The Financial Services Authority (OJK or Otoritas Jasa Keuangan) has finalised its set of rules on domestic cession in its aim to “improve and optimise capacity in the country”. The new rules are expected to be largely welcomed by industry players after intensive engagement and feedback gathered from the market, said OJK officials.

The regulations mandate that an insurance company “must have and implement its own retention for every risk managed in accordance to its own retention limits”, said OJK Director of Insurance Supervision, Mr Darul Dimasqy, at the Indonesia Rendezvous in Bali earlier this month.

The OJK highlighted that each insurer must develop and implement a reinsurance support strategy that must be reviewed “at least once a year” and which has to be implemented by 15 January 2016. Any changes in reinsurance strategy must be submitted to the OJK within 10 days of their being made.

Adjustments

Under the new rules, motor, health, personal accident, credit, life and surety lines of business still require 100% domestic cession. However, OJK said that “worldwide products”, “products designed specifically for multinational companies” and “new insurance products which development is supported by foreign reinsurers” would come under an exclusion.

Mr Dimasqy also said that insurers must “have an automatic reinsurance support by giving priority to domestic reinsurers, including automatic reinsurance support for catastrophic risk”. An insurance company may however be excluded if it has already established a catastrophic reserve.

“If the insurance company has established a catastrophic reserve, the minimum own retention must be under the assumption that the disaster risk event repeats every 250 years,” he added.

Effect expected to be seen by Q3 2016

OJK Chief Executive of Non-bank Financial Institutions (NBFI) Dr Firdaus Djaelani told Asia Insurance Review that it will take time to reduce Indonesia’s insurance balance-of-payment deficit. While the OJK is not planning to “make the deficit zero” immediately, he said the regulator hopes to see “some results” by the third quarter of 2016.