Cooperative Insurance Companies
Control Law
Royal Decree No M/32
2 Jumada II 1424 / 31 July 2003
1
Article One:
Insurance in the Kingdom of Saudi Arabia shall be provided by insurance
companies registered in the Kingdom operating in accordance with the practice of
cooperative insurance in line with the provisions of the Articles of Incorporation of
the National Company for Cooperative Insurance issued by Royal Decree No
(M/5) dated 17/4/1405 H, and not inconsistent with the provisions of Shari’ah.
Article Two:
Subject to the provisions of the Law of Cooperative Health Insurance issued
by Royal Decree No. (M/10) dated 1/5/1420 H, the Saudi Arabian Monetary
Agency shall, in connection with the application of this Law, have power to:
(1) Receive and review applications to form cooperative insurance and reinsurance companies to ensure that these applications satisfy the conditions
and the rules applicable in this respect. Upon approval of these
applications, it shall refer them to the Ministry of Commerce and Industry
to take the necessary legal action.
(2) Supervise and technically control insurance and re-insurance activities in
accordance with the principles specified in the implementing regulations of
this Law and the means of control employed by the Agency, specially the
following:
(a)
Regulating and approving rules for the investment of premiums of
insurance and re-insurance operations, and designing a formula to
distribute the surplus of insurance and re-insurance operations
among shareholders and the insured, provided that separate accounts
are kept for shareholders, the insured and insurance operations.
(b)
Determining the sums of money required to be deposited with one of
the local banks in order to provide each of the different types of
insurance.
(c)
Approving standard forms of insurance and re-insurance policies,
and determining the minimum amounts of third party insurance
coverage, subject to the provisions of laws applicable in this regard.
(d)
Setting rules and restrictions determining the method of investing the
assets of insurance and re-insurance companies.
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(e)
Setting general rules determining the assets which each company
shall keep inside and outside the Kingdom, the minimum and
maximum for each type of insurance, and the conditions that shall be
observed in each type, and the minimum and maximum of
membership fees and insurance premiums against the capital of the
company and the reserves.
(f)
Setting rules and restrictions which protect the rights of the
beneficiaries, and ensure the ability of the insurance companies to
satisfy claims and obligations.
Article Three:
An Insurance or re-insurance company may not be formed in the Kingdom
of Saudi Arabia except by a license issued pursuant to a Royal Decree upon a
resolution by the Council of Ministers and a recommendation by the Minister of
Commerce and Industry according to Article Two of this Law, and subject to the
following:
(1) The company shall be a public joint-stock company.
(2) The company’s principal object shall be to perform any insurance and reinsurance activity and shall not undertake other objects unless they are
necessary or complementary [to its principal object]. Insurance companies
may not directly own companies or brokerage establishments, and reinsurance companies may not own re-insurance brokerage companies or
establishments. However, insurance companies – upon the approval of the
Saudi Arabian Monetary Agency– may own companies or establishments
that act as brokers in re-insurance activities.
(3) The paid-up capital of the insurance company shall not be less than one
hundred million Saudi riyals and the paid-up capital of the re-insurance
company or the insurance company carrying out re-insurance activities
simultaneously shall not be less than two hundred million Saudi riyals. The
capital may not be changed without the approval of the Saudi Arabian
Monetary Agency, and pursuant to the Companies Law.
Article Four:
The implementing regulations shall specify the insurance operations
governed by this Law, and each insurance company shall specify the types of
insurance it shall provide.
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Article Five:
An insurance or re-insurance company - upon commencing business - may
not suspend its insurance activities without the prior approval of the Saudi
Arabian Monetary Agency. This is to ensure that insurance companies take all
necessary measures to safeguard the rights of the insured and the investors.
Article Six:
Selection of members of the board of directors of insurance and reinsurance companies shall be subject to the approval of the Saudi Arabian
Monetary Agency in accordance with the criteria specified for in the implementing
regulations.
Article Seven:
The chairman of the board of directors of insurance or re-insurance
company, managing director, a member of the board of directors and general
manager shall be liable, each within the limits of his authority, for the company’s
violation of any of the provisions of this Law or its implementing regulations.
Article Eight:
The Saudi Arabian Monetary Agency may inspect the records and accounts
of any insurance or re-insurance company through the Agency’s employees or
auditors appointed by it, provided that the inspection be carried out at the site of
the insurance or re-insurance company. In this case the employees of the company
shall submit whatever is in their possession or under their authority or records,
data, and documents requested from them, and disclose any information they
have, relating to the company, to the employees of the Agency or whoever it may
appoint as auditors.
Article Nine:
An insurance or re-insurance company may not open any branch or office
inside or outside the Kingdom, agree to merge with, own any insurance or
banking activity, have control thereof, or own shares of another insurance or reinsurance company without the written approval of the Saudi Arabian Monetary
Agency.
Article Ten:
(1) The general assembly of the insurance or re-insurance company shall
annually appoint two auditing offices from among the certified accountants
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licensed to practice the profession in the Kingdom and shall determine their
fees.
(2) The auditors shall include in their annual report presented to the general
assembly– in addition to the data provided for in the Companies Law– their
opinion as to whether the financial statements of the company correctly
reflect its true financial position on the date of the budget and the results of
its activities during the fiscal year which expires on that date, and as to
whether the preparation, presentation and audit of these statements
conform to the generally accepted accounting principles applied in the
Kingdom.
(3) Financial statements and the auditors’ report shall be published within three
months from the date of the end of the company’s fiscal year.
Article Eleven:
The Saudi Arabian Monetary Agency may at any time request any insurance
or re-insurance company to submit to it– at the time and in the form it determines–
any information it deems necessary to fulfill the purposes of this Law. It shall also
send to the Saudi Arabian Monetary Agency at its request the following:
(1) A statement of the returns and expenses of each insurance type.
(2) A detailed statement of the insurance activities carried out by the company
during the stated period.
(3) Statistical statements and general information about the activities of the
company.
(4) A statement of the investments of the company.
(5) Any other information requested by the Saudi Arabian Monetary Agency.
Article Twelve:
It is prohibited for any person who obtains any information, while carrying
out any work related to the application of the provisions of this Law, to disclose or
benefit from it in any way.
Article Thirteen:
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All insurance and re-insurance companies shall submit to the
Department of Zakat and Income Tax their zakat or tax returns, the audited
financial statements and any other information or documents which the
Department deems necessary
for the purpose of determining the amount subject to zakat or taxation in
accordance with the provisions of the Tax Law, the Zakat Collection Law and their
implementing regulations and payment of the sums due, within the times specified
by the Law.
Article Fourteen:
Insurance and re-insurance companies governed by this Law shall deposit in
one of the local banks, a legally required deposit to the order of the Saudi Arabian
Monetary Agency, and the implementing regulations shall determine the
restrictions relating to this deposit.
Article Fifteen:
The insurance and re-insurance companies shall allocate a part of their
annual profits, not less than 20%, as a legal reserve, until the total reserve amounts
to 100% of the capital paid.
Article Sixteen:
All insurance and re-insurance companies shall setup the required reserves
for their insurance types, and other reserves as provided for in the implementing
regulations of this Law.
Article Seventeen:
All insurance and re-insurance companies governed by the provisions of this
Law shall keep a separate account for each type of insurance as specified in the
implementing regulations of this Law. They shall also keep records and books to
record insurance policies issued by the company, names and addresses of the
holders of such policies and the date of concluding each policy, its effectiveness,
prices and conditions provided for in it. Any change or amendment occurring in
such policies shall also be recorded in these records and books. The Saudi Arabian
Monetary Agency may issue the decisions it deems necessary to compel insurance
companies to record in the books and records any data it deems necessary to
exercise its authority of control and supervision. The data contained in the records
and books mentioned above may be entered in the computer in accordance with
the rules and procedures provided for in the implementing regulations of the Law
of Commercial Books.
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Article Eighteen:
The Saudi Arabian Monetary Agency shall set the necessary conditions for
issuing licenses to practice self-employment professions relating to the insurance
activity, especially the following:
(1) Insurance brokers.
(2) Insurance Consultants.
(3) Inspection and loss assessment experts.
(4) Specialists in settlement of insurance claims.
(5) Actuaries.
Licenses for these professions shall be issued by the Ministry of Commerce
and Industry, and the Saudi Arabian Monetary Agency shall control and supervise
the activities of the professions referred to.
Article Nineteen:
If the Saudi Arabian Monetary Agency finds that any of the insurance or reinsurance companies has violated the provisions of this Law or its implementing
regulations or followed a policy liable to adversely affect its ability to fulfill its
obligations, the Agency may take one or more of the following measures:
(1) Appointing one consultant or more to provide consultation to the
company in relation to the management of its activities.
(2) Suspending any member of the Board of Directors or any of its employees
proven to be responsible for the violation.
(3) Preventing the company from accepting any new shareholders, investors
or members in any of its insurance activities or restricting it in this
respect.
(4) Compelling the company to take any other measures the Agency deems
necessary.
If the Agency finds that the company persists to violate the provisions of this
Law or its implementing regulations and does not respond to any of the measures
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taken by the Agency in accordance with this Article, and despite the
infliction of the punishments provided for in this Law, the Agency may request the
dissolution of the company.
Article Twenty:
One or more committees shall be formed based on a Resolution by the
Council of Ministers, upon the recommendation of the Minister of Finance,
composed of three specialized members, at least one of whom shall be a legal
counselor, to be entrusted with the settlement of disputes occurring between
insurance companies and their clients, or between these companies and others that
may substitute for the insured, and shall decide on cases of violations of control
and supervision instructions for the licensed insurance and re-insurance
companies, and the violations of those practicing self-employment professions
referred to in Article Eighteen of this Law. Prosecuting before the Committee – in
connection with these violations – is represented by the employees appointed by a
decision of the Minister of Finance.
Decisions of these Committees may be appealed before the Board of
Grievances.
Article Twenty One:
Without prejudice to any harsher punishment provided for in any other law,
anyone who violates any provision of this Law shall be punished with a fine not
exceeding one million riyals and imprisonment for a period not exceeding four
years, or by either.
Article Twenty Two:
(1) Without prejudice to the powers of the committee provided for in Article
Twenty of this Law, the Board of Grievances shall have jurisdiction in the
following:
(a) Deciding all disputes between insurance companies and re-insurance
companies, or between companies of either type.
(b) Deciding cases of violations of this Law and the implementation of
the punishment provided for in Article Twenty One.
(c) Initial review of the case in any suit in which the Monetary Agency
or the Committee formed in accordance with Article Twenty requests
the infliction of the punishment of imprisonment.
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(2) Prosecution before the Board of Grievances shall be carried out
by the employees appointed pursuant to a decision issued by the
Minister of Finance.
Article Twenty Three:
The implementing regulations of this Law shall be issued by a decision of the
Minister of Finance, and shall be published within sixty days from the date of
publication of this Law, and shall come into effect on the date of the enforcement
of this Law.
Article Twenty Four:
Subject to what is stated in Article One of this Law whatever is not provided
for therein shall be governed by the Companies Law, to the extent permitted by the
nature of such type of companies.
Article Twenty Five:
This Law shall be published in the Official Gazette and shall come into effect
after ninety days from the date of its publication.
Implementing Rules
for the Cooperative Insurance Companies Control Law
Issued by Royal Decree No. M/32 of 2/6/1424H [September 3, 2003]
(Unofficial Translation)
Table of Contents
Page No.
Title
Definitions ...............................................................................................................................11
Objectives of the Law and Implementing Rules ......................................................................13
Types of Insurance ...................................................................................................................15
Conditions for Granting Licenses ............................................................................................16
Rules for_____________________________________
Conducting Business ................................................................................................19
Translation from Arabic
200402590
9
Effective Management ............................................................................................................ 23
Control and Supervision Procedures........................................................................................23
Statutory Deposit .....................................................................................................................31
Investment ................................................................................................................................31
Asset Valuation and Solvency Margin ....................................................................................33
Technical Allocations (Reserves) ............................................................................................35
Equation for the Distribution of Surplus Stemming from Insurance Operations ....................37
Accounting Records and Books ...............................................................................................38
Statements and Reports ............................................................................................................40
Cessation of Activity and Withdrawal of License ...................................................................41
Qualification and Training .......................................................................................................42
General Provisions ...................................................................................................................42
Table No. 1 ..............................................................................................................................45
Table No. 2 ..............................................................................................................................46
Table No. 3 ..............................................................................................................................47
Table No. 4 ..............................................................................................................................48
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Definitions
Article 1
The following terms and expressions shall have the meanings indicated below,
wherever they occur in these rules, unless the context should require another
meaning:
1. Law: The Cooperative Insurance Companies Control Law.
2. Rules: The implementing rules for the Law.
3. Governor: The Governor of the Saudi Arabian Monetary Agency.
4. SAMA: The Saudi Arabian Monetary Agency.
5. Person: Any natural or legal person [individual or legal entity].
6. Insurance supervisor: Any government agency or public institution that
supervises and controls the insurance sector in the country where the insurance
policy is underwritten.
7. Insurance: Transfer of the burden of risk from the insured parties to the insurer
and payment of compensation by the insurer to persons that incur loss or damage.
8. Reinsurance: Transfer of the burden of insured risks from the insurer to the
reinsurer and payment of compensation by the reinsurer to the insurer for amounts
paid to insured parties that incurred loss or damage.
9. Optional reinsurance: Reinsurance whereby the insurer proposes each insurance
risk on an individual basis to the reinsurer, which has the option to accept or reject
the proposed risks.
10. Consensual reinsurance: Reinsurance whereby the insurer agrees to assign to the
reinsurer particular risks within the limits of specific amounts or percentages, and
the reinsurer agrees to reinsure the risks assigned to it.
11. Proportional reinsurance: Consensual reinsurance whereby the insurer agrees to
assign to the reinsurer particular risks within the limits of specific percentages
agreed upon with the reinsurer, and the reinsurer agrees to [re]insure the risks
assigned to it.
12. Non-proportional reinsurance: Consensual reinsurance whereby the insurer
agrees to assign to the reinsurer particular risks within the limits of specific amounts
in excess of the amount of loss the insurer agrees to bear, and the reinsurer agrees to
[re]insure the risks assigned to it.
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13. Company: A public joint-stock company that engages in insurance or
reinsurance activities, or both.
14. Insurer: An insurance company that agrees to insure the insured parties directly.
15. Reinsurer: An insurance or reinsurance company that agrees to accept a
reinsurance from another insurer.
16. Insured party: An individual or legal entity that signs an insurance policy with
an insurer.
17. Insurance policy: A contract whereby the insurer agrees to compensate the
insured party in the event of loss or damage covered by the policy, in exchange for
the premium paid by the insured party.
18. Premium (payment): The amount paid by the insured party to the insurer in
exchange for the insurer’s agreement to compensate the insured party for any loss or
damage resulting directly from an insured risk.
19. Beneficiary: The individual or legal entity that receives the benefit specified in
the insurance policy in the event that loss or damage is incurred.
20. Professions: The professions related to insurance and/or reinsurance activities.
21. Professional entities: Legal entities licensed to engage in any of the professions
related to insurance and/or reinsurance activities.
22. Professional individuals: Individuals licensed to engage in any of the
professions related to insurance and/or reinsurance activities and employed by
professional entities.
23. Insurance agent: A legal entity that, in exchange for material remuneration,
represents the company, markets and sells insurance policies, and carries out all its
normal activities on behalf of the company.
24. Insurance broker: An individual that, in exchange for material remuneration,
negotiates with the company to complete the insurance transaction on behalf of the
insured party.
25. Insurance consultant: A person that provides consulting services related to
insurance activities.
26. Inspector and damage appraiser: A legal entity that inspects the insured item
before it is insured and inspects the damages after they have occurred to determine
the cause, value, and responsibility for the losses incurred.
27. Insurance claims and settlement specialist: A legal entity that administers,
reviews, and settles insurance claims on behalf of the company.
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28. Actuary: A person who applies the principles of probability and
statistics as the basis for fixing the prices of services, determining liabilities, and
establishing allotments.
29. Underwriting: The process of insuring a risk.
30. Retained risk: The amount of risk the company retains for itself and does not
reinsure.
31. Solvency margin: The amount of the company’s surplus assets that can be
converted into cash to meet its obligations.
32. Technical allocations (reserves): The funds that the company must set aside to
cover its financial obligations.
33. Legal reserves: The percentage of the company’s net profits that must be set
aside, as stipulated in Article 15 of the Law.
34. Surplus distribution equation: The method for distributing the surplus from
insurance activities among the shareholders and insured parties.
35. Mutual insurance fund: A method of insuring that covers policy holders who are
themselves members of the fund and are collectively and individually responsible
for it.
36. Self-insurance: Systematically setting aside funds to cover anticipated losses
from risks that one wants to insure oneself, rather than through a company.
37. Financial derivatives: A contract whose value is linked to the performance of
financial assets, indicators, or other investments.
38. Risk: An event related to the probability of incurring damage or loss, without
the possibility of realizing a profit.
39. Controller: The person responsible for verifying compliance with the relevant
laws and instructions.
Objectives of the Law and Implementing Rules
Article 2
The Law and its implementing rules are aimed at:
Protecting the rights of insured parties and investors’; 1.
Encouraging fair and effective competition and the provision of better insurance 2.
services with competitive prices and coverage;
Strengthening the stability of the insurance market; and 3.
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Developing the insurance sector in Saudi Arabia, including training and 4.
Saudiization of the work force.
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Types of Insurance
Article 3
Insurance activities are divided into insurance and reinsurance activities, and
include the following types:
General insurance I.
Accident and liability insurance, including: 1.
Personal accident insurance;
Work-related accident insurance;
Employer liability insurance;
Third-party liability insurance;
General liability insurance;
Insurance for liabilities resulting from products;
Medical liability insurance;
Professional liability insurance;
Theft and burglary insurance;
Breach of trust insurance;
Insurance for funds in vault and in transit;
Any other liability insurance;
a.
b.
c.
d.
e.
f.
g.
h.
i.
j.
k.
l.
Automobile insurance: This insurance includes losses and liabilities related to 2.
automobiles [vehicles], with the exception of transport risks.
Property insurance: This insurance includes losses resulting from fire, theft, 3.
explosions, natural phenomena, riots, and any other insurance falling under this
category.
Marine insurance: This insurance includes goods transported by sea, [structural 4.
damage to] ships, liabilities, and any other insurance falling under this category.
Aviation insurance: This insurance includes aircraft bodies, liabilities to 5.
passengers and others, goods transported by air, and any other insurance falling
under this category.
Energy insurance: This insurance includes petroleum, petrochemical, and other 6.
energy installations, and any other insurance falling under this category.
Engineering insurance: This insurance includes contractors’ risks, risks related 7.
to construction, installation, electrical and electronic equipment, tool breakage,
and any other insurance falling under this category.
Other types of general insurance: This category includes any other types of 8.
general insurance not mentioned above.
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Health insurance II.
This includes insurance for medical expenses, medicines, all medical and
therapeutic services and requirements, and management of medical programs.
Support and savings insurance III.
Support insurance: This includes insurance activities related to the effects of 1.
death and permanent or temporary, partial or full disability, for individuals and
groups.
Support insurance with savings: This includes insurance activities whereby the 2.
insurer pays the insured party an amount or amounts, including the balance of
savings, at a future date, against the premiums paid by the insured party.
Other types of support and savings insurance: This category includes any other 3.
types of support and savings insurance not mentioned above.
Conditions for Granting Licenses
Article 4
Insurance or reinsurance companies I.
A license application including the following shall be submitted to SAMA:
Completed application form;
Charter or articles of incorporation;
By-laws;
Organizational structure;
Economic feasibility study;
Five-year work plan, which must include the following as a minimum:
Types of insurance the company intends to deal with and the related risks; a.
Capacity to assign or accept reinsurance contracts for the types of insurance b.
policies for which reinsurance is desired;
Marketing plan for the proposed products; c.
Projected expenditures for starting the activity and financial sources of the d.
required financing;
Projected growth rates for the activity, taking into account the solvency e.
margin requirements;
Projected number of employees and plan for hiring and training Saudi f.
employees;
Annual expenditures based on projected growth rates for the activity; g.
Estimated financial statements based on projected growth; h.
Statement on the technical fundamentals of the intended insurance activities i.
and actuary’s certification that the fundamentals, specifications, and
conditions of the insurance activities are sound and implementable;
Plan for opening the company’s branches. j.
1.
2.
3.
4.
5.
6.
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Any agreements with other parties outside the company. 7.
Irrevocable bank guarantee in an amount equivalent to the required capital, 8.
issued in the company’s name by a domestic bank and automatically renewable
until the capital is completely paid up.
Professional entities related to insurance and/or reinsurance II.
A license application including the following shall be submitted to SAMA:
Completed application form;
Charter or articles of incorporation;
By-laws;
Organizational structure;
Economic feasibility study;
Three-year work plan, which must include the following as a minimum:
Types of insurance the company intends to deal with; a.
Projected expenditures for starting the activity and financial sources of the b.
required financing;
Projected growth rates for the activity; c.
Projected number of employees and plan for hiring and training Saudi d.
employees;
Annual expenditures based on projected growth rates for the activity; e.
Estimated financial statements based on projected growth; f.
Plan for opening the company’s branches. g.
Any agreements with other parties.
Irrevocable bank guarantee in an amount equivalent to the required capital,
issued in the company’s name by a domestic bank and automatically renewable
until the capital is completely paid up.
1.
2.
3.
4.
5.
6.
7.
8.
Professional individuals related to insurance and/or reinsurance III.
Any person who wishes to engage in any of the [related] professions must obtain a
license from SAMA upon meeting the following requirements:
Have obtained a university degree and at least five years’ experience in the field 1.
of insurance, or a specialized professional certificate in insurance.
Have passed the approved examination for the profession in question or have 2.
obtained equivalent training and preparation.
Article 5
If incorrect information or data are submitted, SAMA may implement the
provisions stipulated in Article 19 of the Law and request application of the
penalties stipulated in Article 21 of the Law.
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Article 6
SAMA shall notify the applicant within 30 working days of the date on which 1.
the application was submitted concerning any missing elements that are needed
to complete the application.
The applicant shall provide the missing elements within 30 working days of the 2.
date SAMA’s notification; otherwise, the application shall be subject to
cancellation.
SAMA shall notify the applicant of its decision to accept or reject the 3.
application within 90 working days of the date of its notice about completing the
application, and shall explain the reasons for its decision.
Article 7
Applicants shall pay a fee of SRls 10,000 to cover the cost of reviewing the
application, and if it is approved, they shall pay SAMA the following amounts to
cover the cost of issuing the license:
SRls 100,000 for insurance companies;
SRls 200,000 for reinsurance companies;
SRls 300,000 for insurance and reinsurance companies;
SRls 25,000 for professional individuals other than actuaries and insurance
consultants;
SRls 5,000 for actuaries and insurance consultants.
-
Article 8
Any of the [insurance-related] professions may be carried out by persons
[individuals or legal entities] licensed to operate in Saudi Arabia, provided that their
capital is not less than the following requirements:
SRls 3,000,000 for insurance brokers;
SRls 3,000,000 for insurance claims and settlement specialists;
SRls 500,000 for insurance agents;
SRls 100,000 for inspectors/damage appraisers;
SRls 150,000 for insurance consultants;
SRls 150,000 for actuaries.
-
Article 9
Professional entities must obtain an insurance policy to cover professional liability
risks for negligence, default, or error, with insurance coverage of at least:
SRls 3,000,000 for insurance brokers; SRls 6,000,000 for reinsurance brokers; SRls 1,000,000 for insurance agents; SRls 3,000,000 for actuaries or inspectors/damage appraisers; SRls 1,000,000 for insurance claims and settlement specialists; -
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SRls 500,000 for insurance consultants.
-
Article 10
The founders of companies, professional entities, and professional individuals must
be of good reputation and must not have been previously convicted of any breach of
honor or trust, unless they have been exonerated.
Article 11
The commercial register shall be limited to authorized insurance activities, and a
copy shall be provided to SAMA. No unauthorized activities shall be permitted.
Rules for Conducting Business
Article 12
Companies and professional entities shall carry out their activities in accordance
with professional principles.
Article 13
Companies and professional entities shall apply Saudi accounting standards
accepted by SAMA. If such standards do not exist, international standards shall be
applied.
Article 14
Companies and professional entities must obtain the prior written approval of
SAMA before doing business with insurance brokers from Lloyds or foreign
companies, to cover risks that cannot be covered in Saudi Arabia.
Article 15
Companies and professional entities shall comply with the following, in accordance
with the relevant laws and directives:
Develop a policy and internal procedures to combat economic crimes, including 1.
money laundering.
Apply the “Know Your Customer” criteria. 2.
Notify the Financial Investigation Unit in writing of any suspicious activities, in 3.
accordance with the form developed by SAMA, and provide SAMA with a copy
of the notification.
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Article 16
Companies and professional entities shall submit accurate data on their products,
which may not be marketed without the prior written approval of SAMA.
Article 17
Companies shall comply with the conditions determined by SAMA for insurance
funds established between companies. No company shall participate in insurance
funds outside Saudi Arabia without the prior written approval of SAMA.
Article 18
Companies shall provide SAMA with copies of their reinsurance agreements on an
annual basis. SAMA may comment on these agreements and request that they be
modified, if required.
Article 19
Companies shall not do business with unauthorized professional entities or 1.
individuals, and professional entities shall not do business with unauthorized
professional individuals. When business is conducted between the abovementioned parties, they must sign a contract.
Professional entities and individuals shall not provide any insurance services to 2.
unauthorized companies. When providing insurance services to an authorized
company, they shall not cause damage to other companies or their products.
Companies and professional entities shall sign a contract with any person 3.
[individual or legal entity] with which they do business.
Article 20
Companies shall appoint an actuary with the rank of associate or shall utilize the I.
services of an actuary, after obtaining the written approval of SAMA, who shall
have the following duties:
Obtain the required information and data from the previous actuary;
Review the company’s financial position;
Evaluate the company’s ability to meet its future obligations;
Determine the percentage of reserves;
Valuate the company’s insurance products;
Determine and approve the company’s technical allocations;
Review and make recommendations on the company’s investment policy;
Any other actuarial recommendations.
1.
2.
3.
4.
5.
6.
7.
8.
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The actuary shall be professionally responsible for the consulting or II.
other services he provides to the company, and shall provide the company’s
management with the following, as requested by the company:
Accurate actuarial information and data on the current and future financial 1.
situation of the company.
An annual report on the adequacy of the company’s technical allocations, 2.
within 60 days of the end of the fiscal year.
An annual report on the valuation of the company’s insurance products, 3.
within 60 days of the end of the fiscal year.
An analysis of the company’s return on investment. 4.
An analysis of insurance portfolio development. 5.
An analysis of expenditures. 6.
The degree of consistency between assets and liabilities. 7.
Positive and negative developments in the underwriting policy. 8.
If the company fails to prepare these studies in a timely manner, SAMA may
appoint an actuary at the company’s expense to carry out the required duties.
The actuary’s report is one of the documents reviewed by the external legal III.
auditor, especially when any current or future risks are observed, and at the
same time SAMA is also provided with a copy of the report.
When the actuary observes a current or future risk for the company, he shall
submit an urgent report directly to the company’s management, which shall
review the report, state its opinions on it, and forward them to SAMA within 15
days of receiving the report.
Article 21
Companies that deal in support and savings insurance as well as other types of
insurance shall comply with the following:
Appoint a risk management specialist for support and savings insurance,
independent from the other types.
-
Appoint a risk management specialist for support and savings reinsurance,
independent from the other types.
-
Separate the investments and allocations for the support and savings division
from the other divisions.
-
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Article 22
It shall not be permitted to carry out activities in more than one [insurance-related]
profession without the prior written permission of SAMA.
Article 23
Professional entities must have a permanent place of operations where all records
and documents used in their work are kept. They must inform SAMA at least 30
days in advance of changing their place of operations. Actuaries and insurance
consultants residing outside of Saudi Arabia may be exempted from this
requirement upon obtaining the prior written approval of SAMA.
Article 24
Insurance agents, brokers, and consultants shall provide sound advice to the insured
parties and inform them that the risks in question are covered by the company that
issues the insurance policy.
Article 25
Insurance agents and brokers shall provide their clients with accurate information on
their products and shall not try to mislead them in any way. The information must
include the following as a minimum:
The limits of insurance coverage;
Exemptions from coverage;
Amount of premium or payment;
Starting and ending date of the policy’
Any terms stipulated in the document;
Name of the company issuing the policy.
a.
b.
c.
d.
e.
f.
Article 26
Entities dealing in insurance and/or reinsurance brokerage shall comply with the
following:
The must inform insured parties of any fees or commission they receive from 1.
the company in exchange for their services.
They must first offer reinsurance opportunities to domestic companies and [only 2.
later to foreign companies].
They shall not allow professional individuals employed by them to deal in both 3.
insurance and reinsurance brokerage. The fees and commissions obtained from
insurance activities shall be separate from those obtained from reinsurance
activities, and there must be no conflict of interest that adversely affects the
customer’s interests.
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The shall work in the best interest of their insured parties to ensure that 4.
they obtain the best insurance offers and products available.
They shall explain the features of the insurance policy compared with other 5.
similar policies in terms of coverage and price before recommending its
purchase.
Effective Management
Article 27
The qualifications standards issued by SAMA shall apply to chairman and members
of the company’s board of directors and its senior management, as well as to
professional entities and individuals, who must complete the qualifications
questionnaire issued by SAMA for approval.
Article 28
Members of the board of directors and the executive directors of companies and 1.
professional entities must be honest, knowledgeable in financial and insurance
matters, and must have the necessary experience to carry out their duties.
A member of the board of directors of a company may not be a member of the 2.
board of directors of another insurance and/or reinsurance company.
SAMA may object to the election of any member of the board of directors or to 3.
the appointment of the executive directors of a company or professional entity.
Article 29
The following persons may not be nominated as members of the board of directors
of a company or serve as manager of the company, without the prior written
approval of SAMA:
Anyone who held such a position with a company that was liquidated; 1.
Anyone who was removed from such a position with another company. 2.
Control and Supervision Procedures
Article 30
Persons appointed by SAMA by means of an official letter may carry out office and
field investigations of the records and documents of companies and professional
entities. They and their employees shall provide the investigators with any
information, data, or documents they request.
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Article 31
Companies and professional entities shall cooperate fully with the inspectors
appointed by SAMA, particularly in the following:
Allow the appointed inspector to review the company’s records, accounts, and 1.
other documents that he considers necessary to carry out his duties.
Provide the appointed inspector with the information and explanations he 2.
requests.
Declare any omissions or discrepancies in the company’s accounts to the 3.
appointed inspector immediately before he begins his tasks.
Companies, professional entities, and their employees shall not conceal or 4.
attempt to conceal any information or discrepancies, nor may they refuse to
provide any explanations requested by the appointed inspector.
Companies and professional entities shall comply with the recommendations 5.
and instructions of SAMA related to the observations made during the
inspection rounds.
Article 32
Companies and professional entities shall comply with the working hours
established by SAMA for their headquarters and branches in Saudi Arabia.
Article 33
Companies shall comply with the minimum and maximum limits established by
SAMA for each type of insurance, as well as for premiums and other payments.
Article 34
The company’s board of directors shall establish a Review Committee with at 1.
least three and no more than five members, none of whom shall be executive
directors and the majority of whom shall be from outside the board of directors.
Companies shall be required to: 2.
Establish an Internal Audit Department that is directly linked to the Review a.
Committee and whose director must hold a professional degree in this field.
Establish a department for systematic control or appoint an official b.
controller to verify compliance with the implementation of regulations and
instructions. The control department or controller shall be directly linked to
the Review Committee, and both shall have the right to contact SAMA
directly and provide it with information, in accordance with the procedures
to be established by SAMA, and shall submit a report to the Review
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Committee on all compensation and claims paid for which the
technical standards for paying claims do not apply.
Article 35
No one shall be permitted to:
Reveal any information obtained by performing any task related application of 1.
the Law or its Implementing Rules, other than for official purposes.
Ask for or receive any personal benefit in exchange for performing any tasks 2.
related to application of the Law or its Implementing Rules.
Article 36
Companies and insurance brokers shall pay annual supervision and inspection fees
to SAMA as described below:
Companies shall pay 0.5 percent of the total amount of premiums [for policies] 1.
underwritten during the fiscal year, after deducting the share of the local market
for reinvestment.
Insurance and reinsurance brokers shall pay 1 percent of the total amount of 2.
commissions and fees collected during the fiscal year.
Article 37
Companies and professional entities shall develop and implement written
procedures for internal supervision, the effectiveness of which shall be evaluated by
the internal auditor or the external auditors.
Article 38
1. A company must inform SAMA of the ownership percentage of any person who
owns 5 percent or more of the company’s shares. It shall do so through a quarterly
report that it prepares.
2. Any person who owns 5 percent or more of a company’s shares must notify
SAMA in writing of his ownership percentage and any change that occurs in this
percentage within 5 business days of when the change occurs.
Article 39
1. A company or professional entity may not open branches, or sell, buy, or merge
with offices, companies, or other agencies without SAMA’s prior written approval.
2. If a company wishes to merge with or acquire another company or companies, it
must submit a written request to SAMA to which the following shall be attached:
a. The initial agreement.
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b. Financial lists.
c. Agreed value.
d. Payment method.
e. Valuation method.
SAMA may deny the request if it deems the value or valuation method unfair or
finds that the merger or acquisition would adversely affect policyholders, the
insurance sector, or the Saudi economy.
Article 40
A company must:
1. Retain at least 30 percent of total premiums.
2. Reinsure at least 30 percent of premiums within Saudi Arabia when reinsuring.
3. If the above is not feasible, or the company wishes to retain a smaller percentage,
the company must obtain SAMA’s prior written approval.
SAMA may require a company to reinsure or refrain from reinsuring a portion of
direct insurance operations underwritten in Saudi Arabia with a domestic insurance
company or companies in Saudi Arabia or abroad according to the situation of the
insurance market and the company.
Article 41
Within one month of the end of each quarter of the fiscal year, a company shall
reconcile coverage provided to the insured party with coverage available from
reinsurers. If a gap in coverage is found, the company must correct it.
Article 42
1. A company wishing to conclude reinsurance agreements outside Saudi Arabia
must comply with the following:
a. The reinsurer must be licensed to engage in reinsurance activity in its
country or its main office.
b. The insurance supervisor in the country of the reinsurer or its main office
must permit the exchange of relevant information with SAMA.
c. The reinsurer must specify records and financial reports for its transactions
with the domestic insurance company and must be prepared to furnish
SAMA with any data or information concerning the domestic company.
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d. The insurance company must furnish SAMA with the reinsurer’s
financial lists for the most recent fiscal year.
e. The company must furnish SAMA with the latest audit or supervisory report
issued by the insurance supervisor who supervises the reinsurer.
2. The company must select a reinsurer that has obtained a minimum rating of BBB
according to the S&P classification or an equivalent rating issued by an
international company specialized in this regard. If the company wishes to reinsure
with a reinsurer that has not been rated by an international company or that has
obtained a rating that is less than the aforesaid minimum, SAMA’s prior written
approval must be obtained.
Article 43
Companies must create a department to settle claims, and must formulate specific
procedures for the acceptance, review, and termination of clients’ claims. They must
also maintain files on clients’ claims and divide them into paid claims, claims under
study or settlement, and denied claims. Each file must include the following:
1. Insurance application form and insurance offer, if any.
2. A copy of the insurance policy.
3. The client’s claim.
4. The appraiser’s report (if any), any documents needed to substantiate the claim,
and a determination of the immediate cause that ultimately led to the loss.
5. The relative share of compensation of other policies or other insurance
companies.
6. The measures taken by the company, and the updated claim status.
7. An official power of attorney from the insured party authorizing the company to
subrogate the insured party when:
a. Another party claims compensation for a loss caused to it.
b. The company undertakes to defend an insured party to avert liability on the
part of the insured party or when compensation is set.
9 [sic]. A final quitclaim signed by the client for a paid claim.
Article 44
Covered individuals’ claims must be settled within 15 days of the receipt of a fully
documented claim. This period may be extended by another 15 days, in which case
the controller shall be so notified. The period for the settlement of the claims of
27
companies must not exceed 45 days from the receipt of all necessary
documents and the report of the appraiser, who must be appointed by the company
within one week of the date on which the incident is reported. If the claims
settlement period exceeds this period, the controller shall be notified and shall be
provided with a statement of the justifications for the delay.
Article 45
A company or professional entity must respond to the complaints of clients within
15 days. Such complaints shall be recorded in special records. These records shall
contain all essential information on the subject of the complaint. The company shall
prepare semi-annual reports on complaints expected to be referred to the judiciary.
The company shall submit these reports to the Review Committee.
Article 46
When determining rates, the company shall comply with the following:
1. Rates must be fair and not excessive.
2. Rates must be set according to underwriting rules, so that they do not lead to a
drop in the prices of the company’s products below the technically acceptable limit
or to losses for the company.
3. SAMA shall be furnished with the principles used to set rates. The company may
not merely use the rates applied by other companies.
Article 47
Minimum capital shall be allocated to cover the claims of policyholders only when
technical allocations are inadequate. The company must evaluate the adequacy of
technical allocations on a quarterly basis and notify SAMA immediately if
allocations are found to be inadequate or if minimum capital must be used.
Article 48
The company’s underwriting must not exceed 10 times total paid-up capital and
reserves without SAMA’s prior written approval.
Article 49
An insurance policy shall not be issued or renewed for any member of the board of
directors or executive management, or parties related thereto, until after any
outstanding premium has been paid in full. If a member of the board of directors or
an executive manager claims compensation under a policy issued to him by the
company, the claim shall be treated according to the procedures contained in the
regulations applied to the claims of other clients without any preferential treatment.
The controller shall be notified of any compensation paid to any member of the
board of directors or to an executive manager.
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Article 50
Companies and professional entities must furnish SAMA with the following
information 45 days before the end of each fiscal year:
1. A list of all members of the board of directors, the appointed member, and
general managers and senior managers in the company, its branches, its subsidiary
corporations, and its foreign representation offices. The list shall state these
persons’ names, current positions, appointment dates, functions, and number of
years of service with the company.
2. A list stating the number and percentage of Saudi employees in the company as a
whole and in each branch or department, and the levels of the departments staffed
by Saudis.
3. Any other information requested by SAMA.
Article 51
A company must issue standard insurance policies according to unified criteria
adopted by SAMA as a minimum for all insurance branches in which the company
engages. The policy must state the basic benefits. The company must submit to
SAMA a statement of the technical principles of its insurance operations and a
statement of the principles underlying the pricing of these operations. Regarding
protection and savings insurance, principles and prices must be prepared or
reviewed by an actuary.
Article 52
An insurance policy must be written in clear script and in a language that is easy for
the general public to understand. It must include the following:
1. Elements that a policy must include:
a. Policy number. It should be stated on all documents relating to the policy.
b. Name and mailing address of the insured party.
c. Period of coverage.
d. Description and limits of coverage.
e. Deduction.
f. Additional coverage.
g. Terms and special exceptions.
29
h. Price of insurance, premium amount, calculation principles, and
commissions paid for the policy.
i. List of the insured party’s property or interests.
2. The text of the policy, which includes coverage type, general provisions and
terms, and exceptions.
3. Attachments stating additional coverage, terms, and special exceptions that are
not treated by the above and are at variance with the primary agreement.
4. The signature and stamp of the company on the policy and attachments thereto.
Article 53
1. The company must apprise the client of the terms, provisions, and exceptions of
the policy before it is concluded.
2. When a company accepts coverage of a given risk, the client shall be furnished
with a temporary notification of coverage until the policy is issued. The client shall
be furnished with a copy of the policy within 30 days of the commencement of
coverage.
3. An insurance policy may be amended by written request of the client through
issuance of a policy annex certified by the company.
Article 54
1. A company may not cancel insurance in effect unless the insurance policy
stipulates the company’s right to do so. If insurance is canceled, the company must
return any premium paid for the remaining insurance period. The insured party shall
be given a minimum grace period of 30 days.
2. The insured party may cancel insurance and recover a portion of the premium
paid according to the table of short periods after any claims are settled.
Article 55
An application submitted by a client or his representative shall provide the basis for
the information contained in the policy. When an application is filled out, the
following must be taken into account:
1. The existence of an insurance interest on the part of the insured party consisting
of the possibility of his incurrence of a loss or liability due to damage to the object
of the insurance.
2. A statement of all substantive facts pertaining to the object of the insurance.
30
3. The objective or purpose of the insurance is to restore the insured party
to his financial position immediately preceding the loss.
4. The insurance shall not be in violation of laws, regulations, and instructions.
Article 56
A company must have convincing reasons for denying, canceling, or not renewing a
policy. Any decision by another company shall not by itself be considered a
convincing reason for any of the aforesaid. The company must treat clients fairly
and not discriminate among them.
Article 57
A company must convey to SAMA the incentive and benefit programs relating to
insurance operations for its employees.
Statutory Deposit
Article 58
The statutory deposit must be 10 percent of paid-up capital. SAMA may increase
this percentage to up to 15 percent depending on the risks covered by the company.
The company must deposit the sum of the statutory deposit within three months of
being granted a license. It shall deposit the statutory deposit in the bank specified by
SAMA in due course. The deposit shall be invested by, and its earnings shall accrue
to, SAMA.
Investment
Article 59
A company must:
1. Formulate a written investment policy approved by its board of directors. This
policy shall regulate investment operations and investment portfolio management
methods.
2. Invest, in Saudi riyals, 50 percent of the total assets available for investment. If
the company wishes to reduce this percentage, it must obtain SAMA’s prior written
approval.
Article 60
A company must have a written investment policy approved by its board of
directors for the distribution of investment assets taking into account the risks
31
surrounding the company and the area in which it operates. The company
must periodically analyze and study the risks surrounding the company and the area
in which it engages in its activity. The company must also take appropriate
measures to manage these risks. As a minimum, it must analyze the following risks:
1. Market risks.
2. Credit risks.
3. Interest rate risks.
4. Foreign exchange rate risks.
5. Liquidity risks.
6. Operations risks.
7. Country risks.
8. Legal risks.
9. Reinsurance risks.
10. Environmental risks.
Article 61
1. When a company formulates its investment policy, it must ensure that the
maturation period of invested assets corresponds to its obligations under issued
policies. The company must submit, to SAMA, an investment program that covers
asset distribution. If SAMA does not approve the program, the company shall
adhere to the instruments and percentages contained in Table No. 1. Investments
outside Saudi Arabia must not exceed 20 percent of total investments in compliance
with Article 59(2).
2. A company must take into account investment concentration risks. Concentration
in an investment instrument in Table No. 1 must not exceed 50 percent.
Article 62
A company may not use financial instruments, such as financial derivatives and offbalance sheet items, without first obtaining SAMA’s prior written approval. A
company may also not use such instruments for other than investment portfolio
management purposes. The following must be taken into account:
1. The instrument must be registered on a main financial market and liquefiable
within a short time period. It must also be based on the assets recorded in the asset
valuation table, and it must be priced according to a clear, known pricing method.
32
2. The company must have adequate provisions and assets to cover any
liabilities resulting or potentially resulting from an investment in these instruments.
3. The other party in the transaction must be solvent and have an acceptable
reputation.
Asset Valuation and Solvency Margin
Article 63
If a company engages in general insurance and
protection and savings insurance, the assets of each
type of insurance shall be separate.
Article 64
Assets resulting from the issuance of bonds or
borrowing shall not be taken into account when
calculating the solvency margin without SAMA’s
prior written approval.
Article 65
A company must valuate its assets for the purpose of
calculating the solvency margin according to Table
No. 2, observing the following:
1. The valuation of assets shall not exceed the market
value of the assets, excluding investment assets
relating to protection and savings insurance.
2. No more than 20 percent of total assets may be
associated with a single party.
Article 66
1. A company that engages in general and health
insurance operations must maintain the required
solvency margin by adopting whichever of the
following is highest:
a. Minimum capital.
b. Total underwritten premiums.
c. Claims.
In exception to the preceding, “total underwritten
33
premiums” method shall be used to calculate
the solvency margin for the first three years
following the company’s registration.
2. The required solvency margin shall be calculated
using the following:
i. Total underwritten premiums method:
a. The total underwritten premiums are classified into insurance branches
according to Table No. 3.
b. The net premiums for each branch are calculated after subtracting
what pertains to reinsurance, which must not be less than 50 percent of
the total premiums per branch.
c. The required solvency margin is calculated by multiplying the relative
coefficient by the adjusted net premiums.
ii. Claims Method:
a. Total claims are classified based on historical data for the previous
three years according to Table No. 4.
b. Net claims are calculated for each branch after deducting the portion
pertaining to reinsurance, which must be at least 50 percent of the total
claims per branch.
c. The required solvency margin is calculated by multiplying the relative
coefficient by the adjusted net claims.
Article 67
A company that engages in the protection and
savings insurance branch must maintain a solvency
margin that is the total of the following:
1. 4 percent of technical allocations for protection
and savings insurance.
2. 0.3 percent of total coverage for individuals after
subtracting the share of reinsurance, provided the
reinsurance share does not exceed 50 percent of total
coverage.
3. 0.1 percent of total coverage for groups after
subtracting the reinsurance share, provided the
reinsurance share does not exceed 50 percent of total
coverage.
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Article 68
1. A company must fill out the forms pertaining to
calculation of the actual and required solvency
margin.
2. A company must maintain the required solvency
margin. If the solvency margin dips below the
required margin, the following measures shall be
taken:
a. If the actual solvency margin is between 75 percent and 100 percent of
the required solvency margin, the company must act to change this
percentage to at least 100 percent during the following quarter.
b. If the actual solvency margin is between 50 percent and 75 percent of
the required solvency margin, or if the stipulation stated in paragraph
(a) above is not observed for two consecutive quarters, the company
must submit, to SAMA, a corrective plan that states the steps that the
company will take to improve its financial solvency and the time period
required for these steps.
c. If the actual solvency margin is between 25 percent and 50 percent of
the required solvency margin, or if the stipulation stated in paragraph
(b) above is not observed for two consecutive quarters, SAMA may
require the company to take all or any of the following measures:
1. Increase the company’s capital.
2. Amend its prices.
3. Reduce costs.
4. Cease accepting any new underwriting.
5. Liquefy some assets.
6. Any other measures deemed appropriate by the company and
approved by SAMA.
d. If the actual solvency margin dips below 25 percent, or the company
fails to correct its financial positions, SAMA may appoint a consultant
to advise the company, or it may seek the withdrawal of the company’s
license.
Technical Allocations (Reserves)
Article 69
35
1. Technical allocations shall be calculated according
to accounting standards by an actuary. They must
fairly reflect the company’s liabilities and must
include as a minimum, the following technical
allocations:
a. Allocations for premiums that have not been received.
b. Allocations for claims under settlement.
c. Allocations for claim settlement expenses.
d. Allocations for risks that have been realized but for which a claim has
yet to be submitted.
e. Allocations for risks that have not been realized.
f. Allocations for catastrophes.
g. Allocations for general expenses.
h. Allocations pertaining to protection and savings insurance, e.g.,
disability, old age, death, and medical expenses.
2. The following allocations shall be set as a
minimum according to the following:
a. Allocations for premiums that have not been received, which shall be
net revenues less insurance premiums and commissions upon issuance
of the insurance policy that are due in a subsequent period as premiums
and commissions not received, which shall be deferred for:
1. Three months with respect to maritime transportation,
2. 365 days with respect to other types of insurance; or 40 percent
of total net premiums and commissions.
b. Allocations for claims under settlement and claim settlement expenses,
which shall be calculated so as to equal the total estimated value of all
outstanding claims for each branch of general insurance.
c. Allocations for risks that have been realized for which claims have not
yet been submitted, which shall be calculated in relation to total claims
under settlement after subtracting the reinsurers’ portion according to
the following:
36
1. Insurance on vehicles and property, engineering
insurance, energy insurance, medical insurance, and general
accident insurance, excluding liabilities and physical damage: 15
percent.
2. Liability insurance and other insurance: 20 percent.
3. Insurance received from other companies: 25 percent.
d. If a company does not adhere to these percentages, it must submit a
study by an actuary.
e. Minimum allocations for doubtful debt shall be calculated according to
the following:
1. 10 percent of total sums owed by reinsurers that are more than
180 days late.
2. 15 percent of total sums owed by insured parties that are more
than 90 days late.
3. 25 percent of total sums owed by insured parties that are more
than 180 days late.
4. 75 percent of total sums that are more than 360 days late
5. 100 percent of disputed sums owed.
6. General allocation, which shall be set based on the company’s
experience.
Equation for the Distribution of Surplus Stemming
from Insurance Operations
Article 7
1. Financial lists shall include the financial position
list for insurance operations and shareholders, the
insurance operations surplus (deficit) list, the
shareholders’ income list, the shareholders’ equity
list, the insurance operations cash flow list, and the
shareholders’ cash flow list.
2. When preparing the insurance operations list, the company must:
a. Determine premiums, commissions, reinsurance, and other commissions
received.
37
b. Determine compensation incurred.
c. Determine total surplus at the end of the fiscal year. The total surplus shall
consist of premiums and compensation less marketing, administrative, and
operating expenses and the necessary technical allocations.
d. Determine the net surplus. The net surplus shall be arrived at by adding to,
or subtracting from, the total surplus, the insured parties’ investment return
share after calculating the insured parties’ earnings and subtracting what
they owe in expenses realized.
e. Distribute net surplus. This is carried out by distributing 10 percent directly
to the insured parties or by reducing their premiums for the following year
and carrying over 90 percent to the shareholders’ income list.
f. Carry over net shareholders’ income to the financial position list within
shareholders’ equity.
g. Allocate 20 percent of net shareholders’ income as a statutory reserve until
the total reserve reaches 100 percent of paid-up capital.
3. SAMA’s prior written approval of the method and time for distributing the
remaining profits to shareholders must be obtained.
Accounting Records and Books
Article 71
A company must keep accounting records and books for each insurance branch
separately according to the following:
1. Policy Issuance Record. It must include the following:
a. Insurance policy number and issuance date.
b. Date of the start and end of insurance.
c. Name and address of insured party.
d. Subject of the insurance.
e. Type of risk.
f. Insurance sum.
g. Premiums paid.
38
h. Amendments to the policy.
i. Any other data which the company deems appropriate to add.
Article 72
2. Claims and Compensation Record. It must include the following:
a. Card number and date.
b. Policy number and insurance period.
c. Name of insured party.
d. Date, location, and type of accident.
e. Estimated allocation for claims; and amendments to the allocation.
f. Value and date of compensation payment.
g. Claims that have been closed and the reasons for closing them.
h. Claims under settlement.
i. Disputed claims and measures taken regarding them.
j. Refunded compensation from third parties or from the sale of scrap metal, or
any other refunds, excluding refunds from reinsurers.
k. Any other data which the company deems appropriate to add.
3. Reinsurance Record. It must include the following:
a. A record of agreements, including: reinsurance agreements and optional
reinsurance agreements concluded by the company with insurance and
reinsurance companies. Each agreement’s duration, amendments, absorptive
capacity, and type must be stated separately, including the names and shares
of reinsurers, the retention percentage of the company regarding each
insurance branch, a summary of the terms of the reinsurance agreement, and
any other information on the agreement which the company deems
important.
b. Assignment statements concerning reinsurers.
c. Record of compensations of reinsurers’ share of paid and outstanding
claims.
4. Record of Insurance Underwriting Results for Each Insurance Branch.
39
5. Professional Entities Record. It must include the professional’s name,
registration number, duration of contracts, nature of the agreement, and any other
data which the company deems appropriate to add.
Statements and Reports
Article 73
A company or professional entity shall furnish SAMA with the statements and
information that SAMA requires to effectively supervise their activities according to
the guide formulated by SAMA.
Article 74
1. A company or professional entity must submit to SAMA financial lists audited by
a certified accountant licensed in Saudi Arabia within 90 days of the end of the
company’s fiscal year. The financial lists shall, as a minimum, include the income
account statement, financial position statement, and cash flow statement.
2. A company or professional entity shall submit, to SAMA, the certified
accountant’s report and financial lists within 90 days of the end of the company’s
fiscal year for approval before publication.
3. A company or professional entity shall request that the auditors submit the
management’s letter to SAMA before the financial lists are published.
Article 75
An insurance broker and insurance agent must submit the following statements and
reports to SAMA:
1. Semi-annual statement of all operations brokered for underwriting and the
premiums collected through the insurance broker or agent.
2. A semi-annual detailed statement of the companies’ premiums.
3. A semi-annual detailed statement of the commissions and fees collected from
companies.
40
Cessation of Activity and Withdrawal of License
Article 76
1. A company or professional entity wishing to terminate its activity in Saudi Arabia
completely or in one or more insurance branches must submit a written request to
SAMA. The following statements shall be attached to the request:
a. The reasons for the termination of activity.
b. Proof that the company or entity has completely cleared its obligations
resulting from insurance policies issued by or through it, or proof that it has
established adequate allocations to pay its obligations, or that it has
transferred these policies to a company or entity that is similar to it.
c. The text of the announcement scheduled to be published in two domestic
newspapers, which shall state that the company or entity has resolved to
terminate its activities completely in one or more insurance branch, and that
policy holders, beneficiaries, and concerned parties must submit their
objections to the termination of activity to SAMA within three months of the
announcement’s publication.
2. Activity may not be terminated without SAMA’s prior written approval.
Article 77
1. SAMA may demand the withdrawal of the license of a company or professional
entity in the following cases:
a. The company or entity does not engage in the activity for which it is
licensed for a six-month period.
b. The company or entity does not fulfill the requirements of the law or rules.
c. SAMA finds that an applicant has deliberately falsified information or made
incorrect statements.
d. SAMA finds that the rights of insured parties, beneficiaries or shareholders
are subject to loss due to the method used to engage in activity.
e. The company or professional entity becomes bankrupt and thus unable to
fulfill its obligations.
f. The company or professional entity engages in activity that involves
deliberate fraud and deception.
g. The capital [of the company or entity] dips below the established minimum,
or the company [or entity] fails to comply with Article 68.
41
h. Insurance activity in the insurance branches dips below what SAMA regards
as an effective performance level.
i. The company unlawfully refuses to pay claims owed to beneficiaries.
j. The company or professional entity prevents an inspection team assigned by
SAMA from inspecting records.
k. The company or professional entity refrains from executing a final judgment
issued in an insurance dispute.
2. If the license of a company or professional entity is withdrawn, or the company
or professional entity stops engaging in activity without its license being withdrawn,
the beneficiary files held by the company or entity shall be transferred to another
licensed company or entity selected by the beneficiaries after obtaining SAMA’s
prior written approval.
3. SAMA shall supervise the settlement of outstanding insurance policies if activity
is prohibited, or there is a cessation of activity, or if a license is withdrawn.
Qualification and Training
Article 78
A company or professional entity must train its employees in the activities relating
to the insurance business.
Article 79
SAMA shall establish the minimum requirements for the instructional courses that
must be attended and the passing grade required on the qualifying test for
professionals.
General Provisions
Article 80
The staff of a company or professional entity must be at least 30 percent Saudi by
the end of its first year. This percentage shall increase annually according to the
operating plan submitted to SAMA.
Article 81
A company or professional entity may not use marketing advertisements concerning
its prices or position that are inaccurate or misleading to the public. When
42
advertising its products, a company shall not damage the interests of other
companies or deal with their products.
43
Article 82
No person may form an independent or internal retirement program, a mutual
insurance fund, or a corporate entity for self-insurance without SAMA’s prior
written approval.
Article 83
The instructions needed to apply supervisory and control requirements to the
insurance sector shall be issued by decree of the Governor.
Article 84
One or more technical committees may be formed by decree of the Governor to
develop the insurance sector.
Article 85
These rules shall enter into force upon being published in the Official Gazette.
SAMA shall review them and recommend amendments to them every three years or
whenever an amendment is required.
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Table No. 1
Investment
Instruments
Percentage
Permitted to
General Insurance
Deposits with domestic banks
Real estate in Saudi Arabia
Minimum of 20
percent
Minimum of 20
percent
Maximum of 10
percent
Maximum of 10
percent
Maximum of 5
percent
Maximum of 5
percent
Maximum of 5
percent
Maximum of 5
percent
0
Loans secured by real estate
0
Loans for policy holders guaranteed by
policies
Other investments
0
Government bonds
Investment funds in riyals
Investment funds in foreign exchange
Foreign government bonds
Bonds issued by domestic companies
Bonds issued by foreign companies
Stocks
Maximum of 15
percent
Percentage
Permitted to
Protection and
Savings Insurance
Minimum of 10
percent
Minimum of 10
percent
Maximum of 15
percent
Maximum of 10
percent
Maximum of 5
percent
Maximum of 5
percent
Maximum of 5
percent
Maximum of 15
percent
Maximum of 5
percent
Maximum of 5
percent
Maximum of 5
percent
Maximum of 15
percent
45
Table No. 2
Type of Asset
Real estate is valuated by three real estate
offices licensed within the most recent
fiscal year, and the average is taken:
- Regarding protection and savings
insurance companies
- Regarding general insurance companies
Securities issued by a joint-stock company
registered in the Saudi financial market
Securities issued by a joint-stock company
not registered in the Saudi financial market
Domestic government development bonds
Government bonds issued by class-A
countries
Bonds issued by a non-governmental
financial institution
Deposits with any financial institution
licensed to operate in Saudi Arabia
Any loans included in a permitted
insurance policy
Future receivables from financial
derivatives
Reinsurance balance
Any unguaranteed sums owed by
individuals
Cash on hand
Cash in banks
Income and revenues owed
Deferred commissions
Expenses paid in advance
Premiums owed within 90 days to general
insurance companies
Premiums owed to protection and savings
insurance companies
Tangible assets such as office furniture,
equipment, cars, computers, etc., excluding
pieces of art and rare pieces
Intangible assets, such as good will,
establishment expenses, registered mark,
etc.
Loans or personal benefits for employees
and managers
Treasury shares pertaining to the company
Permitted
Percentage
5 percent
0
5 percent
1 percent
100 percent
100 percent
5 percent
10 percent
5 percent
1 percent
100 percent
5 percent
1 percent
100 percent
2.5 percent
100 percent
2.5 percent
100 percent
100 percent
2.5 percent
0
0
0
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Table No. 3
Insurance
Type
Health insurance
Vehicle insurance
Fire insurance
Transportation insurance (third-party
liability insurance)
Other types of insurance (third-party
liability insurance)
Engineering insurance
Marine insurance (boats, goods)
Aircraft insurance
Energy insurance
Other types of insurance excluding
protection and savings
Acceptance of optional and consensual
reinsurance for all insurance branches
Relative
Coefficient
16 percent
20 percent
16 percent
30 percent
30 percent
30 percent
30 percent
30 percent
30 percent
16 percent
30 percent
47
Table No. 4
Insurance
Type
Health insurance
Vehicle insurance
Fire insurance
Transportation insurance (third-party
liability insurance)
Other types of insurance (third-party
liability insurance)
Engineering insurance
Marine insurance (boats, goods)
Aircraft insurance
Energy insurance
Other types of insurance excluding
protection and savings
Acceptance of optional and consensual
reinsurance for all insurance branches
Relative
Coefficient
24 percent
25 percent
20 percent
35 percent
35 percent
30 percent
30 percent
30 percent
30 percent
20 percent
50 percent
48