The Ministry of Finance (MOF) issued Regulation No. 124/PMK.010/2008 on Suretyship and Credit Insurance Activities (Regulation 124) in early-September. The regulation delineates mandatory requirements for insurance companies intending to issue surety or credit insurance products.
The requirements relate to capital, the financial condition of insurance companies, expert personnel that must be retained by them and reporting mandates.
Suretyship or insurance credits are insurance products issued by loss insurance companies.
Prior to Regulation 124, suretyship (or similar insurance products) was limited to construction bonds and custom bonds. The new rule explicitly ends the above restrictions and provides a broad definition for suretyship – introducing credit insurance.
Suretyship is the business activity of loss insurance providers who offer guarantees that a principal will perform its obligations according to an agreement between the principal and an obligee. Whereas, insurance credit is the business activity of a loss insurance company providing guarantees on the fulfillment of a debtor’s financial obligation under a credit agreement.
Regulation 124 opens up the possibility of providing various types of suretyship and credit insurance products.
Insurance companies with suretyship products or credit insurance should maintain a minimum liquidity ratio of 150%.
The minimum capital adequacy level for insurance companies providing insurance credit or suretyship products guaranteeing payment of a credit transaction obligation is IDR250 billion (US$22.4 million).
Moreover, insurance companies with suretyship or credit insurance products must retain insurance experts with the following qualifications:
• Loss insurance certification from the Association of Experts of Indonesian Insurance Management (Asosiasi Ahli Manajemen Asuransi Indonesia – AAMAI) or a similar overseas association which the insurance agency considers equivalent.
• A minimum qualification of Junior Assistant of Risk Insurance Expert from the AAMAI or a similar foreign body considered equivalent to the AAMAI, with the specific assignment of managing credit insurance or suretyship activities. The expert must have a minimum of three years’ experience as a corporate credit analyst or underwriter for a suretyship or credit insurance business.
Insurance companies with surety or credit insurance products must maintain an information system enabling debtors, principals, creditors, obligees and the MOF, to check that credit insurance or surety products are issued correctly.
The intention to issue a suretyship or credit insurance product must be reported to the MOF by submitting several documents – including a sample copy of the insurance policy, a statement from the insurance company’s loss expert containing a calculation of the premium, fee or technical reserve, projection of underwriting for the next three years, a manual underwriting validated by the board of directors and evidence of the existence of an information system as required under Regulation 124.
Insurance companies cannot sell any credit insurance or suretyship products if they are in breach of their minimum liquidity requirement, as stated in the prevailing insurance regulations, or facing administrative sanctions by regulators. Regulation 124 requires all insurance companies that have offered credit or suretyship insurance products make the necessary adjustments to comply with the new rule by March 3 2009.
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Hadiputranto Hadinoto & Partners
Tel: +62 21 515 4885
E-mail: mita.djajadiredja@bakernet.com
Website: www.hhp.co.id |