President Joko Widodo has signed a long awaited regulation that sets the maximum foreign ownership limit in insurance companies at the prevailing 80%.
Previously, there was talk that the shareholding cap might be pared to levels such as 49% or 30%.
The 80% ceiling does not apply to publicly listed insurers nor to privately held insurers in which the cap has been exceeded prior to the regulation taking effect. In the latter case, the foreign investors will be prohibited from increasing the percentage of shareholding in the insurer.
Thus, the 80% foreign ownership limit only applies to a newly incorporated insurance company or an insurance company in which foreign ownership has not yet reached 80% of the paid up capital after the regulation takes effect.
It is understood that the foreign ownership cap is set at 80% so as to avoid disruption of the insurance industry, because there are reportedly more than 20 insurance companies with a foreign ownership level of more than 80%.
If insurance companies fail to comply with the rules, they will be subject to administrative sanctions by OJK ranging from written warnings to business licence revocation.
Indonesia's Vice-President Jusuf Kalla said in a speech last month that foreign owned insurance ventures dominate the Indonesian market. Therefore, the development of local insurers should continue to be encouraged, he said. Currently, the number of insurance companies in Indonesia stands at around 60.
Indonesia's Parliament in 2014 passed a law that called for curbs on foreign ownership in the industry, but left the task of setting the limit to the government. The regulation signed by the President this week seeks to address this uncertain area and has been awaited for more than a year while debate raged over the foreign ownership ceiling. The 2014 insurance law bans the dual-layer structure that foreign entities had utilised to ultimately own 100% of an Indonesian insurer. Under it, insurance companies whose local shareholders are not ultimately owned by Indonesians must comply with this requirement by either transferring 20% of total shares to Indonesians, or float them on the stock exchange.