Revocation of Insurance Company Licenses by The Financial Services Authority in 2023

In the year 2023, the Financial Services Authority ("OJK") observed that 12 (twelve) insurance companies were under special supervision. However, as the year drew close, the number of insurance companies under OJK's supervision decreased to seven. This change was attributed to two companies returning to normal status and three companies revoking their business licenses. The insurance companies whose licenses were revoked by OJK are as follows:

1.     PT Asuransi Jiwa Kresna (Kresna Life)

Kresna Life became one of the first insurance companies under special supervision in 2023 to have its business license revoked by OJK on 23 June 2023. The revocation was due to its inability to meet the minimum solvency ratio or risk-based capital (RBC) mandated by applicable regulations. In addition, OJK assessed that Kresna Life failed to cover the financial deficit between liabilities and assets through capital injections by the controlling shareholder (PSP) or by attracting investors. Kresna Life's last effort to address the situation through additional capital from the PSP and offering the conversion of policyholder obligations into subordinated loans (SOL) proved unsuccessful.

2.     PT Asuransi Prolife Indonesia (Indosurya Life)

OJK revoked the business license of Indosurya Life, another insurance company under special supervision, on 2 November 2023. The revocation was justified by Indosurya Life's failure to execute the Risk Profile Transfer (RPK) with a policyholder buyout (PBO) scheme, as it lacked support from policyholders and experienced a lack of realization of additional capital from the PSP or new investors.

3.     PT Asuransi Purna Artanugraha (PT Aspan)

The revocation of PT Aspan's license was announced through Press Release No. SP 178/OJK/GKPB/XII/2023 dated 2 December 2023. This action was taken because PT Aspan could not meet solvency ratios (risk-based capital), equity, and investment adequacy ratios according to prevailing regulations. This inability was attributed to PT Aspan's failure to cover the gap between obligations and assets through capital injections by the controlling shareholder or inviting investors.

With the revocation of the business licenses of these insurance companies above, they are obliged to cease their operations. Within a maximum period of 30 (thirty) days, they must convene a General Meeting of Shareholders (RUPS) to dissolve the legal entity and establish a Liquidation Team.

What are the rights of policyholders and/or creditors due to the revocation resulting in the liquidation of these insurance companies?

Following the announcement of PT Aspan's license revocation on 2 December 2023 by OJK, policyholders can continue to contact the insurance company's management for consumer services until the Liquidation Team is formed. The Liquidation Team will then assume responsibility for asset consolidation and settling obligations, including those owed to policyholders.

The procedures and stages that PT Aspan will go through in its liquidation process are outlined as follows:

1.     Dissolution Procedure of PT Aspan

The dissolution of PT Aspan is carried out based on Financial Services Authority Regulation No. 28/POJK.05/2015 regarding Dissolution, Liquidation, and Bankruptcy of Insurance Companies, Sharia Insurance Companies, Reinsurance Companies, and Sharia Reinsurance Companies ("POJK No. 28/2015"). According to Article 3 of POJK No. 28/2015, the Board of Directors is required to prepare and submit a Closing Balance Sheet to OJK within 15 (fifteen) days from the date of the revocation of the Company's Business License, i.e., by 17 December 2023. Subsequently, within 30 (thirty) days from the date of the revocation of the business license, PT Aspan must convene a RUPS to decide on the company's dissolution and the formation of the Liquidation Team, as stipulated by Article 4 of POJK No. 28/2015. Subsequently, within a maximum period of 30 (thirty) days from the date of the dissolution decision by RUPS, the Liquidation Team will announce the Dissolution of PT Aspan through a Newspaper (Article 5 of POJK No. 28/2015).

The purpose of announcing the dissolution of PT Aspan through a Newspaper is to enable PT Aspan's creditors to register their claims through the Liquidation Team within 60 (sixty) days from the date the Newspaper Announcement is issued (Article 6 paragraph (4) of POJK No. 28/2015).

The liquidation period carried out by the Liquidation Team is a maximum of 2 (two) years from the date of the RUPS (Article 15 paragraph (1) of POJK No. 28/2015). During the process, liquidation can be extended with the approval of OJK, with a maximum of 2 (two) extensions, each lasting up to 1 (one) year per extension (Article 15 paragraph (2) of POJK No. 28/2015).

If, after such extensions, liquidation is not completed, OJK may:

a.     Wait until there is a legally binding court decision in case liquidation is not completed within the specified period in Article 15 paragraph (2) of POJK No. 28/2015; or

b.     Determine other resolution steps in accordance with prevailing laws and regulations.

2.     Payment of PT Aspan's Obligations to Policyholders

The rights of policyholders, insured parties, or participants in distributing PT Aspan's wealth in liquidation take precedence over the rights of other parties (Article 24 paragraph (1) of POJK No. 28/2015). In this liquidation, PT Aspan must pay policyholders' benefit claims in full. However, if the Company's assets are smaller than its liabilities, then payments shall be made proportionally (Article 26 paragraph (3) of POJK No. 28/2015).

Payment of obligations to policyholders can be made in stages or all at once at the end of the liquidation period, as long as it does not violate other laws and regulations and has obtained OJK approval (Article 27 paragraph (3) and (4) of POJK No. 28/2015).

It is clear that the policyholders still have the right to claim insurance benefits from PT Aspan, which can be claimed from the Liquidation Team after the RUPS Dissolution and Liquidation Team Formation. However, until the RUPS is conducted, PT Aspan retains the authority to provide services to its customers.

Subsequently, policyholders and creditors can register their claims with PT Aspan after the Liquidation Team announces the schedules for claim registration through the Newspaper.

Author: Bintang Maha Putra (bintang@fknk.co.id) & Widyantoro Kurnia (kurniagung@fknk.co.id).