Indonesia Re Sounds Alarm on Unregulated Foreign Reinsurance

Challenges in Regulating Foreign Reinsurance Companies

PT Reasuransi Indonesia Utama (Indonesia Re) has raised concerns about the ease with which unregulated foreign reinsurance companies can access the Indonesian market. According to Delil Khairat, Director of Technical Operations at Indonesia Re, the barriers to entry in Indonesia are virtually non-existent for foreign reinsurance companies. These companies only need to have a BBB+ rating and a valid license from their home jurisdiction to operate in Indonesia.

The 'Exotic Capacities' Concern

Khairat highlighted that this ease of access has led to the emergence of 'exotic capacities' - reinsurance companies that were previously unknown but suddenly appear in the market. He warned that these companies could be dangerous, particularly regarding their capital, which may originate from illegal activities. This situation raises concerns about potential money laundering risks, as reinsurance is a capital-intensive industry that can facilitate large financial transactions.

Learning from Other Countries

To address these challenges, Indonesia Re suggests that Indonesia could learn from other countries that have implemented measures to regulate foreign reinsurance companies. For instance, India requires foreign reinsurance companies to register with the Insurance Regulatory and Development Authority of India (IRDAI), even if they don't need to be domiciled or licensed in India. This registration allows Indian authorities to maintain some control over the companies operating in their market.

Malaysia's Tiering System

Another example is Malaysia's tiering system, which categorizes reinsurance companies into three tiers based on their domicile and licensing status. Tier 1 includes companies domiciled in Kuala Lumpur (onshore), Tier 2 includes companies licensed or domiciled offshore, and Tier 3 includes companies that are neither licensed onshore nor offshore. Each tier has different risk charge requirements in calculating capital adequacy or Risk-Based Capital (RBC).

Implications for Indonesia

The Indonesian reinsurance market faces significant challenges due to the unregulated entry of foreign companies. Indonesia Re's concerns highlight the need for regulatory reforms to protect the market and prevent potential financial crimes like money laundering. By studying regulatory frameworks in other countries, Indonesia can develop more effective measures to manage the participation of foreign reinsurance companies in its market.