Saudi Arabia's Restricted Insurance Regulations: Capital Requirements and Prohibitions
In a regulatory move aimed at enhancing the efficiency of the financial sector and developing risk management tools in Saudi Arabia, the Insurance Authority the draft regulations for captive insurance companies through the "Istilaa" platform. This step is part of the Authority's efforts to complete the legislative framework for the insurance sector, in line with the objectives of the Financial Sector Development Program, one of the programs of the Kingdom's Vision 2030, to enable major economic entities to manage their risks more effectively.
Details of capital requirements and fees
The new draft regulations establish precise financial standards to ensure the solvency of companies. The regulations stipulate a minimum paid-up capital of SAR 5 million for first-category insurance companies, rising to SAR 15 million for second-category companies. This variation reflects the level of risk and the nature of the expected business for each category, thus providing companies with greater flexibility in establishing their own insurance entities.
Regarding fees, the regulations require applicants for a license to pay a non-refundable fee of 10,000 riyals for application review. Upon approval, companies in the first category and those in the second category are required to pay 30,000 riyals, in addition to an annual supervisory fee of 0.5% of the total premiums subscribed.
Ban on mandatory and long-term insurance
The Authority has established clear red lines to regulate the operations of these companies. prohibit restricted insurance companies from offering mandatory insurance, such as mandatory medical insurance or third-party motor vehicle insurance, and also prevent them from entering into long-term insurance contracts (protection and savings insurance). This prohibition aims to direct restricted insurance companies toward their primary purpose: covering the risks of the parent group or its affiliated entities, without competing with commercial insurance companies in general mandatory products.
Economic context and the importance of restricted insurance
"Restricted insurance" is an advanced financial instrument used by large commercial and industrial groups to establish a subsidiary that covers the group's risks instead of relying on traditional insurance companies. The importance of this structure lies in:
- Enhancing financial stability: by allowing large companies to retain and manage a portion of the risk internally, thus reducing the cost of external commercial insurance.
- Attracting investments: Providing a regulatory environment for restricted insurance encourages major international and local companies to establish their headquarters and financial centers in the Kingdom.
- Localization of expertise: Contributes to the development of national cadres specializing in the fields of actuarial underwriting and complex risk management.
Strict governance and oversight
The regulations emphasized the necessity of a robust governance structure, requiring companies to be headquartered within the Kingdom and to submit detailed three-year business plans encompassing underwriting and reinsurance strategies. The regulations also mandated the appointment of an external auditor and an actuary to ensure the accuracy of financial reports and technical reserves, along with the submission of quarterly and annual reports to the Authority to guarantee transparency and compliance.
These measures reflect the Insurance Authority’s commitment to building a robust and credible insurance market that protects the rights of policyholders (parent companies and related entities), while providing the necessary flexibility for the growth of the business sector in the Kingdom.
