OJK Prepares New Insurance RBC Regulation: What Will Change?

Jakarta, CNBC Indonesia - The Financial Services Authority (OJK) is preparing a new regulatory regime for the capital requirements of the insurance industry through a Draft OJK Regulation (RPOJK) concerning the Solvency Calculation for Insurance Companies and Reinsurance Companies. The regulation, currently in the rule-making process, is touted as the biggest change in the insurance industry’s supervisory framework since the implementation of Risk-Based Capital (RBC) in Indonesia. The enactment of this RPOJK will simultaneously revoke two provisions in POJK Number 26/2025 regarding the solvency level (Article 3 and Article 4) and subordinated loans (Article 32 and Article 33). While the current RBC framework focuses more on measuring capital adequacy against specific risks, the new regime, often referred to as New RBC, will adopt a more comprehensive, risk-sensitive, and forward-looking approach. In other words, the insurance industry is moving from a traditional RBC regime towards a capital framework closer to the Solvency II framework in Europe and the Insurance Capital Standard (ICS) developed by the International Association of Insurance Supervisors (IAIS). OJK considers this change necessary due to increasing financial market volatility, the implementation of the new accounting standard IFRS 17 (PSAK 117), and the need for alignment with international standards. According to OJK, the current provisions on the financial health of insurers do not yet fully reflect capital adequacy in anticipating risks comprehensively. Based on a comparative analysis between the RPOJK New RBC and three previous POJKs—namely POJK No. 71/2016, POJK No. 5/2023, and POJK No. 26/2025—there are at least eight key points regulated in this RPOJK: 1. RBC Determination Approach: For years, industry players have been synonymous with a minimum RBC requirement of 120%. In the latest RPOJK, this approach changes. Companies are required to meet a minimum Solvency Ratio of 100%, but at the same time must set an internal solvency target of at least 120% as a buffer based on each company’s risk profile. OJK can even request a higher target if it assesses that the company’s risk profile has increased. This means companies no longer focus solely on meeting regulatory requirements but must also build capital buffers according to their own business conditions and risks. 2. Capital Surcharge for Systemic Companies: One of the biggest innovations in this RPOJK is the additional capital requirement for companies categorised as systemically important institutions or ‘PPDP Utama’. This group of companies is required to have an internal Solvency Ratio target between 135% and 150%. This concept is similar to the capital surcharge applied to systemic banks. The aim is to ensure that large companies with a significant impact on the industry have stronger capital buffers to withstand crisis conditions. 3. Introduction of Tier 1 and Tier 2 Capital: Whereas previously RBC only recognised a general concept of capital, New RBC introduces a more detailed capital classification. Company capital is divided into two classifications: Tier 1 (Tier 1 unlimited and Tier 1 limited) and Tier 2. The Tier 1 unlimited category is the highest quality capital that can fully absorb losses, such as paid-up capital, share premium (discount), retained earnings, capital contribution funds, general reserves, and other comprehensive income. Meanwhile, the Tier 1 limited category consists of capital instruments with specific characteristics, such as perpetual subordinated debt, non-cumulative preference shares, share premium (discount), hybrid instruments, and other capital instruments. The Tier 2 category is supplementary capital, which can originate from cumulative subordinated debt, cumulative preference shares, share premium (discount), and other capital instruments. This change in capital classification opens opportunities for insurance and reinsurance companies to obtain additional capital without necessarily having to conduct rights issues or shareholder capital injections. 4. Goodwill and Deferred Tax as Capital Deductions: The RPOJK also tightens the quality of capital that can be counted in solvency calculations. Several components must become capital deductions, including: goodwill, intangible assets, deferred tax assets, reciprocal cross-holdings between companies and related entities, buybacks of core capital (Tier 1), reinsurance assets from unqualified reinsurers, and company assets that do not meet investment requirements. All assets falling into these capital deduction factors are not counted in the Minimum Risk-Based Capital (MMBR) calculation. This provision has the potential to cause some companies to experience an administrative decline in their RBC ratio even if their business conditions remain unchanged. 5. More Comprehensive Risk Calculation: Under New RBC, the calculation of Minimum Risk-Based Capital (MMBR) no longer focuses only on specific risks. Companies are required to calculate capital requirements based on five main risk types: Credit Risk, Market Risk, Insurance Risk, Liquidity Risk, and Operational Risk. If an insurance company markets PAYDI (unit-linked products), the MMBR calculation must be increased by a certain percentage of the investment funds sourced from sub-funds. This calculation is a far more comprehensive approach compared to the current RBC regime framework. In particular, liquidity risk and operational risk now receive a more explicit portion in the capital adequacy calculation. 6. Rupiah and Interest Rates Enter the Solvency Formula: Another important change is the increased attention to market risk. The RPOJK states that the market risk calculation must account for changes in asset prices, exchange rate fluctuations, and changes in interest rates. Consequently, turmoil in the Rupiah exchange rate or spikes in government bond yields will directly impact the solvency calculation of insurance companies.