The Government of Indonesia ("GOI") has issued Government Regulation No. 3 of 2020 ("GR 3"), which amends Government Regulation No. 14 of 2018 regarding Foreign Ownership in Insurance-Related Companies ("GR 14").
GR 3 relaxes foreign ownership rules for insurance-related companies in Indonesia.
Foreign Ownership for Insurance Companies Under GR 14
GR 14 limits foreign ownership in an insurance company to 80%. This statutory limitation, however, is not applicable to publicly listed insurance companies.
GR 14 provides that foreign ownership is calculated by:
- Direct participation in the insurance company.
- Transactions on the stock exchange.
- Participation in the local shareholder(s) of the insurance company through direct participation or through the stock exchange.
GR 14 provides that insurance companies with more than 80% foreign ownership at the time GR 14 was issued:
- Are exempted from the foreign ownership limitation as stipulated in GR 14.
- Are not allowed to increase their foreign ownership percentage.
If insurance companies with a foreign shareholding above the 80% limitation as discussed above increase their issued and paid-up capital, this capital increase must meet one of the following requirements:
- At least 20% subscribed by Indonesian individuals and/or Indonesian business entities.
- At least 20% is offered through public offering.
New Rules Under GR 3
With the issuance of GR 3, the Government has relaxed the foreign ownership cap for insurance-related companies. Previously, under GR 14, foreign shareholder(s) could subscribe newly issued shares only up to 80%, since 20% was statutorily allocated to Indonesian individuals and/or Indonesian business entities and/or offered through public offering.
Thus, a foreign shareholder in an insurance company that had its share ownership of more than 80% grandfathered under GR 14 would experience a decrease in ownership if the company increased its capital.
GR 3 allows a foreign shareholder to maintain its shareholding percentage if the shareholder already owns more than 80% of shares. The remaining unsubscribed shares must be subscribed by Indonesian individuals and/or Indonesian business entities. If no Indonesian individuals and/or Indonesian business entities subscribe the newly issued shares, the capital increase shall be conducted through the initial public offering process.
Thus, a foreign shareholder with more than 80% ownership in an insurance-related company will not experience an erosion of their ownership percentage if the company increases its capital.
Insurance companies that fail to comply with the provisions of GR 3 are subject to sanctions in the form of:
- written warning;
- limitation of business activity, either partially or wholly;
- revocation of business license; and/or
- administrative fine.
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