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
Title
Page No.
Definitions..................................................................................................................................2
Objectives of the Law and Implementing Rules ........................................................................4
Types of Insurance .....................................................................................................................5
Conditions for Granting Licenses ..............................................................................................6
Rules for Conducting Business ..................................................................................................9
Effective Management .............................................................................................................13
Control and Supervision Procedures ........................................................................................13
Statutory Deposit .....................................................................................................................21
Investment ................................................................................................................................21
Asset Valuation and Solvency Margin ....................................................................................23
Technical Allocations (Reserves) ............................................................................................25
Equation for the Distribution of Surplus Stemming from Insurance Operations ....................26
Accounting Records and Books ...............................................................................................27
Statements and Reports ............................................................................................................29
Cessation of Activity and Withdrawal of License ...................................................................30
Qualification and Training .......................................................................................................31
General Provisions ...................................................................................................................31
Table No. 1...............................................................................................................................33
Table No. 2...............................................................................................................................34
Table No. 3...............................................................................................................................35
Table No. 4...............................................................................................................................36
_____________________________________
200402590
Translation from Arabic
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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.
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.
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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.
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.
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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:
1. Protecting the rights of insured parties and investors’;
2. Encouraging fair and effective competition and the provision of better insurance services
with competitive prices and coverage;
3. Strengthening the stability of the insurance market; and
4. Developing the insurance sector in Saudi Arabia, including training and 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:
I. General insurance
1. Accident and liability insurance, including:
a.
b.
c.
d.
e.
f.
g.
h.
i.
j.
k.
l.
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;
2. Automobile insurance: This insurance includes losses and liabilities related to
automobiles [vehicles], with the exception of transport risks.
3. Property insurance: This insurance includes losses resulting from fire, theft, explosions,
natural phenomena, riots, and any other insurance falling under this category.
4. Marine insurance: This insurance includes goods transported by sea, [structural damage
to] ships, liabilities, and any other insurance falling under this category.
5. Aviation insurance: This insurance includes aircraft bodies, liabilities to passengers and
others, goods transported by air, and any other insurance falling under this category.
6. Energy insurance: This insurance includes petroleum, petrochemical, and other energy
installations, and any other insurance falling under this category.
7. Engineering insurance: This insurance includes contractors’ risks, risks related to
construction, installation, electrical and electronic equipment, tool breakage, and any
other insurance falling under this category.
8. Other types of general insurance: This category includes any other types of general
insurance not mentioned above.
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II. Health insurance
This includes insurance for medical expenses, medicines, all medical and therapeutic services
and requirements, and management of medical programs.
III. Support and savings insurance
1. Support insurance: This includes insurance activities related to the effects of death and
permanent or temporary, partial or full disability, for individuals and groups.
2. Support insurance with savings: This includes insurance activities whereby the 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.
3. Other types of support and savings insurance: This category includes any other types of
support and savings insurance not mentioned above.
CONDITIONS FOR GRANTING LICENSES
Article 4
I. Insurance or reinsurance companies
A license application including the following shall be submitted to SAMA:
1.
2.
3.
4.
5.
6.
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:
a. Types of insurance the company intends to deal with and the related risks;
b. Capacity to assign or accept reinsurance contracts for the types of insurance policies
for which reinsurance is desired;
c. Marketing plan for the proposed products;
d. Projected expenditures for starting the activity and financial sources of the required
financing;
e. Projected growth rates for the activity, taking into account the solvency margin
requirements;
f. Projected number of employees and plan for hiring and training Saudi employees;
g. Annual expenditures based on projected growth rates for the activity;
h. Estimated financial statements based on projected growth;
i. Statement on the technical fundamentals of the intended insurance activities and
actuary’s certification that the fundamentals, specifications, and conditions of the
insurance activities are sound and implementable;
j. Plan for opening the company’s branches.
7. Any agreements with other parties outside the company.
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8. 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.
II. Professional entities related to insurance and/or reinsurance
A license application including the following shall be submitted to SAMA:
1.
2.
3.
4.
5.
6.
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:
a. Types of insurance the company intends to deal with;
b. Projected expenditures for starting the activity and financial sources of the required
financing;
c. Projected growth rates for the activity;
d. Projected number of employees and plan for hiring and training Saudi employees;
e. Annual expenditures based on projected growth rates for the activity;
f. Estimated financial statements based on projected growth;
g. Plan for opening the company’s branches.
7. Any agreements with other parties.
8. 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.
III. Professional individuals related to insurance and/or reinsurance
Any person who wishes to engage in any of the [related] professions must obtain a license
from SAMA upon meeting the following requirements:
1. Have obtained a university degree and at least five years’ experience in the field of
insurance, or a specialized professional certificate in insurance.
2. Have passed the approved examination for the profession in question or have 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
1. SAMA shall notify the applicant within 30 working days of the date on which the
application was submitted concerning any missing elements that are needed to complete
the application.
2. The applicant shall provide the missing elements within 30 working days of the date
SAMA’s notification; otherwise, the application shall be subject to cancellation.
3. SAMA shall notify the applicant of its decision to accept or reject the 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;
- SRls 500,000 for insurance consultants.
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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:
1. Develop a policy and internal procedures to combat economic crimes, including money
laundering.
2. Apply the “Know Your Customer” criteria.
3. Notify the Financial Investigation Unit in writing of any suspicious activities, in
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
1. Companies shall not do business with unauthorized professional entities or individuals,
and professional entities shall not do business with unauthorized professional individuals.
When business is conducted between the above-mentioned parties, they must sign a
contract.
2. Professional entities and individuals shall not provide any insurance services to
unauthorized companies. When providing insurance services to an authorized company,
they shall not cause damage to other companies or their products.
3. Companies and professional entities shall sign a contract with any person [individual or
legal entity] with which they do business.
Article 20
I. Companies shall appoint an actuary with the rank of associate or shall utilize the services
of an actuary, after obtaining the written approval of SAMA, who shall have the
following duties:
1.
2.
3.
4.
5.
6.
7.
8.
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.
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II. The actuary shall be professionally responsible for the consulting or other services he
provides to the company, and shall provide the company’s management with the
following, as requested by the company:
1. Accurate actuarial information and data on the current and future financial situation
of the company.
2. An annual report on the adequacy of the company’s technical allocations, within
60 days of the end of the fiscal year.
3. An annual report on the valuation of the company’s insurance products, within
60 days of the end of the fiscal year.
4. An analysis of the company’s return on investment.
5. An analysis of insurance portfolio development.
6. An analysis of expenditures.
7. The degree of consistency between assets and liabilities.
8. Positive and negative developments in the underwriting policy.
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.
III. The actuary’s report is one of the documents reviewed by the external legal 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:
a.
b.
c.
d.
e.
f.
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.
Article 26
Entities dealing in insurance and/or reinsurance brokerage shall comply with the following:
1. The must inform insured parties of any fees or commission they receive from the
company in exchange for their services.
2. They must first offer reinsurance opportunities to domestic companies and [only later to
foreign companies].
3. They shall not allow professional individuals employed by them to deal in both 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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4. The shall work in the best interest of their insured parties to ensure that they obtain the
best insurance offers and products available.
5. They shall explain the features of the insurance policy compared with other 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
1. Members of the board of directors and the executive directors of companies and
professional entities must be honest, knowledgeable in financial and insurance matters,
and must have the necessary experience to carry out their duties.
2. A member of the board of directors of a company may not be a member of the board of
directors of another insurance and/or reinsurance company.
3. SAMA may object to the election of any member of the board of directors or to 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:
1. Anyone who held such a position with a company that was liquidated;
2. Anyone who was removed from such a position with another company.
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:
1. Allow the appointed inspector to review the company’s records, accounts, and other
documents that he considers necessary to carry out his duties.
2. Provide the appointed inspector with the information and explanations he requests.
3. Declare any omissions or discrepancies in the company’s accounts to the appointed
inspector immediately before he begins his tasks.
4. Companies, professional entities, and their employees shall not conceal or attempt to
conceal any information or discrepancies, nor may they refuse to provide any
explanations requested by the appointed inspector.
5. Companies and professional entities shall comply with the recommendations 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
1. The company’s board of directors shall establish a Review Committee with at 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.
2. Companies shall be required to:
a. Establish an Internal Audit Department that is directly linked to the Review
Committee and whose director must hold a professional degree in this field.
b. Establish a department for systematic control or appoint an official 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 Committee on all compensation and claims paid for
which the technical standards for paying claims do not apply.
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Article 35
No one shall be permitted to:
1. Reveal any information obtained by performing any task related application of the Law
or its Implementing Rules, other than for official purposes.
2. Ask for or receive any personal benefit in exchange for performing any tasks 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:
1. Companies shall pay 0.5 percent of the total amount of premiums [for policies]
underwritten during the fiscal year, after deducting the share of the local market for
reinvestment.
2. Insurance and reinsurance brokers shall pay 1 percent of the total amount of 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 companies must
not exceed 45 days from the receipt of all necessary documents and the report of the
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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.
h. Price of insurance, premium amount, calculation principles, and commissions paid for
the policy.
- 20 -
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.
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.
- 21 -
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 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.
- 22 -
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 off-balance
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.
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.
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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 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.
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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.
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.
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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
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:
- 26 -
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:
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
- 27 -
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.
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.
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e. Type of risk.
f. Insurance sum.
g. Premiums paid.
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.
- 29 -
c. Record of compensations of reinsurers’ share of paid and outstanding claims.
4. Record of Insurance Underwriting Results for Each Insurance Branch.
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.
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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.
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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 advertising its
products, a company shall not damage the interests of other companies or deal with their
products.
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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
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
Real estate in Saudi Arabia
Loans secured by real estate
Loans for policy holders
guaranteed by policies
Other investments
Minimum of 20 percent
Percentage Permitted to
Protection and Savings
Insurance
Minimum of 10 percent
Minimum of 20 percent
Maximum of 10 percent
Maximum 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 5 percent
Maximum of 5 percent
Maximum of 5 percent
Maximum of 5 percent
0
0
0
Maximum of 15 percent
Maximum of 5 percent
Maximum of 5 percent
Maximum of 5 percent
Maximum of 15 percent
Maximum of 15 percent
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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
- 36 -
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