In January 2020, the Indonesian government enacted Government Regulation No. 3 of 2020 (“GR 3/2020”), which amends Government Regulation No. 14 of 2018 on Foreign Ownership of Insurance Companies (“GR 14/2018”). Previously, GR 14/2018 required that in the event of a capital increase, at least 20% of the additional capital must be obtained from Indonesian shareholders or through an initial public offering (IPO) in Indonesia. It is believed that this capital increase requirement has the potential to slow down the growth of the insurance industry itself. Through this new regulation, the government attempts to relax this requirement and adds clarity to the foreign ownership limitation in a number of conditions.
Key developments introduced by GR 3/2020 are as follows:
GR 3/2020 provides that in case a private insurance company (which already has foreign ownership percentage of more than 80% prior to the enactment of GR 14/2018) intends to increase its paid-up capital, the relevant foreign shareholder is now allowed to inject its equity capital increase per the existing foreign ownership percentage in such insurance company. Further, if the domestic shareholder is not able to inject its portion of the capital increase, the injection of such portion must be obtained through an initial public offering in Indonesia.
Sharia Unit Spin-Offs
In the event that an existing insurance company conducts a spin-off of its sharia unit, the foreign ownership limitation for the new sharia insurance company follows the foreign ownership limitation of its originating insurance company.