OJK Issues Rules To Improve Financial Health Of Insurance Companies

Rupiah (Photo: Doc. Antara)

JAKARTA - The Financial Services Authority (OJK) has issued regulations to improve the financial health of insurance and reinsurance companies. This POJK also regulates insurance which is held based on sharia principles.

The rules issued are OJK Regulation Number 5 of 2023 concerning Financial Health of Insurance Companies and Resurance Companies and POJK Number 6 of 2023 concerning Financial Health of Insurance Companies and Reinsurance Companies with Sharia Principles.

"In general, the improvement of the provisions in POJK Number 5 and 6 of 2023 aims to maintain the company's financial health and optimize investment performance, including in Insurance Products Associated with Investment (PAYDI)," said Head of the Department of Literacy, Financial Inclusion, and OJK Communications, Aman Santosa quoting Antara.

The issuance of the two POJKs is motivated by the consideration that the maximum investment limit for related parties for assets other than Insurance Products Related to Investment (PAYDI) is considered too large, so it cannot prevent the risk of excessive concentration.

In addition, for PAYDI assets, previously the OJK had not determined the maximum investment limit for related parties and not related parties, so policyholders have the potential to face a high risk of concentration.

Therefore, PAYDI's assets also have the potential to be misused only for the benefit of the company's groups or affiliates.

In addition, the two POJK referred to are also needed in order to harmonize the regulation with the banking sector regarding related parties and parties who are not related parties so that a more precise risk assessment is obtained in an integrated manner.

The two POJKs regulate, among other things, investment limits for related parties and parties who are not related parties. The investment limit provisions need to be adjusted to encourage companies to be more careful in placing investments by considering the company's capital capacity in risking," said Aman.

Adjustments are also made to the exclusion of the obligation to establish collateral funds for insurance companies that are participants in the policy guarantee program as stipulated in Article 83 paragraph (6) of Law Number 4 of 2023 concerning the Development and Strengthening of the Financial Sector.

In applying the principle of investment caution, insurance and reinsurance companies must also maintain the level of risk exposure.

"The risk export must be adjusted to the company's capital ability to bear risks. Especially for PAYDI, the Company must maintain the level of risk exposure by taking into account its potential impact on PAYDI's investment performance," he said.