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Technical and Financial
Q)
The
Bylaws clarified details about most classes of insurance but not enough
for the protection and savings. How SAMA is going to deal with this
since the earnings and expenses of this class of business are different
from other classes which will effect the results for the first years.
A) The implementing regulations
don’t focus on one class of insurance businesses and apply to all
classes of insurance. In addition, the implementing regulations mainly
focus on setting up a regulation and supervision framework and they
don’t deal directly with operations or marketing per say. However, the
implementing regulations designated certain articles and clauses towards
protection and saving classes as well as general and health classes and
showed different treatments for solvency margin and technical reserves.
Q) According
to SAMA guidelines discussed in Jeddah meeting, insurance companies can
retain 30% of premiums and reinsure 30% in the local market.
Accordingly SAMA to clarify that the allowed reinsurance percentage
should consider the local reinsurance share as a part of the reinsurance
share outside the kingdom.
A) According to Article (40)
the Company shall:
1.
Retain at least thirty percent
(30%) of its total insurance premium.
2.
Reinsure thirty percent (30%) of
its total premium in the Kingdom.
3.
The Agency’s
written approval is required whereby if it is difficult for the Company
to comply with the above percentages or it wishes to retain a lesser
percentage.
The Agency may obligate the
Company to reinsure or not reinsure part of its direct insurance
business transacted in the Kingdom with a domestically or foreign
registered reinsurance company in accordance with the insurance market
and each Company’s financial position. Therefore;
a.
Retention is 30% from gross
premiums,
b. 70%
from gross premiums could be reinsured under the condition that at least
30% from gross premiums must be reinsured with insurance and reinsurance
companies licensed in Saudi Arabia.
Q)
In
addition, will the above be enforced from the beginning? Noting that not
enough companies will be operating in KSA at the first stage.
A) SAMA realizes the current
shortage of supply in the local market and will enforce Article (40)
taking into consideration the local market limitations.
Q) Article
(54): Cancellation notice is 30 days, while it is sometimes less than 30
days in international insurance standards such as War risks.
A) In cases where cancellations
are guided by international standards for risks such as War and Marine,
the cancellation provisions in the policy will be acceptable by SAMA.
Q)
Article
(3): Pertains to insurance service providers states that each individual
should get a license. Why in the last meeting, it was indicated that
Agents or Brokers should operate as companies not individuals.
A) Insurance
professionals such as brokers, agents, loss adjusters, loss assessors,
TPAs, must conduct their profession through a licensed company in the
Kingdom of Saudi Arabia. Therefore, individuals are not allowed to
conduct any one of these insurance professions without establishing a
company. Licensed companies must recruit employees to conduct its
business such as accountants, economists, clerks, agents, and brokers.
SAMA requires all licensed companies to have their employees who are
involved directly with customers of marketing or soliciting insurance
products to be qualified and licensed by SAMA.
Insurance professionals
such as actuaries and consultants may conduct their professions as
individuals and they are not required to establish a company.
Q)
Is it
allowed for an individual person to get a license as a broker or agent
under the foreign investment law.
A) Individual person either
Saudi or foreigner must be employed by a licensed company in Saudi
Arabia. However, a foreign investor will be granted a license to
practice one of the said insurance professions in the kingdom of Saudi
Arabia through an establishment of an insurance profession company with
Saudi investors.
Q)
Can an
Insurance Agent be a representative of several insurance companies at
the same time knowing that some companies do not provide all kinds of
Insurances? Can also an agent represents various insurance companies
based on regional basis (Jeddah-Riyadh) since also some companies may
not have branches kingdom wise?
A) An agency or an agent should
represent one insurance company and will not be allowed to represent
more than one insurance company. However, SAMA will review this rule in
3 years.
Q)
Is it
required for individuals providing insurance services to complete an
exam especially that many of them have more than 15 years of experience
in the industry? What about the senior positions and managers?
A) According to Article
(4-third), any individual who wishes to practice any of the insurance
professions shall obtain a license from the Agency providing that the
following requirements are fulfilled:
1.
A university degree as a
minimum, and five years relevant insurance experience, or an insurance
professional designation accepted by the Agency.
2.
Pass the examination approved by
the Agency to engage in the designated insurance profession, or any
other equivalent qualifications acceptable to the Agency.
Senior managers of a company
shall comply with the above article if they decide to act as brokers or
agents.
Q)
Is it
allowed for a Saudi Broker to deal with GCC or Foreign Companies.
A) According to article (14),
the Company and all Insurance and Reinsurance Services Providers shall
obtain prior written approval of the Agency before dealing with Lloyd’s
insurance brokers or foreign companies to cover risks that cannot be
covered through a licensed Company in the Kingdom.
Brokers are allowed to cover
risk through insurance companies outside the Kingdom but they will have
to prove that they had tried to place these risks with a licensed
insurance or reinsurance company in the Kingdom.
Q)
Article (14): Is it required to obtain the written approval for each
time the Company deals with foreign reinsurers or reinsurance brokers?
What if the company received a firm order from its client and SAMA was
late in granting the approval and a claim incurred? This will oblige the
company to settle the lain from its Capital. Please clarify.
A) The written approval from
SAMA could be obtained in two ways;
First; Saudi
insurance companies and brokers could submit to SAMA in advance request
for approval of a list of companies and brokers.
Second; the
approval also could be obtained in a case by case scenario.
Third;
SAMA will issue criteria to deal with foreign companies.
The purpose of this
limitation is to make sure that risks are offered to local market before
it is placed outside the Kingdom.
Q)
Article
18: Since SAMA determines the reinsurers who can provide cover for the
local insurance and at the same time approves the management of the
companies upon registration. Why SAMA then is tying the insurers hands
by requesting prior approvals on the Treaties and other technical
reinsurance issues?
A) According to Article (18),
the company shall provide the Agency with copies of reinsurance
agreements on an annual basis. The Agency may comment on
these agreements and request amendments if deemed necessary.
The question suggests that SAMA
approval is required, but in fact SAMA does not request insurance
company to obtain an approval for reinsurance outside the Kingdom
according to Article (18) which states that insurance companies must
submit their reinsurance agreements either facultative or treaty to SAMA
every year and SAMA may comment on these agreements or ask the insurance
company to modify them if it deems necessary.
Q)
Article
(20): Actuaries are required to analyze, study and price risks in life,
medical and pension schemes, while underwriters are usually the experts
in doing the same in other classes of business. The question is how is
it possible for an actuary to make recommendations on Company’s
investments since the investment percentages were determined by SAMA.
A) According to Articles (59,
60, and 61) from the implementing regulations which require insurance
companies to have a written investment policy and procedures approved by
the board of directors and in the absence of such written policy,
insurance companies must follow the investment table as guidelines for
investment. An actuary will add value to the professionalism of
insurance companies and with his or her knowledge and experience with
the assistant of other professionals such as economists and accountants
will lead to a better matching of investment returns and the obligation
of the company.
Q)
Article
(33): For all insurance classes what does SAMA mean by “minimum and
maximum limit”?
A) According to Article (2-E)
from the Law and Article (33) from the Implementing Regulations which
states that SAMA should determine the minimum and maximum for each type
of insurance, and the conditions that shall be observed in each type
which means SAMA should put floor and ceiling to underwriting of each
class of insurance such as health, motor, aviation … etc. SAMA opted not
to limit underwriting at this time and left the market factors to
determine that. However, SAMA may put either minimum or maximum for each
type of insurance if fair competition or policyholders are at stake.
Q)
Article
(46): The basics of pricing are statistics that are not available in the
local market at present.
A) The main purpose of Article
(46) is to eliminate mispricing of insurance products or relying on
other companies' pricing methodology. However, statistics are not the
only factor in determining rats and prices, also statistics found in the
Saudi market are not very accurate at this stage, therefore insurance
companies should use the best alternatives to these statistics and use
other factor to set up reasonable and justifiable prices.
Q)
Articles (47 & 48) assume that reinsurance shares which
will be deducted from technical provisions and company’s portfolios
should not exceed 10 times the capital. Does SAMA mean 10 times
retention value and not premium.
A)
The limitation of 10 times the underwriting should be calculated from
gross premium.
Q)
Will
banks be allowed to market and sell insurance products for corporates
and individuals.
A) Banks will be required to
obtain agency license to distribute local insurance products through
their branches and bank employees who are in charge of soliciting these
products to customers must be licensed by SAMA.
Q) Since
some of the Arabic translated policies are not sufficient for reinsurers
especially on the liability side, is it possible to write these policies
in English to avoid conflicts.
A) Policy wording must be in
Arabic. However, English written policies as a supplement to the Arabic.
Q)
Clear
definition of “Reciprocal Exchange”. Is it pooling?
A) It is not pooling and by
definition, Reciprocal Exchange means unincorporated association with
each insured insuring other insured's within the association. Each
participant of this pool is both insured and an insurer. An attorney
in-fact administers the exchange which includes receiving and investing
premium, paying losses, accepting new members, and exchanging
reinsurance contracts. Members of this pool share profits and losses in
the same proportion.
Q)
Is it
required for individuals working in insurance to have a specific
educational background i.e. Bachelor, Master.
A) There are more than one
certificate specialized in insurance which will be offered from Saudi
Institutions such as the Institute of Banking. One certificate will be
focused on marketing and soliciting insurance products which is required
for brokers and agents. Another one will be focused on risk management
which will be suitable for managers. A third one focused on basic
insurance concept which is suitable for new graduates who wish to enter
the insurance market.
Q)
What is
the “Inter Companies Insurance Funds”? is it “Co-Insurance”
A) No, it is not Co-Insurance.
It does have the same definition as "Pooling" which is a method by which
each member of an insurance pool shares in each and every risk written
by the other members of the pool.
Q)
Do Banks have the right to sell insurance policies issued
by Companies registered outside KSA?
A) Banks will not be allowed to
market insurance products issued by unlicensed insurance companies.
Q) For
an insurance and reinsurance company do we need a capital of SR 200M or
300M?
A) The required paid-up capital
for an insurance company is SR 100 millions.
The required paid-up capital for
an insurance company conducting in-ward facultative reinsurance business
is SR 200 millions.
The required paid-up capital for
a reinsurance company is SR 200 millions.
Q) Is
a GCC reinsurance company considered as a Saudi reinsurance company
whilst meeting 30% local reinsurance regulation?
A) A GCC reinsurance company is
not considered a Saudi reinsurance company.
Q)
Can
SAMA confirm that the intention of Article 46 (2) is to prohibit
deliberate pricing of a product as a “loss-leader” and is not intended
to relate to products where a loss is caused simply by a worse than
expected experience?
A) The purpose of Article (46-2)
is to promote and encourage fair competition based on service quality
and not on low prices.
Q)
According to the
new Law, it is required that Business plans & Feasibility Studies to be
completed by actuaries. Though actuaries are not available in KSA for
the current stage, is it possible to have these studies done by
Financial Advisors licensed in the Kingdom? Does SAMA have a credited
list of such advisors?
A)
Feasibility study shall be approved by a professional third party such
as a financial consulting firm. Some components of the business plan
shall be approved by an actuary. SAMA does not have a list of financial
advisors.
Q)
According to SAMA there are three alternatives available for Companies
to register, is it possible for SAMA to recommend credited list of
advisors that could be hired to evaluate the Companies?
A)
Normally, evaluation is done by an accounting firm and there are many
credited accounting/auditing firms in the Kingdom.
Q)
Companies ask for the text of Bank guarantee letter that is required.
A) There is
a standard form for a bank's guarantee which could be obtained from
local banks. However, a bank’s guarantee must contain the followings;
·
Amount
guaranteed by the bank is equivalent to the required capital.
·
SAMA is the
beneficiary.
·
Issued by a local
bank.
·
Automatic renewal
until SAMA returns the original guarantee to the bank.
Q) SAMA should inform Banks to
issue Bank Guarantees for companies based on current ratio’s adapted in
the market and not necessarily the availability of the 100% cash for
whole amount.
A) Banks
will deal with their customers based on their internal policies.
Q)
Article
(55) assigns time limits for setting claims presented by Individuals or
companies. We believe that settlement should be based on the claims
amount regardless whether or not the Insured is an individual or
corporate.
A) Time
provided for claim settlement is reasonable and in accordance with
international standards.
Q)
The
declaration of the Brokers Commission to client will limit their
activities. This is in fact not applicable any where in the world.
A)
Transparency and disclosure should not be considered as a limitation by
any means.
Q)
Bylaws
state that 10% of the Capital should be paid at the first 3 months from
the decree. What about the remaining 90%?
A) The
Paid up capital must be deposited in the bank before commencing
operations.
Q)
If a
private company or a Bank are the prime owners of a certain insurance
co. would that delay the IPO?
A) No.
Q)
Will
companies be allowed to take off the 10% statutory deposit at SAMA from
Zakat base since it is a blocked Capital?
A) This
question should be referred to Zakat and Income Tax Department.
Q)
Is it
allowed to load insurance policies at certain rates to cover
miscellaneous expenses.
1.
Supervising Fees paid for SAMA
2.
Tax on profits to reinsurers
3.
Health Committee expenses.
4.
Renewal licenses for the
Underwriting of Health Insurance
5.
Expenses that might be incurred
in the future for fees or tax
A) Prices
must be fair and justifiable.
Q) Will investment restrictions
apply to the paid-up capital in excess of Technical Allocations and
statutory reserves?
A) There are no restrictions on
investment if the company has a written investment policy approved by
the board of directors and accepted by SAMA.
Q)
Article 40 indicate that companies must retain 30% or more of premium
and that at least the first 30% of reinsurance should be reinsured
within the Kingdom. Where an insurer has reinsurance arrangements (at
the date of effect of the Rules) that do not meet the requirements of
Article 40, can those arrangements be maintained until their natural
termination or must the arrangements be modified to comply with Article
40? Will there be a phasing in of this requirement for companies that
are currently outside these limits?
A) Requirements of Article (40)
apply to licensed insurance companies in Saudi Arabia.
Q) Can
SAMA confirm that it does not expect products to automatically be
repriced after any loss has been incurred (possibly due to a
single large claim) but that normal good practice and professional
judgement can be applied to determine the relevance of the loss to
future expected experience?
A) Re-pricing of insurance
products should be done in accordance with Article (46) of the
Implementing Regulations which states that prices should:
1.
Pricing shall be fair,
reasonable and adequate;
2.
Pricing shall be set in
accordance with the Company’s underwriting guidelines with adequacy and
appropriateness to the risks undertaken by the Company, and in
accordance with appropriate technical reserves.
3. Providing
the Agency with justifications and basis used in setting prices. These
prices shall not be relied upon other Company’s pricing.
Q) Article 48
requires a check to ensure total underwriting does not exceed ten times
the paid-up capital and reserves. Can SAMA clarify the meaning of
“underwriting” in this article? For example is this related to premium
received or the underwritten sum insured?
A) Underwriting within this
context means “Gross Written Premium”.
Q)
Article (70) also refers to a requirement for 20% of net income to be
transferred to statutory reserves until the reserves are equal to 100%
of paid up capital. Can SAMA clarify the status of such reserves and in
particular, whether they are held by the company or by SAMA, to whom any
investment yield in such reserves will accrue and whether these
statutory reserves have to be considered as technical allocations for
the purpose of calculating the required leverage?
A) The legal reserve of which
20% of net income is transferred until the reserves are equal to 100% of
paid up capital should be held with the company and its return goes to
the company. The purpose of this reserve is to;
- Strengthen the company
financial position
- encourage companies to expand
their business.
Q) Article (48)
requires that without prior approval from SAMA, company underwriting
shall not exceed ten times the paid up capital and reserves of the
company. For some classes of business, such as annually reviewed Group
Credit Term Assurance, the sums assured are very high compared to the
reserves being held and even at a moderate level of sales the ten-fold
limit is likely to be breached. Does SAMA intend to make an exception
for such classes of business or is prior approval required on a
case-by-case basis? If the latter, then how often would such prior
approval be required – just once when that business class is launched,
or periodically as the existing portfolio of such business increases?
A) This article refers to up to
10 times the capital, which can go up to 1 billion in gross premium for
a company with SR. 100 millions in capital.
Q)
Articles 3 and 19 indicate that for the company to work with actuarial
and other consultants those consultants must first be licensed. Is this
license requirement according to international standards and those
applicable in the country of residence of these consultants or must
these consultants be licensed by SAMA?
A) These
consultants must be registered with SAMA . The same international
requirements apply in Saudi Arabia.
Q) Insurance
Company accepting inward Fac’ reinsurance – In the current market this
practice is widespread. This may weaken the quality of security for the
consumer. What is SAMA attitude to this? If not in favour will SAMA
also restrict the use of multiple co-insurance as an alternative
mechanism?
A) Inward
facultative reinsurance is allowed; the company will have to raise its
capital to SR. 200 Millions.
Co-insurance is an acceptable practice
Q) Will
co-insurance be allowed between Insurance Companies?
A) Yes.
Q) Article (14)
refers to prior consent before dealing with a Lloyd’s broker /foreign
companies .Aon is a Lloyd’s broker in the UK, so does that automatically
allows us to be authorize to deal with our mother company without
referring to SAMA, if our application shows that we, in London are a
Lloyd’s broker?
A) Yes, if Aon is a licensed
entity in the Kingdom.
Q) Article (26)
item 2 refers to that the broker can export any surplus to the overseas
Companies, however, item 3 of the same article prohibit any reinsurance
placed by the same broker. Those two items are contradictory, any
surplus placed overseas has to be now on reinsurance basis for reasons
we all know (tax reasons, new law etc.). Needs clarification.
A) An individual broker can’t
get engaged in both transactions however the brokerage firm can.
Also, article (26/3) does not allow an insurance broker
to combine insurance and reinsurance business activities to avoid
conflict of interest that is harmful to the policyholder. Commissions
and fees of insurance and reinsurance business shall be separated.
Q)
Article (8) - again mentions insurance and reinsurance capital required,
however, point 1 only states SR 3,000,000 for insurance brokerage and
does not mention reinsurance. Can we assume that this SR 3,000,000 is
for doing both activities?
A) Yes.
Q)
Article (36), and the Insurance Brokerage Relates to first question – if
there are two definitions for insurance brokerage and insurance and
reinsurance services providers, does the services provider not pay any
fees?
A) Insurance and reinsurance
companies shall pay inspection and supervision fees as well as insurance
brokerage firms.
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