Risk Based Capital, which measures the financial security or solvency level of insurance companies in Indonesia, was introduced in 1999 and all insurance companies (including takaful) must maintain an RBC ratio of not less than 120% (current).
RBC ratio = (Solvency Margin ÷ Minimum Solvency margin) ≥ 120%
Where,
1. Solvency Margin = Admitted Assets – Liabilities; and
2. Minimum Solvency Margin is the summation of the following risks:
a. Asset default risk
b. Cashflow mismatch risk
c. Currency mismatch risk
d. Claims experience worst than expected risk
e. Insufficient premium risk
f. Reinsurance risk
3. The calculation of the above risk is clearly defined in MOF’s regulation no. 3607/LK/2004 which was recently revised under regulation no. PER-02/BL/2008.
4. Admitted assets are calculated based on the accounting standard as prescribed by MOF under the same regulation.
5. The current financial turmoil had resulted in several companies experiencing negative RBC or below the minimum required ratio, ie. 120%.
6. As a result, those companies are undertaking several measures including capital restructuring and corporate restructuring in order to rectify the situation.
7. IMOF had, early of the 2009, reviewed the RBC guidelines which allow some flexibilities in determining the risk factors.
