1. Islamic Law
2. Islamic Contract Law
3. Statute Law
4. Investing in Saudi Arabia
5. Other Forms of Doing Business
6. Companies and Partnerships
7. Doing Business with Saudi Arabia
8. Competition Law
9. Electronic Transactions
10. Taxation
11. Banking
12. Capital Markets
13. Mergers and Acquisitions
14. Insurance
15. Real Estate
16. Intellectual Property
17. Employment Law
18. Environmental Laws
19. Dispute Resolution
20. Sovereign Immunity



The first Saudi Arabian legislation regulating insurance was enacted as the Control of Cooperative Insurance Companies Regulation, Royal Decree No. M/32 of 2nd Jumada Thani 1424 Hejra corresponding to 31st July 2003 Gregorian, which entered into force on 20th November 2003 and which became effective with the publication of its Implementing Rules on 23rd April 2004.

Under the new regime only Saudi-registered companies which are incorporated by Royal Decree as public joint stock companies, with a minimum paid-up capital of US$26.66 million for primary insurers and US$53.33 million for reinsurers, may provide insurance cover in the Kingdom, although pursuant to Royal Order No. 3120/MB of 13th April 2005 foreign insurers may establish branches in Saudi Arabia in accordance with rules which are currently being drafted. The legislation also regulates insurance brokers, insurance agents, insurance consultants, surveyors, loss adjusters and actuaries, who must be licensed to carry on business in Saudi Arabia.

The regulator is the Saudi Arabian Monetary Agency (SAMA), which has been given wide-ranging powers, including the licensing of insurance companies and insurance professionals, and policing and control of the Saudi insurance market. Insurers must be licensed by SAMA to write specific classes of business, which are broadly grouped as general insurance (including accident, liability, motor, property, marine, aviation, energy and engineering), health insurance, and saving and life insurance, or for two or more of these.

It is further required that Saudi insurers must operate on a cooperative basis. As a model for what constitutes cooperative insurance, the Regulation has pointed to the Articles of Association of state-owned National Company for Cooperative Insurance (NCCI), which insurance companies registered in the Kingdom are supposed to use as a blueprint for their articles of association. However, there is no detailed framework as to how cooperative insurance is to be conducted. Rather, within the regulatory framework the only real restriction on an insurer’s operations is the requirement to maintain separate profit and loss accounts for policyholders and for shareholders, and that there must be a distribution of part of the net surplus from the insurance operations among the policyholders. Therefore, it is open to insurers to write business essentially on a commercial basis, subject to the redistribution element on a semi-cooperative basis.

The insurance legislation places several restrictions on transnational transactions. Thus SAMA’s consent must be obtained:
01. Prior to a Saudi insurer associating with non-Saudi insurance funds;
02. Should Saudi insurers, brokers and agents wish to place cover with Lloyd’s or non-Saudi insurance companies;
03. If less than 30% of reinsurance is placed within the Kingdom.
The Implementing Rules also set out detailed guidelines concerning non-Saudi reinsurers with whom cover may be placed.

SAMA has wide-ranging powers of control concerning the management and finances of insurance companies. For example:
01. Board members and senior managers of insurance companies must be approved by SAMA.
02. Mergers and takeovers of insurance companies must be approved by SAMA.
03. Any change of ownership in a block of shares exceeding 5% must be notified to SAMA.
04. SAMA has the right to set minimum and maximum limits of cover and of premiums.
05. Retention of risk must not be below 30%, unless SAMA’s consent is obtained.
06. Cover must be provided on standard form policies, the terms of which must be approved by SAMA.

The Implementing Rules further set out details provisions governing legal deposits, the investment and valuation of assets, financial risk management, solvency margins, technical reserves and the distribution of profits. Unless SAMA’s approval is obtained, at least 50% of an insurance company’s assets must be maintained in Saudi Riyals, and not more than 20% of the assets may be invested outside of Saudi Arabia. The Implementing Rules provide a detailed table outlining the permitted investments and the investment limits for each category, and a table outlining the permitted limits for evaluation of assets for the purpose of determining the company’s solvency ratio.

The provisions of the Control of Cooperative Insurance Companies Regulation and its Implementing Rules are limited to setting out a regulatory framework. There is not at present a comprehensive code of rules governing insurance contracts generally. As far as health insurance is concerned, the Implementing Rules of the Cooperative Health Insurance Regulation, which were published in 2002, set out a detailed set of rules, while the Commercial Court Regulation of 1931 contains detailed, if somewhat archaic, provisions which govern contracts of marine insurance. In general, however, in Saudi Arabia the rights of parties to insurance contracts must be determined by reference to the wording of the policy, without reference to an underlying body of law.

*This Saudi Arabian Law Overview is not intended to be legal advice, and cannot be relied on as a substitute for legal advice. We make no representation that the contents of this Saudi Arabian Law Overview are or will remain accurate or current.
Copyright © Hatem Abbas Ghazzawi & Co.



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