New legislation to authorize the Saudi Arabian Monetary Agency (Sama) to supervise the licensing and organization of cooperative insurance companies in Saudi Arabia will come into effect on November 20 2003. At present, insurance is an area of the Saudi Arabian economy in which foreign investment is forbidden. It is widely believed, however, that with the passage of the Insurance Law, it will soon become permissible for foreigners to invest in the industry in Saudi Arabia.
While the sale of insurance is not forbidden, licences to engage in the insurance business have historically not been available. Under the Insurance Law, new insurance companies must operate as cooperative insurance companies and adopt terms and conditions similar to those contained in the Articles of Association of the National Company for Co-operative Insurance (NCCI). NCCI was set up by Royal Decree, is owned by several governmental organizations and is organized on cooperative principles that are considered acceptable under Islamic law (for example, shareholders do not earn any profits and all profits are instead distributed to policy holders).
As with locally licensed banks in Saudi Arabia, any company seeking to engage in insurance activities must be organized as a joint stock company and must obtain a royal decree after approval by the Council of Ministers. Each insurance company will be required to allocate at least a fifth of its annual profits to a statutory reserve until the reserve is equal to the paid-in capital. The Insurance Law requires minimum paid-in capital of SR100 million ($26,686) for insurers and SR200 million for reinsurers.
It is believed that over 70 insurance companies now sell insurance in Saudi Arabia without the benefit of a formal licence. Foreign insurance companies have long been able to operate effectively in Saudi Arabia through agency agreements with Saudi nationals. Sama is now also authorized to set the terms and conditions for: insurance brokers, actuaries, surveyors, insurance consultants and specialists in settling insurance claims. It is believed that Saudi Arabia will no longer tolerate insurance companies operating in Saudi Arabia solely through the sponsorship of local brokers.
Stephen Matthews and Nabil Issa