The Kingdom of Saudi Arabia has enacted legislative milestones for the insurance industry: the Cooperative Insurance Companies Control Law (promulgated by Royal Decree M/32, dated 2/6/1424 H) and its implementing regulations (issued by Ministerial Order 1/596, dated 1/3/1425 H) (the Insurance Law); and regulations permitting insurance companies to open branch offices.
Before the Insurance Law, the Kingdom's regulatory framework was devoid of any law governing the licensing and conduct of insurance business in the Kingdom. Insurance services were provided through the only licensed insurance company, the National Company for Cooperative Insurance (NCCI). When it was established 20 years ago, NCCI was wholly owned by Saudi government entities. Nevertheless, foreign insurance companies were able to effectively operate through agency agreements with Saudi nationals. The Saudi agents, however, were not licensed to conduct insurance activities by any Saudi government authority.
The Insurance Law establishes a new legal framework for regulation of the insurance industry in the Kingdom. Under the Insurance Law, insurance business in the Kingdom must be undertaken through a registered insurance company operating in a cooperative manner. The articles of association of the prospective insurance company must conform to those of NCCI and be in accordance with the principles of Islamic Sharia. No insurance or reinsurance company may be incorporated in the Kingdom without first obtaining a licence from the Saudi Arabian Monetary Agency (SAMA). Each insurance company must satisfy the licensing requirements stipulated in the Insurance Law with respect to, among other things, its corporate form (Saudi public joint-stock company), its management, and the offer of a portion of the company's shares to the Saudi public. The Insurance Law also permits foreign direct investment of up to 49% in the share capital of insurance companies.
With the entry into effect of the Insurance Law, SAMA directed existing insurance companies to either: (i) apply for a licence to conduct their insurance activities in accordance with the Insurance Law; or (ii) liquidate their insurance business and cease providing insurance services.
In June 2005, Royal Decree 3120/MB, dated 4/3/1426 H, was issued, permitting existing Saudi agents of foreign insurance companies to continue operating for three years, after which they must either apply for and obtain a licence to operate as an insurance company according to the Insurance Law, or liquidate their insurance business and exit the insurance market in the Kingdom. During the transitional period, foreign insurance companies (with Saudi agents) are allowed to continue their operations based on their current status without interruption, including the introduction of new products and new customer services.
Under Royal Decree 3120/MB, foreign insurance companies will be permitted to open branch offices in the Kingdom. SAMA will issue the relevant implementing regulations to accept licensing applications from foreign insurance companies wishing to open 100% foreign-owned branch offices in the Kingdom. These implementing regulations are expected before the end of this year and will contain the various requirements for the licensing of branch offices of foreign insurance companies.