects;
b) No insurance company in Indonesia is willing to provide insurance
for the designated insurance objects.
Management and Board of Directors/Board of Commissioners: The board of directors
governance ("BOD") and board of commissioners ("BOC") of insurance and re-
insurance companies must have at least three members each. All members
of the BOD must be domiciled in Indonesia. For the BOC, at least half of its
members must be domiciled in Indonesia.

Controller: Insurance companies, sharia insurance companies, re-

insurance companies and sharia re-insurance companies must have at
least one controller. A controller is a party who, directly or indirectly, has
the power to appoint and/or influence the actions of members of the
BOD/BOC (or comparable organs in case of a cooperative and other form
of joint ownership). A party who becomes a controller must be reported to
the OJK.
Compliance of key members: Certain key members, such as members
of the BOD and the BOC, should comply with the fit and proper criteria set
out by the OJK.
Employing experts: Insurance companies are obliged to employ
sufficient experts relevant to their business in order to ensure the
implementation of good insurance management. General and life
insurance companies must at least employ one expert in their respective
companies.
Policy Guarantee A Guarantee Fund (Dana Jaminan or "GF") is a part of the protective
Fund measures to safeguard the position of policy holders. Insurance companies,
sharia insurance companies, re-insurance companies and sharia re-
5 This particular legal entity will be further regulated by the Government. Currently, only one insurance company carries out
insurance business in the form of mutual ownership in Indonesia.
18 Hogan Lovells

insurance companies must have a GF to cover the rights of their policy

holders/insured parties/participants in the event of a liquidation of the
business. Insurance and re-insurance companies must have a GF of at least
20% of the minimum paid up capital requirement (see section Minimum
Capital) when submitting their application for a business license and place
such funds in a time deposit at a custodian bank. The GF may only be
placed in time deposits and/or securities issued by the Government of
Indonesia.
The GF can only be withdrawn after obtaining approval from the OJK in
limited circumstances, including where the company is being liquidated,
its license is being revoked or the amount of the GF has exceeded the
mandatory threshold.
Statutory A statutory manager will be appointed by the OJK to take over the
management management of an insurance company under certain circumstances, such
as:
 The OJK suspends the insurance company's business license;
 The insurance company does not follow written instructions to change
members of the BOD, BOC, or Sharia Supervisory Board.
 The insurance company, in the OJK's view: (i) fails to comply with the
applicable insurance laws and regulations, (ii) is deemed to be
financially unsound, or (iii) is used by a third party to facilitate, or is
involved in, criminal actions.
Reporting Insurance companies are required to submit information, data and
documents to the OJK. Reports that must be submitted include annual
financial, quarterly financial, monthly financial, and annual actuarial
reports. Insurance companies are also required to submit incidental
reports such as with regard to amendments of articles of association,
changes of capital, and changes of the company’s domicile to the OJK
within 15 days of the effective date of such changes.
Mandatory Re- Each insurance company must be supported by re-insurance by way of
insurance automatic (i.e. obligatory) re-insurance agreements/treaty reinsurance.
The OJK requires insurance companies to give priority to domestic re-
insurance companies to cover their automatic re-insurance. Facultative re-
insurance shall be used if an insurance company cannot obtain or is
exempted from obtaining automatic re-insurance, under the following
circumstances:
 No re-insurer is willing to reinsure the products;
 The insurance company intends to sell new products/ line of insurance;
 The insurance company intends to sell new insurance products
specifically to cater to the needs of its customer's request for a
comprehensive insurance coverage; and/or
 The risks to be covered do not exceed the self-retention capacity.
In the event re-insurance is provided by a foreign re-insurance company,
Changes in insurance regulation January 2017 19

such company should have a good rating (at least BBB or equivalent) from
an international and independent rating agency. The re-insurance
agreement must be made in writing and should not guarantee any profit to
the re-insurer.
For minor risk coverage (e.g. business lines such as motor insurance,
health insurance, accident insurance, credit insurance, etc.), insurance
companies are only allowed to cover their risk with local re-insurers.
Change of Any change of ownership, merger or consolidation of an insurance
ownership, M&A, company requires prior approval from the OJK. In the event such change
consolidation of ownership is in the form of foreign direct investment, the foreign party
must be an insurance company or a parent company of an insurance
company operating a similar business (see section on Ownership and
Control above).
Change of ownership through transactions on the capital market does not
need to be approved by the OJK, except in the event of a change of
control6.
The Insurance Law requires insurance companies that have a sharia unit to
spin off their sharia business into a sharia insurance or re-insurance
company if the value of their 'tabarru' funds7 and the value of participants'
investments has reached at least 50% of the aggregate of (i) insurance
funds, (ii) 'tabarru' funds, and (iii) participants' funds in their parent
company or 10 years after the enactment of the Insurance Law.
Sanctions Criminal Sanctions
Operating an insurance, sharia insurance, re-insurance or sharia re-
insurance business without a business license is punishable by a prison
sentence of up to 15 years and a fine with a maximum of IDR 200 billion.
Operating an insurance broker or re-insurance broker business without a
business license is punishable by a prison sentence of up to 10 years and a
fine with a maximum of IDR 3 billion.
Operating an insurance adjuster business without a business license is
punishable by a prison sentence of up to 3 years and a fine with a
maximum of IDR 1 billion.
Administrative sanctions
Certain violations of the Insurance Law, such as a breach of foreign
ownership restrictions or non-compliance with the fit and proper criteria
for key members, are subject to administrative sanctions. Such sanctions
include:
 a written warning;
 limitation of business activities;

6 See footnote 3.
7 'Tabarru funds' means a collection of funds originating from contributions of members whose utilisation mechanism is
subject to the respective sharia insurance agreement.
20 Hogan Lovells

 a prohibition to market certain insurance products;

 revocation of licenses;
 cancellation of its registration statement for insurance brokers, re-
insurance brokers, and insurance agents;
 an administrative fine;
 prohibition from holding certain positions in the company (e.g.
shareholder, controller, member of BOD, BOC, etc.).
Changes in insurance regulation January 2017 21

Changes in insurance regulation: Indonesia

July – September 2016

Subject Remarks Key Date Link

Placement in OJK Regulation No. 1/POJK.05/2016, as 12 Jan http://www.ojk
government amended by OJK regulation No. 2016 and .go.id/id/kanal
securities 36/POJK.05/2016, requires insurance 14 /iknb/regulasi/
November asuransi/perat
companies to maintain a certain portion of
2016 uran-
their investments in government securities (effective) ojk/Pages/POJ
(Surat Berharga Negara) as follows: K-Nomor-
 At least 20% of the company's total 1.POJK.05.201
investments for general insurance and 6.aspx
re-insurance companies.
 At least 30% of the company's total
investments for life insurance
companies.
For existing insurance companies, these
requirements are to be fulfilled by 31
December 2017. Non compliance is subject
to administrative sanction(s).
The regulation is aimed at providing
stability to Indonesia's bond market.
To increase investors’ participation in
national development, non-bank financial
companies, including insurance companies,
may also place their investments in bonds
and/or sukuk issued by state-owned
enterprises, local government enterprises,
and/or subsidiaries of state-owned
enterprises for infrastructure developments.
Bancassurance OJK Circular Letter No. 32/SEOJK.05/2016 1 Sept http://www.oj
provides limitations and conditions for 2016 k.go.id/id/kan
cooperation between banks and insurance (effective) al/iknb/regula
si/asuransi/su
companies to market insurance products
rat-edaran-
(bancassurance), among others: ojk/Pages/Sur
 Each bancassurance agreement can only at-Edaran-
cover one business model (i.e. referral, OJK-tentang-
distribution partnership, or integrated Saluran-
product/bundling) for one insurance Pemasaran-
product or one bundled product. Produk-
 Insurance companies that market their Asuransi-
products through bancassurance models Melalui-Kerja-
should obtain prior approval from the Sama-Dengan-
OJK. Bank-
(Bancassuranc
 The insurance period must be at least the e).aspx
same as the period of the relevant
22 Hogan Lovells

Subject Remarks Key Date Link

banking product.
The OJK may instruct insurance companies
to cease distribution through bancassurance
in the event of any violation of the
provisions of the circular letter.
Fit and proper Pursuant to OJK Circular Letter No. 30 Aug http://www.oj
31/SEOJK.05/2016, the OJK has set fit and 2016 k.go.id/id/kan
proper criteria for key members of (effective) al/iknb/regula
si/asuransi/su
insurance companies, such as members of
rat-edaran-
the BOD, the BOC, controlling shareholder, ojk/Pages/SE
and controller. The fit and proper criteria OJK-
include: integrity, financial reputation, Penilaian-
competency, and financial feasibility. Key Kemampuan-
members should also commit to abide by dan-
the prevailing regulations and support the Kepatutan-
OJK's policies. Bagi-Pihak-
Utama-
The new circular expands the parties who Lembaga-
are required to meet the fit and proper test Jasa-
(i.e. not only BOD/BOC but also other Keuangan-
positions such as internal auditors and NonBank.aspx
actuary) and enhances the criteria of the fit
and proper test to become more extensive.
Insurance companies should also perform a
self assessment on the key members prior to
submitting the fit and proper test performed
by the OJK. Such assessment is to be
conducted by the body in charge of the
nomination and remuneration of the key
members.
Legal form of On the legal status of an insurance http://ditjenp
mutual company, the Decision of the Constitutional p.kemenkumh
relationship Court No. 32/PUU-XI/2013 dated 3 April am.go.id/arsip
/mk/2013/32
2014 states that the Government and the
%20PUU-XI-
House of Representatives should enact a 2013.pdf
new law regarding mutual ownership (see
section Legal Status above) at the latest 2.5
half years after the date of the decision.
However, at the date of this publication, no
new regulation has been issued in this
respect yet.
Microinsurance Microinsurance means insurance designed http://www.oj
to protect low income earners. The OJK has k.go.id/id/reg
issued a draft circular letter on ulasi/otoritas-
Changes in insurance regulation January 2017 23

Subject Remarks Key Date Link

microinsurance products which will jasa-
regulate, among others, characteristics, keuangan/ranc
marketing channels, marketing agreements, angan-
regulasi/Docu
and requirements for companies that offer
ments/RSEOJ
microinsurance products. At the date of this K-Asuransi-
publication, the draft circular letter has not Mikro.pdf
yet been enacted.
24 Hogan Lovells

Changes in insurance regulation: Vietnam

July – September 2016

Subject Update Key date Link

New decree on On 1 July 2016, the Government issued Decree 73 was http://cong
insurance Decree 73/2016/ND-CP ("Decree 73") issued on 1 bao.chinhp
business providing guidelines for implementation of July 2016 and hu.vn/noi-
the Law on Insurance Business. Decree 73 took effect on dung-van-
took effect from 1 July 2016, and replaced the same day. ban-so-
Decree 45/2007/ND-CP dated 27 March 73_2016_N
2007, Decree 46/2007/ND-CP dated 27 %C4%90-
March 2007, Decree 123/2011/ND-CP CP-
dated 28 December 2011 and Decree (20252)?cbi
68/2014/ND-CP dated 9 July 2014 of the d=20250
Government.
The key new points of Decree 73 are as
follows:
 General requirements for obtaining an
establishment and operation license for
insurance enterprises, foreign branches
and insurance broker enterprises:
 An investor must use their cash
and must not use loan or entrusted
investment capital from other
organisations or individuals to
contribute to the charter capital of
the established company;
 An institutional investor
contributing 10% or more of the
charter capital of the established
company must have conducted a
profitable business for three
preceding years before the year of
submitting the application for
issuance of a license and must not
have incurred cumulative losses at
the time of the submission;
 An institutional investor operating
in a sector which requires a legal
capital must ensure that the
amount of its intended capital
contribution to the charter capital
of the established company plus
the statutory legal capital with
respect to such investor must be at
least equal to its owner's equity;
 An investor which is an insurance
enterprise, an insurance brokerage
enterprise, a commercial bank, a
financial company or a securities
Changes in insurance regulation January 2017 25

Subject Update Key date Link

company must satisfy and
maintain financial safety
conditions and obtain permission
for the investment from a
competent agency to contribute
capital to the established company.
 Assessment of insurance enterprises’,
foreign branches’ and insurance
brokerage enterprises’ equity:
Decree 73 requires the assessment of
owners’ equity to be done quarterly
instead of annually as previously
regulated. If the owner's equity goes
below the requirements (which is (i)
the owner's equity must not be less
than the statutory legal capital level
and (ii) the solvency margin must be
higher than the minimum solvency
margin), the relevant insurance
enterprise, foreign branch or insurance
brokerage enterprise must supplement
the equity to reach the requirements
within six months from the end of the
relevant quarter.
 Technical reserves:
In addition to the technical reserves for
life insurance and non-life insurance,
Decree 73 now regulates technical
reserves for health insurance and
reinsurance.
 Restriction on investment of capital:
Decree 73 tightens the restriction on
insurance enterprises’, foreign
branches’ and insurance brokerage
enterprises’ investment of capital.
Notably, insurance enterprises, foreign
branches and brokerage enterprises are
not permitted (i) to borrow for
purposes of direct investment or
entrusted investment in securities, real
estate, or capital contribution to other
enterprises; (ii) to reinvest in any form
in their shareholders/members or a
related party of their
shareholders/members, except for
deposits at shareholders/members
which are credit institutions; and (iii)
to invest more than thirty (30) per cent
of its investment capital sources in
companies within one group or within
26 Hogan Lovells

Subject Update Key date Link

one group of companies having mutual
cross ownership relationships, noting
that this shall not apply to deposits at
credit institutions and offshore
investment capital sources in the form
of establishment of enterprises or
branches overseas.
Changes in insurance regulation January 2017 27

Our Asia insurance team

Tim Fletcher Stephanie Keen

Partner Managing Partner
T +852 2840 5011 T +65 6302 2553
tim.fletcher@hoganlovells.com stephanie.keen@hoganlovells.com

Jan Buschmann Mark Cooper

Senior Associate Partner
T +852 2840 5019 T +65 6302 7140
jan.buschmann@hoganlovells.com mark.cooper@hoganlovells.com

Sherry Xiao Lucy Chatters

Associate Associate
T +852 2840 5643 T +65 6302 2454
sherry.xiao@hoganlovells.com lucy.chatters@hoganlovells.com

Katherine Tsang
Associate
T +852 2840 5060
katherine.tsang@hoganlovells.com

Liang Xu Samantha Campbell

Partner Managing Partner
T +86 10 6582 9577 T +84 8 3822 6198
liang.xu@hoganlovells.com samantha.campbell@hoganlovells.com

Sherry Hu Long Huynh

Associate Senior Associate
T +86 10 65829597 T +84 8 3829 5100
sherry.hu@hoganlovells.com long.huynh@hoganlovells.com

Andrew McGinty Rika Beppu

Partner Partner
T +86 21 6122 3866 T +81 3 5157 8251
andrew.mcginty@hoganlovells.com rika.beppu@hoganlovells.com
28 Hogan Lovells

Noor Meurling Alexander Hutauruk

Partner Counsel
T +62 21 2788 7910 T +62 21 2788 7921
noor.meurling@dnfp.com alexander.hutauruk@dnfp.com

Dewi Sawitri
Senior Associate
T +62 21 2788 7924
dewi.sawitri@dnfp.com
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