IMF published a report on the detailed assessment of observance (DAO) of Insurance Core Principles (ICPs) in Indonesia, as part of the Joint IMF-World Bank Financial Sector Assessment Program (FSAP) mission. The report highlights that insurance regulation and supervision have improved since the establishment of OJK n 2011 and the enactment of the new Insurance Law in October 2014. However, the assessment identified a significant number of shortfalls in observance with the ICPs. Out of the 26 ICPs, the assessment found that Indonesia Observed 6, Largely Observed 13, and Partially Observed 7 ICPs.
The report reveals that Indonesian insurance sector is still vulnerable to a number of material risks. A number of insurers have failed in the last 10 years. OJK has taken prompt action, after its establishment, to reduce the loss to policyholders by taking strong actions against four insurers with material deficits. OJK has monitored the capital adequacy of insurers through its risk-based supervision scheme. During the recent market turmoil in 2015, the solvency requirement was relaxed for nine months while introducing the temporary suspension of mark to market valuation rules. The Indonesian insurance industry is exposed to significant catastrophic risk with domestic concentrations through mandatory reinsurance programs. The low interest rate environment in advanced economies is also affecting the life insurance sector, as insurers have some underwriting denominated in USD.
Furthermore, the report states that some deficiencies are due to the lack of effective group regulation and supervision of insurance groups. The mission identified that the laws need to be amended to enhance the clarity of legal protection and the primary objective of the supervisor. Setting the protection of policyholders as the primary objective of OJK will enhance the operational independence of OJK. Improvement of legal protection of OJK with clearer internal guidance for applying sanctions will help it to take more prompt and effective regulatory actions to problem insurers. The mission also recommends that OJK should improve the effectiveness of supervision. Focus on the regulation of insurance intermediaries and market conduct should increase. Enhanced disclosure requirements for intermediaries and close coordination with insurance associations will improve the quality of intermediaries.
Related Link: Report on Assessment of ICPs
Previous ArticleOSFI Issues Information Guide on Solvency Information Return
The European Commission (EC) published the Delegated Regulation 2021/1527 with regard to the regulatory technical standards for the contractual recognition of write down and conversion powers.
The Australian Prudential Regulation Authority (APRA) published a new set of frequently asked questions (FAQs) to provide guidance to authorized deposit-taking institutions on the interpretation of APS 120, the prudential standard on securitization.
The Single Resolution Board (SRB) published a Communication on the application of regulatory technical standard provisions on prior permission for reducing eligible liabilities instruments as of January 01, 2022.
The Australian Prudential Regulation Authority (APRA) published a new set of frequently asked questions (FAQs) to clarify the regulatory capital treatment of investments in the overseas deposit-taking and insurance subsidiaries.
The European Banking Authority (EBA) published the final report on the guidelines specifying the criteria to assess the exceptional cases when institutions exceed the large exposure limits and the time and measures needed for institutions to return to compliance.
The Prudential Regulation Authority (PRA) issued the policy statement PS20/21, which contains final rules for the application of existing consolidated prudential requirements to financial holding companies and mixed financial holding companies.
The European Banking Authority (EBA) revised the guidelines on stress tests to be conducted by the national deposit guarantee schemes under the Deposit Guarantee Schemes Directive (DGSD).
The European Commission (EC) announced that Nordea Bank has signed a guarantee agreement with the European Investment Bank (EIB) Group to support the sustainable transformation of businesses in the Nordics.
The Hong Kong Monetary Authority (HKMA) issued a circular, for all authorized institutions, to confirm its support of an information note that sets out various options available in the loan market for replacing USD LIBOR with the Secured Overnight Financing Rate (SOFR).
The Office of the Comptroller of the Currency (OCC) issued a new "Problem Bank Supervision" booklet of the Comptroller's Handbook. The booklet covers information on timely identification and rehabilitation of problem banks and their advanced supervision, enforcement, and resolution when conditions warrant.