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  • Rules for Licensing and Supervision of Branches of Foreign Insurance and/or Reinsurance Companies in Saudi Arabia

    The Saudi Arabian Monetary Authority has issued the following Rules according to the Governor's Decision number (18/440) dated 10/04/1440H based on the powers vested to him by the Cooperative Insurance Companies Control Law promulgated by Royal Decree No. (M/32) dated 02/06/1424H (corresponding to 31/07/2003), amended by Royal Decree No. (M/30) dated 27/05/1434H (corresponding to 08/04/2013), and its Implementing Regulation issued by the Cooperative Insurance Companies Control Law,

    • Article One

      The Cooperative Insurance Companies Control Law and its Implementing Regulation, as well as SAMA's Instructions shall govern whatever is not provided for therein.

    • Article Two

      These Rules have been issued in both Arabic and English languages. In the event of a discrepancy between the two languages, the Arabic text shall prevail over the English text.

    • Article Three

      Definitions: The following terms and phrases, wherever mentioned herein, shall have the same meaning assigned thereto, unless the context otherwise requires:

      3.1 Law: Cooperative Insurance Companies Control Law promulgated by Royal Decree No. (M/32) dated 2/6/1424H (corresponding to 31/7/2003), amended by Royal Decree No. (M/30) dated 27/05/1434H (corresponding to 8/4/2013).
       

      Implementing Regulation: the Implementing Regulation of Cooperative Insurance Companies Control Law issued by Decision of the Minister of Finance No. (1/596)dated 01/03/1425H (corresponding to 20/4/2004).

      3.3 SAMA: the Saudi Arabian Monetary Authority.

      3.4 Rules: the Rules for Licensing and Supervision of Branches of Foreign Insurance and/or Reinsurance Companies in Saudi Arabia.

      SAMA's Instructions:

      shall include any regulations, rules, instructions and circulars issued by SAMA.

      3.6 Applicant: a foreign Insurance and/or Reinsurance company submitting a licensing application to open a Branch in Saudi Arabia according to these Rules.

      3.7 Company: a foreign Insurance and/or Reinsurance Company that is licensed to open a Branch in Saudi Arabia.

      3.8 Branch: the branch of the foreign Insurance and/or Reinsurance Company
      licensed to operate in Saudi Arabia.

      3.9 Company's Contribution:

      the amount deposited by the Company in the Branch's account in order to conduct its business in Saudi Arabia, as specified in Article (14) of these Rules.

      Deposit: A percentage from Company's Contribution that every foreign insurance and/or reinsurance Company must deposit in a licensed Saudi bank to the order of SAMA as specified in Article (14) of these Rules, to be licensed according to the Rules.

      Senior Managerial Roles:

      persons responsible for managing daily operations of the Branch, and proposing and executing strategic decisions, such as Chief Executive Officer (CEO) and his/her delegates and the Chief Financial Officer (CFO).

      The rest of the terms and phrases used in these Rules shall have the same meaning as defined in the Implementing Regulation.
       

    • Article Four

      SAMA shall assess whether the Applicant as a whole will satisfies the requirements for licensing, particularly the following:

      4.1SAMA shall assess all circumstances of the Applicant and not just those of the proposed Branch in Saudi Arabia.
      4.2In conducting its assessment, SAMA will take into account all relevant matters, including but not limited to the nature and extent of regulation and supervision to which the Applicant is subject to in its home country, and the extent to which the home country supervisor authority is cooperative with SAMA in exchanging relevant information in connection with the Applicant.
      4.3SAMA will liaise with any home country supervisory authority and take into account any information received from such authority with respect to the Applicant, including the adequacy of its resources and its suitability for licensing, having regard to the need to ensure that the Applicant's affairs are conducted in a sound and prudent manner.
      4.4SAMA will not license the Applicant to open a Branch
      practicing insurance and/or reinsurance business in Saudi Arabia without: 
        4.4.1Confirmation from the home supervisory authority that the Applicant is currently licensed to carry out the same proposed line of insurance business in its home jurisdiction, and has been writing the same line of business for the past three years.
        4.4.2Confirmation from the home supervisory authority that the Applicant is solvent and meets all regulatory requirements in its home jurisdiction
        4.4.3Undertaken from the  Applicant that he meets the solvency requirements that would apply if the Applicant were based in Saudi Arabia.
        4.4.4Confirmation from the Applicant that the paid up capital of the Applicant is equal to, or more than, the amount required for a Saudi established insurance and/or reinsurance company.
        4.4.5Undertaken from the Applicant that the Branch will not engage in any activities other than insurance and/or reinsurance activities for which it is licensed by SAMA, unless those activities are necessary or complementary for such activities.
        4.4.6Confirmation from the Applicant that SAMA may exchange and share relevant supervisory information with the Applicant's home supervisory authority at the time of licensing and after licensing.
        4.4.7Undertaken from the Applicant that the Branch will operate in accordance with the Law and its Implementing Regulation as well as SAMA's Instructions and other related laws.

    • Article Five

      SAMA will not license a Branch of an Applicant to operate in Saudi Arabia unless:

      5.1The Branch maintains a legal and physical presence and full infrastructure in Saudi Arabia appropriate to the nature and scale of its activities in Saudi Arabia.
      5.2The Branch establishes appropriate management and accounting procedures in Saudi Arabia similar to what is required from local companies, and to the extent applicable to the Branch nature, which will enable the preparation of its accounts concerning its business carried out in Saudi Arabia, in addition to keeping all necessary records for this business within Saudi Arabia.
      5.3The board of directors of the Company is ultimately responsible for the Branch business. However, the Company shall form a committee of at least three members, after they get SAMA's prior non-objection on their appointments, in order to oversee the Branch business. This committee shall be treated the same as a board of directors in a local insurance and/or reinsurance company with regard to its responsibilities and obligations, and it shall annually hold a number of meetings in Saudi Arabia in a manner that is similar to that of local company's board of directors.
      5.4A general manager of the Branch, who is resident in Saudi Arabia, is appointed and authorized to act on behalf of the Applicant and to accept any document on behalf of the Applicant.
      5.5All Senior Managerial Roles in the Branch are occupied by designated individuals resident in Saudi Arabia and approved by SAMA.

    • Article Six

      An Applicant must submit an application to SAMA containing the following:

      6.1With respect to the Applicant's business as a whole:
        6.1.1Completed licensing application.
        6.1.2Memorandum of Association.
        6.1.3Articles of Association.
        6.1.4Organizational structure.
        6.1.5Commercial Registration
        6.1.6The Applicant's board of directors' decision for opining a Branch in Saudi Arabia.
      6.2With respect to the Branch's operations:
        6.2.1Five-year business plan that includes the following, as a minimum:
          6.2.1.1Classes of insurance and/or reinsurance that will be undertaken by the Branch.
          6.2.1.2Projected costs and financing to start the Branch's operations.
          6.2.1.3Projected underwriting growth taking into consideration solvency margin requirements.
          6.2.1.4Annual cost based on projected growth rate.
          6.2.1.5Projected financial statements related to the growth rate.
          6.2.1.6Projected loss ratios and technical provisions by classes of insurance certified by a qualified Actuary.
          6.2.1.7Solvency projection.
          6.2.1.8Expected number of employees.
          6.2.1.9Ability to cede or accept reinsurance treaties for the classes the Branch intends to reinsure.
          6.2.1.10Marketing plan.
          6.2.1.11Branch expansion plan in Saudi Arabia.
          6.2.1.12Any agreements with external parties for the business of the Branch.
        6.2.2An irrevocable bank guarantee issued by a licensed Saudi bank, that covers the Company's Contribution referred to in Article (14) of these Rules for the order of SAMA, and which is automatically renewed until the Company's Contribution is paid.
        6.2.3A projection of world-wide premium income both gross and net of reinsurance ceded in each of the first five financial years following licensing and broken down between Saudi Arabia and elsewhere.
        6.2.4A summary of the reinsurance arrangements for the business of the Applicant written outside Saudi Arabia, including the Applicant's maximum retention per risk or event after all reinsurance ceded.
        6.2.5A statement showing the current margin of solvency of the Applicant, the required margin of solvency as per the regulations of the home supervisory authority, and the basis for the calculation of the required margin of solvency.
        6.2.6Financial statements of the Applicant for each of the last three financial years.
        6.2.7The rating of the Applicant's for the previous three years, from any international rating agencies, for example but not limited to:
          
      • Standard & Poor's;
          
      • A.M. Best;
          
      • Moody's;
          
      • Fitch;

    • Article Seven

      The Applicant shall pay SAMA the license application processing and issuing fee as stated in the Implementing Regulation for insurance and/or reinsurance companies.

    • Article Eight

      When studying an application to license a Branch of an Applicant, SAMA will pay close regard to the Applicant's activities elsewhere and how these activities are regulated. SAMA may consider reports produced by the IMF/World Bank, such as their Financial Sector Assessment Program (FSAP) for any particular country. If the Applicant is not regulated in any other country (e.g. some countries do not regulate reinsurance firms) or is regulated in a jurisdiction not substantially compliant with IAIS Core Principles or FATF standards, then the application can only be considered after exhaustive enquiries into the Applicant's shareholders, management structure and financial position.

    • Article Nine

      Taking into consideration the premiums retention percentage stated in the Implementing Regulation and/or SAMA's Instructions, the Branch shall ensure that its liabilities - excluding the reinsurance share- equals its assets in Saudi Arabia. There should be no transfer of money from the Branch to the
       

      Company unless it is under a service provision arrangement

      between the Company and the Branch that has been approved by

      SAMA, or retained profits shown in the annual financial position of

      the Branch, submitted to SAMA according to Article (15)of these

      Rules and after getting SAMA's approval, provided that the

      Branch is in compliance with the solvency margin requirements stated in the Implementing Regulation and SAMA's Instructions.

    • Article Ten

      The management of the invested assets of the Branch shall be carried out by its investment department, a licensed Saudi bank or Capital Market Authority authorised person. The Investment requirements provided in the Implementing Regulation and SAMA's Instructions shall apply to the Branch.

    • Article Eleven

      The SAMA fee of the total underwritten premiums for inspection and supervision stated in the Implementing Regulation shall be levied in respect of all business written by the Branch excluding local market share of the reinsurance business.

    • Article Twelve

       Surplus distribution stated in the Implementing Regulation and/or SAMA's Instructions shall apply to the Branch's business.

    • Article Thirteen

      The Branch shall calculate its solvency in accordance with the solvency requirements stated in the Implementing Regulation and SAMA's Instructions.

    • Article Fourteen

      Any Company, prior to commencing the Branch operations in Saudi Arabia shall place the Company's Contribution with the Branch, as a minimum of one hundred million Saudi Riyals for insurance and two hundred million Saudi Riyals for reinsurance. The statutory Deposit percentage shall be determined based on the Standard & Poor's classifications or their equivalent, for example but limited to, AM Best, Moody's or Fitch, as follows:

      RatingBranch Deposit
      AAA%10
      AA%20
      A%30
      Others%40 as minimum

      If a ratings downgrade occurs, the Company shall inform SAMA and deposit the balance of the Deposit corresponding to the lower credit rating within ninety (90) days of such downgrade. If the rating of the Company is upgraded, the Company may apply to SAMA to reduce the Deposit to an amount corresponding to such upgraded rating with the change taking effect one year from the rating upgrade. SAMA may in its sole discretion and at any time remove or add rating agencies when applying this Article and/or link the Deposit to different ratings classifications. 

      The statutory reserve stated in the Law shall be applied to the Branch up to the amount of the

      Company's Contribution under this article.

    • Article Fifteen

      SAMA requires the Branch to submit regular reporting forms in a similar format to those required for local insurance and/or reinsurance companies

    • Article Sixteen

      SAMA requires the Company to submit regular returns to demonstrate its solvency determined according to Saudi Arabian regulatory requirements. In addition, SAMA requires the Company to provide it with any decisions that affects the Branch business including, but not limited to, decisions related to the capital, solvency, and the board of directors. SAMA reserves the right to set out further requirements at its sole discretion.

    • Article Seventeen

      The Branch's gross written premiums shall not exceeds (10) times the Company's Contribution and its reserves, unless SAMA's prior written approval is obtained.
       

    • Article Eighteen

      The Company shall evaluate and ensure the adequacy of the technical provisions of the Branch on a quarterly basis. The Company shall remain ultimately liable for settling all policyholder obligations and other liabilities of the Branch. If required, SAMA may also deploy the Branch's Deposit stated in Article (14) of this Rules to settle the policyholders' obligations.