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Financial Services Sector: Insurance Services

Trade In Services Benchmarking Study

Envision Consulting Group (EnConsult) Insurance Sub-Sector Benchmarking Study

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Table of Contents

1.0 RESEARCH ........................................................................................................ 1

1.1 PREVIOUS RESEARCH ........................................................................................ 1

1.2 CURRENT RESEARCH ........................................................................................ 1

2.0 SECTOR ANALYSIS .......................................................................................... 2

2.1 SECTOR CONTEXT ............................................................................................. 2

3.0 GENERAL BUSINESS ENVIRONMENT........................................................... 17

4.0 LEGISLATIVE AND REGULATORY ENVIRONMENT ..................................... 18

4.1 MEASURES RELATED TO DOMESTIC REGULATION ............................................... 18

4.2 MEASURES RELATED TO PROFESSIONAL QUALIFICATION .................................... 23

4.3 EFFECT OF MEASURES ON INTERNATIONAL PARTICIPATION IN THE MARKET .......... 24

5.0 GATS RESTRICTIVENESS MEASURES ......................................................... 24

5.1 GATS COMMITMENTS OF THE SECTOR/ SUB- SECTOR ........................................ 24

6.0 BENCHMARKING ............................................................................................ 26

6.1 COMPETITIVE STRENGTHS................................................................................ 28

6.2 COMPETITIVE WEAKNESSES ............................................................................. 28

6.3 POTENTIAL FOR GROWTH ................................................................................. 29

7.0 SWOT ANALYSIS ............................................................................................ 30

8.0 OPPORTUNITY SCAN ..................................................................................... 31

9.0 CONSTRAINTS TO DEVELOPMENT ............................................................... 31

9.1 CONSTRAINTS (FOR THE SECTOR INCLUDING BUT NOT LIMITED TO TECHNICAL,

EDUCATIONAL, INSTITUTIONAL, HUMAN SKILLS) BOTH IN TERMS OF SECTOR GROWTH

AND TRADE IN SERVICES ........................................................................................ 31

9.2 RELATED POLICY FACTORS .............................................................................. 32

9.3 SPECIFIC RECOMMENDATIONS FOR REMEDIAL ACTIONS ...................................... 32


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List of Tables TABLE 1: INSURANCE CONTRIBUTION IN GDP IN 2007 ................................................... 3

TABLE 2: INSURANCE CONTRIBUTION IN GDP FOR ARAB COUNTRIES ............................. 5

TABLE 3: SELECTED FIGURES FOR JORDANIAN INSURANCE COMPANIES FOR THE YEAR

2007 .................................................................................................................. 6

TABLE 4: SELECTED FIGURES FOR THE TOP JORDANIAN INSURANCE COMPANIES BY

SHAREHOLDERS' EQUITY ..................................................................................... 7

TABLE 5: SELECTED RATIOS FOR JORDANIAN INSURANCE COMPANIES FOR THE YEAR

2007 .................................................................................................................. 8

TABLE 6: SELECTED RATIOS FOR THE TOP 8 JORDANIAN INSURANCE COMPANIES FOR BY

MARKET SHARE .................................................................................................. 9

TABLE 7: SELECTED FIGURES FOR JORDANIAN INSURANCE MARKET 1999-2007 .......... 10

TABLE 8: CLASSES OF INSURANCE BUSINESS LICENSES PER CPC CODE ..................... 11

TABLE 9: TYPES OF LICENSES ISSUED TO INSURANCE COMPANIES .............................. 12

TABLE 10: THE CHARACTERISTICS OF THE SIX LARGEST INSURANCE COMPANIES IN THE

MARKET FOR LIFE INSURANCE: ........................................................................... 13

TABLE 11: CHARACTERISTICS OF THE SIX LARGEST INSURANCE COMPANIES IN THE

MARKET FOR NON-LIFE INSURANCE ..................................................................... 14

TABLE 12: TAKAFUL PREMIUMS OF ARAB REGION ....................................................... 15

TABLE 13: DEVELOPMENT AUXILIARY SERVICES PROFESSIONALS 2003-2007 .............. 16

TABLE 14: INSURANCE PREMIUMS PRODUCTION CHANNELS FOR 2007 ......................... 17

TABLE 15: THE LEGISLATIVE FRAMEWORK OF INSURANCE SECTOR .............................. 19

TABLE 16: GATS COMMITMENTS INSURANCE SUB-SECTOR ....................................... 25

TABLE 17: INSURANCE BENCHMARKING OF NEIGHBORING COUNTRIES ......................... 26

TABLE 18: MINIMUM CAPITAL REQUIREMENTS ............................................................ 27

TABLE 19: IC’S THREE –YEAR STRATEGY 2009-2011 ................................................. 28

TABLE 20: INSURANCE COMPANIES FACING PROBLEMS THROUGH LAST DECADE .......... 29

TABLE 21: SWOT ANALYSIS OF THE JORDANIAN INSURANCE SECTOR ......................... 30

FIGURES:

FIGURE 1: JORDANIAN INSURANCE MARKET STRUCTURE…………………...…4


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ANNEXES ANNEX 1: INSTRUCTIONS OF THE BASIS OF INVESTING THE FUNDS OF THE INSURANCE

COMPANY AND DETERMINING THE NATURE AND THE LOCATION OF THE INSURANCE

COMPANY’S ASSETS THAT MATCH ITS INSURANCE OBLIGATIONS .......................... 35

ANNEX 2: IC’S MAIN SOURCE OF FUNDS ...................................................................... 43

ANNEX 3: INSURANCE CORE PRINCIPLES (ICP) ........................................................... 44

ANNEX 4: SAMPLE INSURANCE COMPANIES AND OFFICIALS INTERVIEWED .................... 48

ANNEX 5: MANAGERS FROM THE FOLLOWING COMPANIES WERE INTERVIEWED ............. 49

ANNEX 6: LIST OF REGULATIONS, INSTRUCTIONS AND DECISIONS ISSUED FOR THE

INSURANCE SECTOR .......................................................................................... 50

ANNEX 7:. INSTRUCTIONS FOR GRANTING AND RENEWING THE LICENSE TO TRANSACT

INSURANCE BUSINESS ....................................................................................... 55

ANNEX 8: INSTRUCTIONS FOR OPENING A BRANCH OF AN INSURANCE COMPANY ......... 60

ANNEX 9: INSURANCE SERVICES, CPCPROV CODE 812 ............................................... 63

ANNEX 10: QUESTIONNAIRE ...................................................................................... 64


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List of Acronyms Accounting and Auditing Organization for Islamic Financial Institutions

AAOIFI

American International Group AIG

American Life Insurance Co. ALICO

Arab Union Reinsurance Co. AURe

Bahrain Insurance Association BIA

Central Bank of Bahrain CBB

Capital Market Authority CMA

Central Product Classification CPC

Financial Sector Assessment Program FSAP

General Agreement on Trade in Services GATS

Gross Domestic Product GDP

International Association of Insurance Supervisors

IAIS

International Accounting Standards Board

IASB

Insurance Commission IC

Insurance Core Principles ICP

Islamic Financial Services Board IFSB

International Monetary Fund IMF

Jordan Insurance Federation JIF

Memorandum Of Understanding MOU

Qatar Financial Center Authority QFCA

Qatar Insurance Platform QIP

Research and Development R&D

Syrian Insurance Company SIC

Syrian Insurance Supervisory Commission

SISC

Societe Tunisians d'Assurances et de Reassurances

STAR

Strengths, Weaknesses, Opportunities, Threats

SWOT

Third Party Administrator TPA

World Bank WB

World Trade Organization WTO


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1.0 Research 1.1 Previous research The previous research conducted on the Jordanian insurance sector was:

Assessment of Trade-in-Services of Jordan-Part II- Sector Assessment. The assessment time frame was October 2005-April 2006. The analysis was historical and descriptive of the sector during the period. Analysis of problems and related issues were presented in a cursory manner. In some sections of this paper, it was noticed that some information related to the recent development in insurance sector were not clearly stated, which could lead to erroneous conclusions.

Insurance Regulation in Jordan New Rules-Old System by Dimitri Vittas.1 This study analyzed the insurance sector up to the end of 2003. The main modernization process of establishing the Jordanian Insurance Commission (IC) in 1999 and related regulations were analyzed, and the major challenges that the sector faces in developing life insurance sub-sector was addressed. The study was part of the FSAP (Financial Sector Assessment Program) of Jordan; the author Mr. Vittas was a member of the assessment mission.

1.2 Current Research Under CPCProv utilized for this study; the services under consideration are:

1. 8140 – Services auxiliary to insurance and pension funding

81401 - Insurance broking and agency services

81402 - Insurance and pension consultancy services

81403 - Average and loss adjustment services

81404 - Actuarial services

81405 - Salvage administration services

81409 – Other services auxiliary to insurance and pension funding, such as: TPA (Third Party Administration in Health Insurance). Re-insurance Broking services.

Data collection difficulties occurred for Code 81212 -Pension and Annuity Services, which is defined as “Insurance underwriting services providing incomes (annuities) upon retirement according to contributions paid to pension schemes during economically active lifetime. Pension fund management services are included”. The difficulty arose because private pension schemes by the insurance sector have not been developed yet in Jordan to support existing public pension schemes (Social Security, Government Civil and Military Retirement). Pension fund management services, which were to be analyzed under Code 81212, are not placed under Insurance Commission supervision and control and as such are not included in the insurance sector in Jordan. Research employed for conducting the present study is as follows:

1 World Bank Policy Research Working Paper 3298, May 2004


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Since passage of the Insurance Act No. 33 of 1999, it is not permitted for new insurance companies to operate as a composite company, a company that offers both life and non-life insurance. This measure was taken in order for the Jordanian insurance sector to comply with best international standards. However, those companies that were operating as composite firms before the 1999 act are allowed to continue to operate as composite firms, offering both life and non-life policies..

Data collection activities for this study have focused on several specific areas:

1. Desk research and primary data acquisition from the Insurance Commission and other insurance-related professional and regulatory bodies.

2. The standard questionnaire was used in interviews with Insurance

Commission officials and key insurance experts working within the sector. However, with regard to services auxiliary to insurance and pension funding (Code 8140), another set of questions were determined as more relevant to the data collection process. Annex four details documentation of the interviews.

2.0 Sector Analysis 2.1 Sector Context There are twenty-nine insurance` companies operating in Jordan; only one company is licensed solely as a life insurance company (American Life Insurance Company ALICO- a foreign branch and member of American Insurance Group (AIG), ten are licensed as non-life companies, and eighteen are composite companies that are licensed as life and non-life carriers, a practice that is not longer permitted by law. Other important parties within the insurance sector are insurance supportive services (Auxiliary services). Figure 1 on the following page shows the structure of the Jordanian insurance market. As noted in the figure, there are no reinsurance companies operating in Jordan per se; however, local reinsurance (Retrocession)2, between local direct insurance companies is quite active in the market and retrocession is a practice utilized by all local companies. The Jordanian insurance sector has been one of the growing sectors in the country over the last decade. The total premium income for 2007 amounted to JD 291.6 million (US $ 411.9 million). 3Total gross premiums have been growing steadily over the last decade at an average of 15%, according to the Insurance Commission of Jordan (IC). This growth rate is promising, regardless of the fact that the insurance sector's contribution to GDP is very low compared to the world average: there is 2.6% penetration rate)4 in Jordan as shown in Table 1 below, compared to a world average of 9-10 percent.5

2 Re-insurance (Retrocession) is the re-allocation and distribution of the purchased risks of one insurance company

among other insurance companies within the local market 3 Insurance Commission data

4 Penetration rate; is the local Insurance contribution in the national economy; measured by the total insurance

premiums divided by the gross domestic production (GDP) 5 Insurance Commission data


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Table 1: Insurance Contribution in GDP in 2007

Type of Insurance Insurance Premiums Percentage % of GDP

Total Insurance Premiums 291.6 2.6

Total General Insurance 262.464 2.34

Motor Insurance

Marine & Transport insurance

Aviation Insurance

Fire & Other Damage to Property Insurance

Liability Insurance

Credit and Surety ship Insurance

Other General Insurance

Medical Insurance

129.99

20.39

3.268

42.201

6.506

0.784

7.438

51.887

1.16

0.18

0.03

0.38

0.06

0.01

0.07

0.46

Total Life- Insurance 29.18 0.26%

Source: Insurance Commission, Seventh Annual Report 2007

Total life-insurance contribution to GDP is very weak in Jordan, 0.26% out of 2.6% for the total insurance sector as shown above. This weak contribution, although affected by various factors, is primarily due to the historical unstructured balance of life and non-life insurance which weakens the life insurance sub-sector: Composite firms, grandfathered in under the 1999 law, still offer life and non-life policies and as a result, life insurance as a specialty has not develop thereby weakening the life insurance sub-sector. However, interestingly, the only foreign branch of ALICO that is specialized in life insurance and has garnered 60% of the Jordanian life insurance market, was developed in Jordan. Beyond the preponderance of composite firms in the market, as shown in Figure 1, other factors have contributed to the lack of specialization of the life insurance sub-sector over the last decade. The other factors would include perceived Islamic regional factors that prohibit the purchasing life insurance; the high cost of living within the Jordan relative to income which precludes access to income necessary for large numbers of Jordanians to purchase insurance policies; and the absence of income-tax exemption for paid life insurance premiums. All of these factors limit the sub-sector. However, when looking at the sector in total, the insurance penetration rate for Jordan is one of the highest among neighboring countries as shown in Table 2.

Figure 1: Jordanian Insurance Market Structure

Insurance Commission

Jordan Insurance Federation

Composite Companies

Jordan International Jordan French Jordan Insurance Islamic Insurance (Takaful) General Arabia Insurance National Insurance Middle East Insurance Arab Assurers Arab Life and Accident Insurance Arab German Insurance Jerusalem Insurance United Insurance Arab Jordanian Insurance Group Al Nisr Al Arabi Insurance Al Yarmouk Insurance Gerasa Insurance Delta Insurance Euro Arab Insurance Company

Non-Life Companies

Arab Union International Insurance Holy Land Insurance Al-Manara Insurance (Al-Waha) Arab Orient Insurance Al- Barakah Takaful Insurance Oasis Insurance Philadelphia Insurance Housing Loan Insurance First Insurance (Takaful) Mediterranean and Gulf Insurance

Life Companies

American Life Insurance (ALICO)

Insurance Supportive Services

Agents 426

Reinsurance Brokers 4

Brokers 56

Actuarial Services 13

Loss Adjusters 37

Insurance Consultancy 11

Health Third Party Administrators

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As shown in Table 2, which depicts the insurance contribution to GDP for Arab countries, the sector contribution in Jordan is far above that of the average rate of 1.3% of other Arab countries. Only the sector contributions in Lebanon, at 2.9%, and Morocco, at 3.0%, are slightly above Jordan (2.6%), due primarily to the existence of a market for life-insurance that is more developed than that of Jordan.

Table 2: Insurance Contribution in GDP for Arab Countries

Country 2005 2006

Morocco 2.9% 3.0%

Lebanon 2.9% 2.9%

Jordan 2.4% 2.6%

UAE 2.2% 2.2%

Tunisia 1.8% 2.0%

Palestine 1.6% 1.9%

Bahrain 1.9% 1.8%

Qatar 1.5% 1.4%

Oman 1.2% 0.9%

Egypt 0.9% 0.8%

Kuwait 0.8% 0.7%

Algeria 0.6% 0.5%

Saudi Arabia 0.5% 0.5%

Sudan 0.6% 0.5%

Mauritania 0.5% 0.4%

Syria 0.5% 0.4%

Libya 0.4% 0.3%

Yemen 0.3% 0.3%

Average 1.3% 1.3%

Source: Jordan Insurance Federation/ Department of Studies Training and Development.

There is potential for the development in the local insurance market toward increasing its contribution to the economy. However, growth would be dependent upon the IC taking a leading role in this regard through the implementation of their integrated three-year strategy6 and different annual policies and programs for a strong professional and regulatory framework that ensures that the insurance sector replicates international best standards. Tables 3 through 7 present important insurance indicators related to Jordanian insurance companies including financial, technical and statistical information for the year 2007. Table 3 shows selected financial and technical figures for the Jordanian insurance companies as of the year ended 2007. Taking the total investment indicator for each company we notice that ten largest local insurance companies as measured by total assets, and the only foreign insurance branch accounts for 64% of the total investments for the sector. The other indicators, shareholders-equity, and total premiums written for the same ten firms, accounts for 66%, 66%, and 60%respectively

6 IC Three Year Strategy 2009-2011


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Table 3: Selected Figures for Jordanian Insurance Companies for the year 2007

Insurance Company Total

Investments Total Assets

Technical Provision

Shareholders' Equity

Total Premiums Written In

Jordan

Gross Claims Paid In-Jordan

Net Profit before Tax

Arab German Insurance 12,159,129 39,815,787 8,203,401 11,242,924 22,971,779 28,534,163 1,192,626

Arab Jordanian Insurance Group 10,302,074 15,747,656 3,572,329 11,065,797 10,001,619 6,208,848 2,196,355

Al Nisr Insurance 24,228,757 28,450,949 7,959,371 17,778,963 11,577,833 7,259,713 2,784,718

American Life Insurance 76,084,572 80,779,959 48,400,293 28,227,731 17,368,355 7,393,732 6,215,433

Arab Orient Insurance 16,592,044 27,755,715 8,669,947 12,523,505 25,824,460 14,044,665 1,948,419

Oasis Insurance 2,857,815 4,327,014 2,783,770 -729,666 7,728,859 8,429,746 4,576,404

Euro Arab Insurance Group 11,218,607 16,399,646 5,758,826 7,476,389 10,891,861 7,606,277 1,773,335

Arab Assurers 10,233,540 18,223,367 4,297,301 9,245,424 10,631,528 7,985,455 1,246,825

Al- Barakah Takaful Insurance 8,377,378 9,899,246 2,404,519 5,457,203 4,546,586 4,046,908 601,876

Arab Life & Accident Insurance 17,810,955 25,758,171 11,842,538 10,272,188 14,192,8477 10,207,1468 1,365,906

Al Manara Insurance 17,298,281 18,755,736 2,832,079 14,723,582 2,910,827 3,420,677 5,322,662

Arab Union International Insurance 7,246,879 10,078,026 4,242,014 5,037,202 4,190,809 3,235,426 1,336,562

Delta Insurance 9,192,795 11,245,946 1,794,171 7,452,766 4,541,408 1,926,600 1,394,529

General Arabia Insurance 14,507,752 19,335,252 4,354,903 12,244,901 9,656,344 5,962,040 1,280,338

Gerasa Insurance 3,339,995 6,042,804 3,543,443 1,801,234 3,174,629 4,708,958 -644,068

Holy Land Insurance 6,284,347 8,715,566 3,241,819 3,444,408 5,541,746 3,880,691 172,035

Islamic Insurance 16,067,821 19,015,513 3,932,596 12,124,748 10,070,111 5,694,566 1,246,838

Jerusalem Insurance 14,082,101 18,527,357 7,123,385 9,216,596 10,217,435 6,512,720 2,060,674

Jordan French Insurance 5,326,246 20,707,079 8,896,459 3,445,875 15,880,226 15,536,915 2,607,608

Jordan Insurance 42,701,113 61,458,769 14,632,798 35,690,138 24,188,7629 11,146,87810 4,544,035

Jordan International Insurance 26,781,012 36,684,857 7,379,746 21,624,909 16,113,898 14,839,266 2,966,246

Middle East Insurance 58,763,146 66,285,046 8,942,752 39,601,120 18,767,569 10,101,073 4,385,045

National Ahlia Insurance 4,336,624 9,711,754 2,999,758 4,606,720 7,868,842 5,227,499 468,543

Philadelphia Insurance 6,011,811 8,192,692 3,145,980 4,579,284 3,590,833 3,309,843 322,316

United Insurance 13,762,832 18,636,007 3,683,115 12,312,858 7,830,430 6,918,181 396,083

AL Yarmouk Insurance 9,978,211 12,381,818 3,368,933 7,165,943 6,349,183 3,240,434 -220,221

Housing Loan 6,997,418 9,191,628 0 9,132,044 0 0 -867,956

Mediterranean & Gulf Insurance 9,791,158 14,069,879 964,844 10,095,730 5,020,175 182,251 132,279

Total 462,334,413 636,193,239 188,971,090 326,860,516 291,648,954 207,560,671 16,734,027 Source: Insurance Commission, Seventh Annul Report 2007

7 1,079,515 400,963 total premiums, gross claims paid outside Jordan respectively 8 1,079,515 400,963 total premiums, gross claims paid outside Jordan respectively 9 9,664,092, 4,408,310 total premiums, gross claims paid outside Jordan respectively 10 9,664,092, 4,408,310 total premiums, gross claims paid outside Jordan respectively


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Table 4: Selected Figures for the Top Jordanian Insurance Companies by Shareholders' Equity

Insurance

Company

Total

Investment

Total

Assets

Technical

Provision

Shareholders

Equity

Total Premiums Written In

Jordan

Gross Claims Paid

In Jordan

Net Profit

before Tax

Middle East Insurance 58,763,146 66,285,046 8,942,752 39,601,120 18,767,569 10,101,073 4,385,045

Jordan Insurance 42,701,113 61,458,769 14,632,798 35,690,138 24,188,762(11 11,146,87812 -4,544,035

American Life Insurance 76,084,572 80,779,959 48,400,293 28,227,731 17,368,355 7,393,732 6,215,433

Jordan International Insurance 26,781,012 36,684,857 7,379,746 21,624,909 16,113,898 14,839,266 2,966,246

Al Nisr Insurance 24,228,757 28,450,949 7,959,371 17,778,963 11,577,833 7,259,713 2,784,718

Al Manara Insurance 17,298,281 18,755,736 2,832,079 14,723,582 2,910,827 3,420,677 -5,322,662

Arab Orient Insurance 16,592,044 27,755,715 8,669,947 12,523,505 25,824,460 14,044,665 1,948,419

General Arabia Insurance 14,507,752 19,335,252 4,354,903 12,244,901 9,656,344 5,962,040 1,280,338

Islamic Insurance 16,067,821 19,015,513 3,932,596 12,124,748 10,070,111 5,694,566 1,246,838

Arab German Insurance 12,159,129 39,815,787 8,203,401 11,242,924 22,971,779 28,534,163 1,192,626

Arab Jordanian Insurance Group 10,302,074 15,747,656 3,572,329 11,065,797 10,001,619 6,208,848 2,196,355

Arab Life & Accident Insurance 17,810,955 25,758,171 11,842,538 10,272,188 14,192,84713 10,207,14614 1,365,906 Source: Insurance Commission/ The Seventh Annul Report 2007

11 9,664,092, 4,408,310 total premiums, gross claims paid outside Jordan respectively 12 9,664,092, 4,408,310 total premiums, gross claims paid outside Jordan respectively 13 1,079,515 400,963 total premiums, gross claims paid outside Jordan respectively 14 1,079,515 400,963 total premiums, gross claims paid outside Jordan respectively


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Utilizing data from Table 3, Table 4 lists the top insurance companies in terms of shareholders equity. We noticed that those companies have also, the top total investment, total assets, and technical provision, total premiums, and gross claims paid. In terms of the net profit before tax, the picture is different; as we can see, some large companies like Jordan Insurance Co. recorded the high losses JD 4.5 million, where other much smaller companies listed in Table 3 recorded relatively high levels of net profits. Two of the insurance companies shown in Table 4 have branches outside Jordan; Jordan Insurance and Arab Life & Accident Insurance.

Table 5: Selected Ratios for Jordanian Insurance Companies for the year 2007

Company Insurance

Loss Ratio (1)

Operating Profit

Margin (2)

Retention Ratio

(3)

Return on

Assets (4)

Return on

Equity (5)

Market Share Gross

Premiums Written In Jordan (6)

Arab German Ins 85% 5% 58% 3% 11% 8%

Arab Jordanian Ins 65% 15% 74% 14% 20% 3%

Al Nisr Insurance 79% 13% 61% 10% 16% 4%

American Life Ins 45% 13% 94% 8% 22% 6%

Arab Orient Insurance 82% 5% 45% 7% 16% 9%

Oasis Insurance 135% -34% 53% -106% N/A 3%

Euro Arab Assurers 87% 9% 77% 11% 24% 4%

Arab Assurance 87% 12% 73% 7% 13% 4%

Al- Barakah Takaful 101% -35% 90% 6% 11% 2%

Arab Life & Accident 74% 4% 73% 5% 13% 5%

Al Manara Insurance 353% -111% 67% -28% -36% 1%

Arab Union International

99% -10% 80% 14% 27% 1%

Delta Insurance 70% 9% 34% 12% 19% 2%

General Arabia Ins 70% 7% 39% 7% 10% 3%

Gerasa Insurance 107% -26% 81% -11% -36% 1%

Holy Land Insurance 76% 2% 83% 2% 13% 2%

Islamic Insurance 76% 0% 66% 7% 10% 3%

Jerusalem Insurance 71% 14% 66% 11% 22% 4%

Jordan French Ins 92% -2% 65% -13% -76% 5%

Jordan Insurance 74% 7% 43% -7% -13% 8%

Jordan International Ins 88% 3% 74% 8% 14% 6%

Middle East Insurance 68% 10% 43% 7% 11% 6%

National Ahlia Ins 75% 13% 50% 5% 10% 3%

Philadelphia Insurance 85% -4% 82% 4% 7% 1%

United Insurance 86% -3% 67% 2% 3% 3%

AL Yarmouk Insurance 121% -2% 51% -2% -3% 2%

Housing Loan N/A N/A N/A -9% -10% 0%

Mediterranean & Gulf 67% -6% 26% 1% 1% 2%

Total 85% 3% 61% 3% 5% 100%

1- loss ratio (for non-life written premiums inside Jordan) = net claims cost/net earned premiums 2- Operating profit margin (for written premiums inside Jordan) = net technical profit/gross written

premiums. 3- Retention ratio (for written premiums inside Jordan) = net written premiums/ gross written

premiums. 4- Return on assets = net profit before tax/total assets 5- Return on equity = net profit before tax / shareholders' equity

Source: Insurance Commission/ the Seventh Annul Report 2007

Table 5 above shows selected financial and technical ratios of the sector. The most important technical ratios in the insurance industry are loss ratio and retention ratio: the average rates for the market are 85% and 61%, respectively. For an insurance company to make a profit, loss ratio should be less than 100%. Given that other factors are stable, such as the level of risk, size of capital, and re-insurance arrangements, the insurance company’s retention ratio is very important. Higher retention indicates that the firm is retaining more risk and consequently making more


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profit. If the insurance company is able to retain risk, the ratio would be higher with a higher profit margin assuming certain levels of claims paid. The retention ratio of the insurance industry in Jordan is relatively low at 61%. The low retention rate indicates that rather than retaining risk, the insurance agencies are acting as brokers: they receive commissions for policies and then resell them rather than holding the risk and managing the policy. In a technical view, to act as an insurance agency you should retain risk, handle it and receive the profit from the technical operation. When brokerage activities are predominate among firms, the firms receive quick commissions but do not contribute to increasing the profit of the sector. Ten insurance companies have retention ratios that are below the industry average in Jordan of 61%. Although these companies are small, compared to others in the market companies, their retention rates are not lower due to size but to an operational decision to broker policies. Local insurance companies need to improve their technical insurance operations to increase retention.

Table 6: Selected Ratios for the Top 8 Jordanian Insurance Companies for by Market Share

Company Insurance

Loss Ratio

Operating Profit

Margin

Retention Ratio

Return on

Assets

Return on

Equity

Market Share of

Gross Written

Premiums Inside Jordan

Arab Orient Insurance

82% 5% 45% 7% 16% 9%

Jordan Insurance 74% 7% 43% -7% -13% 8%

Arab German Insurance

85% 5% 58% 3% 11% 8%

Middle East Insurance

68% 10% 43% 7% 11% 6%

Jordan International Insurance

88% 3% 74% 8% 14% 6%

American Life Insurance (ALICO)

45% 13% 94% 8% 22% 6%

Arab Life & Accident Insurance

74% 4% 73% 5% 13% 5%

Jordan French Insurance

92% -2% 65% -13% -76% 5%

Source: Insurance Commission/ the Seventh Annul Report 2007

Utilizing the data in Table 5, Table 6 shows the top eight firms in terms of market share of written premiums which ranges from 5%-9%. The remaining companies that are shown in Table 5 have less than a 5% market share. Of the top eight, the highest retention ratio is 94% for the American Life Insurance Company (ALICO), the only foreign life branch; ALICO also has a good loss ratio of 45%. Two of the largest local companies, Jordan Insurance Company and Middle East Insurance Company, have only a 43% retention ratio.


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Table 7: Selected Figures for Jordanian Insurance Market 1999-2007

Items 1999 2000 2001 2002 2003 2004 2005 2006 2007

Total Investments 149.7 146.7 150.6 169.0 214.2 264.9 410.1 408.0 462.3

Total Assets 211.0 211.0 236.6 260.5 308.5 366.1 526.2 548.0 636.2

Technical Provisions 89.9 97.9 109.3 123.4 131.6 143.2 156.2 170.8 189.0

Shareholders' Equity

85.2 85.0 88.6 90.9 124.1 161.4 277.2 285.1 326.9

Gross Premiums Written In Jordan

99.8 104.2 120.4 146.9 171.5 191.4 219.3 258.7 291.6

Net Premiums Written In Jordan

62.8 64.3 76.5 94.0 114.2 126.9 139.3 158.1 179.3

Gross Claims Paid for Premiums written In Jordan

64.0 67.7 79.8 86.0 107.7 123.9 142.8 174.5 207.6

Net Profit before Tax

7.8 5.2 6.5 12.6 22.0 40.0 90.6 21.5 16.7

Solvency Margin 204.6% 231.6% 263.2% 289.1% 253.0%

Retention Ratio 62.9% 61.7% 63.5% 64.0% 66.6% 66.3% 63.5% 61.1% 61.5%

Loss Ratio (Non-life Insurance)

78.9% 80.8% 81.7% 75.8% 78.3% 78.5% 79.5% 85.1% 85.1%

Expense Ratio (Non-life Insurance)

24.3% 27.1% 24.6% 21.3% 13.3% 12.9% 13.7% 15.0% 13.4%

Return on Assets 3.7% 2.3% 2.7% 4.8% 7.1% 10.9% 17.2% 3.9% 2.6%

Return on Shareholders' Equity

9.1% 6.1% 7.3% 13.9% 17.7% 24.8% 32.7% 7.5% 5.1%

Technical Provisions/ Shareholders' Equity

105.5% 115.2% 123.4% 135.7% 106.0% 88.7% 56.4% 59.9% 57.8%

Total Investment /Total Assets

71% 66.4% 63.6% 64.9% 69.4% 72.4% 77.9% 74.5% 72.7%

Source: Insurance Commission/ the Seventh Annual Report 2007

Table 7 shows the trend of financial and technical insurance indicators over the last nine years. While the absolute values of most figures exhibit stable growth including net profit before tax, some important technical insurance ratios, like the retention ratio has been stable but at a low rate, in terms of industry standards, of +/- 60%. The low retention rate indicates that, and supplements the discussion above in terms of life insurance, that insurance companies are not developing as agency with all the inherent risks thereof, but rather act more as brokers, in which they pass the risk on and do not retain it. Additionally, the loss ratio (net claims cost/net earned premiums) increased from 78.9% in 1999 to 85% in 2007. The increase in loss ratio is considered a negative indicator; firms are making lower profit margins because of competition in similar products that are not markedly differentiated and the large number of companies operating in a very small market.


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Table 8 below depicts the types of insurance licenses available and their corresponding CPC/WTO classification.

Table 8: Classes of Insurance Business Licenses per CPC Code

CPC/WTO Code Reference Number15

License

81292 Motor Vehicle insurance services

1 Motor Insurance License

1681293 Marine, aviation and other transport insurance services

2 Marine and Transport Insurance License

3 Aviation Insurance License

81295 Fire and other property damage insurance services

4 Fire & Other Damage to Property Insurance License

81297 General liability insurance services

5 Liability Insurance License

6 Credit and Suretyship Insurance License

81296 Pecuniary loss insurance services

7 General Insurance License

81291 Accident and health insurance services

8 Medical Insurance License

81211 Life insurance and pension fund services

9 Life Assurance License


10 Marriage & Birth Assurance License

81212 Pension and annuity services 11 Annuities or Pension Assurance Insurance


12 Investment Linked Assurance License


13 Permanent Health Assurance License


14 Management of Group Pension Funds Assurance license


15 Additional Insurances


Table 8 compares the insurance license codes granted by the Insurance Commission with its equivalent CPC codes. There are some differences in coding between the two sources such as Credit and Suretyship Insurance License, which does not have an equivalent CPC code, and marine, transport and aviation licenses are grouped under one code. Experts interviewed for the study noted that It is important to have one code of insurance license as all related technical and financial reports, data, and statistics should follow one international code. In this regard International Association of Insurance Supervision is the international organization responsible for uniformity of these codes. The reference numbers given in Table 8 are utilized in Table 9 below.

15 Reference Numbers are applied in Table 7 16 WTO 81294 Freight insurance services is covered in License No. 3


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Table 9: Types of Licenses Issued to Insurance Companies

Insurance Company Types of Licenses Issued to Companies

Reference Numbers from Table 6 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15

Arab German Insurance √ √ √ √ √ √ √ √ √ √ Arab Jordanian Insurance Group √ √ √ √ √ √ √ √ √ √ Al Nisr Insurance √ √ √ √ √ √ √ √ √ √ American Life Insurance √ √ √ √ √ √ Arab Orient Insurance √ √ √ √ √ √ Oasis Insurance √ √ √ √ √ √ Euro Arab Insurance Group √ √ √ √ √ √ √ √ √ √ Arab Assurers √ √ √ √ √ √ √ √ √ √ Al- Barakah Takaful Insurance √ √ √ √ √ Arab Life & Accident Insurance √ √ √ √ √ √ √ √ √ √ √ Arabian Seas Insurance √ √ √ √ √ Arab Union International Insurance √ √ √ √ √ Delta Insurance √ √ √ √ √ √ √ √ √ √ General Arabia Insurance √ √ √ √ √ √ √ √ √ √ Gerasa Insurance √ √ √ √ √ √ √ √ √ √ Holy Land Insurance √ √ √ √ √ Islamic Insurance √ √ √ √ √ √ √ √ √ √ Jerusalem Insurance √ √ √ √ √ √ √ √ √ √ Jordan French Insurance √ √ √ √ √ √ √ √ √ √ √ Jordan Insurance √ √ √ √ √ √ √ √ √ √ Jordan International Insurance √ √ √ √ √ √ √ √ √ √ Middle East Insurance √ √ √ √ √ √ √ √ √ √ National Insurance √ √ √ √ √ √ √ √ √ √ Philadelphia Insurance √ √ √ √ √ United Insurance √ √ √ √ √ √ √ √ √ √ Al Yarmouk Insurance √ √ √ √ √ √ √ √ √ √ Housing Loan Mediterranean & Gulf Insurance



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Table 9 lists the types of licenses issued to insurance companies. Most of the insurance companies, both life and non-life have been licensed under all insurance classes of business. However the trend of operations for those classes varies from one company to another, for example some composite companies, while grandfathered in with a life insurance licensure, do not actually develop their life insurance portfolio. However, whether actively utilizing all licenses obtained from the Insurance Commission, the companies keep the licenses for future opportunities. Only two insurance companies are licensed for credit insurance (No.6), the third company has been out of the market. Seven insurance companies operate as non-life insurance companies and are licensed for all the non-life classes of business. None of the insurance companies are licensed for No.7, 10, 14, .Pecuniary Loss insurance services, Marriage & Birth Assurance License, and Life insurance and pension fund services, respectively.

Life-Insurance Table 10 below gives the characteristics of the six largest life insurance providers, out of the 17 that are licensed to provide only life insurance and are operating in the market. As shown below, the largest provider of life-insurance is the foreign branch and only non-composite firm, ALICO, with a market share of 45%. The other five firms are composite. The next to the largest company is Al-Niser Al-Arabi Insurance Company with a market share of 12.2%. The lowest market share is the 3.7% held by the Islamic Insurance Company. This table indicates the lack of development in the life-insurance sub-sector in Jordan. The domination of market share (45%) by a life specialized foreign branch is due basically to the absence of local competition in life insurance. All other life-insurance providers are composite companies with no intention of developing their life insurance portfolios. Even the only Takaful composite company,(Islamic Insurance Company, with a market share 3.7%, uses its life portfolio is to serve the Islamic bank housing loan portfolio: the Jordanian Islamic Bank is the main share holder of Islamic Insurance Company.

Table 10: The characteristics of the six largest insurance companies in the market for life insurance:

Name Year established

Sub sector Domestically owned equity

(%)

Foreign equity (%)

Share of total life insurance premiums(%)

American Life Insurance Co. (ALICO)

1958 Life insurance 0% 100% 45%

Al Niser Al-Arabi insurance Co.

1976 Composite 98.3% 1.7% 12.2%

Jordan insurance Co.

1951 Composite 81.4% 18.6% 11.7%

Arab Life & Accident Insurance Co.

1981 Composite 91.7% 8.3% 6.4%

Middle East Insurance Co.

1962 Composite 93.9% 6.1% 4.4%

Islamic Insurance Co.

1996 Composite, Takaful17

94.2% 5.8% 3.7%

Source: Insurance commission

17 Takaful insurance is a type of insurance that adheres to Islamic principles in terms of transparency, risk, and interest.


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Non-life Insurance Ten companies in Jordan are licensed to offer only non-life insurance. Table 9 below depicts the characteristics of the largest six providers of non life insurance, of which five are composites. The company possessing the largest non-life market share that operates as non-life only is Arab Orient Insurance. With market share of 9.8% this company is owned by a Jordanian bank, the Jordan Kuwait Bank of which the main shareholders are Kuwaiti nationals. From Table 10 and 11 we can see that the foreign equity exists in the Jordanian insurance market in differing percentages in most Jordanian companies

Table 11: Characteristics of the six largest insurance companies in the market for non-life insurance

Name Year of established

Sub sector Domestically owned

equity (%)

Foreign equity (%)

Share in total non-life

insurance premiums (%)

Arab Orient Insurance Co.

1996 Non-life 77.7% 22.3% 9.8%

Arab German insurance Co.

1996 Composite 67.2% 32.8% 8.4%

Jordan Insurance Co.

1951 Composite 81.4% 18.6% 7.9%

Middle East insurance Co.

1962 Composite 77.4% 22.4% 6.7%

Jordan International insurance Co.

1996 Composite 90.1% 9.9% 5.9%

Jordan French Insurance Co.

1976 Composite 92.5% 7.5% 5.7%

Source: Insurance commission data

Composite (life & non-life) Insurance Composite firms are represented in both Table 10 and 11 as they are allowed to offer life and non-life through a grandfather clause in the 1999 Insurance Act. As shown in Table 11, five of the top 6 companies in non-life insurance are also composite companies. Most other composite companies' and non-life companies' market share is on average less that 5%. This indicates the large number of small insurance companies operating in the market. Takaful Insurance Takaful insurance, roughly translated as “Joint Guarantee,” is Islamic insurance and adheres to Islamic principles. Takaful products are structured to remove three key elements not acceptable according to Islamic principles;

Contract of transparency (Al-Gharar) Other insurance companies may obscure the nature of their clients business and may be insuring prohibited activities that are not acceptable and not disclosed, for example, the insuring of a restaurant that sells alcohol.

Gambling or Game of Chance (Al-Maisir) Companies may have invested in stock market, which is considered speculation.

Interest income or Expense (Al-Riba) The Takaful Products offer similar benefits and features of traditional products.

In the Arab region, the use of Takaful insurance varies from one area to another. However the Arab area could be sub-divided into three main sections as shown in Table 12, where Jordan considered being within Arab Eastern countries, along with Syria, Palestine, Lebanon and Yemen.


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Table 12: Takaful Premiums of Arab Region (Million (US$)

Area/Countries18 2004 2005 2006Est 2006%

Arab African (1) 114.9 175 207.5 16.0%

Gulf Cooperation Council (GCC) (2) 770.2 928.6 1069.9 82.2%

Arab Eastern(3) 13.7 19.5 23.6 1.8%

Total Arab Area 898.8 1123.1 1301 100%

Total Global Premiums 3452.8 4431.4 5692

% of Global Product 26.0% 25% 23.0%

Source: Jordan Insurance Federation/ Dept. of Studies, Training and Development.

According to the information given in Table 12, the Arab eastern area accounts for only 1.8 percent of the total Arab region’s Takaful premiums in 2006, where the GCC countries accounted for 82.2 % or US$ 1069.9 million out of US$ 1301 million in total. It is interesting to note that total Arab Takaful premiums account for only 23% of the total Global Takaful premiums or US$1301 million out of US$ 5692 million. The highest share and growth of Global Takaful has been in non-Arab Islamic countries like Indonesia and Malaysia. Takaful insurance has been offered in the Jordanian insurance market only since 1996 with only one company operating; in 2005, a second insurance company which transferred its operation into General Takaful19 (Al-Barakah Takaful Insurance Company) and a third company was established late 2007, First Insurance Company, a non-life (General Takaful) with a new foreign investment from Gulf area. There is a trend in the Jordanian market for more existing insurance companies to transfer their operations into General Takaful, at least two other insurance companies, as discussed in different interviews conducted for this study, are looking into this venue. Also, new foreign investments from the Gulf area are expected to enter the Jordanian Takaful market within the next year. Local Reinsurance (Retrocession) The local reinsurance (retrocession) has been conducted in the Jordanian insurance market since the 1950s20 as a main element in raising the capacity of the local insurance market to insure different kinds of risk, especially high risk lines of business such as textiles, Jordan Petroleum Company, petrol stations and the national economic infrastructures such as telecommunications, electricity, phosphate, etc. The policies for these high risk enterprises cannot be insured by one company alone so the risk is distributed among the industry. The process works in this manner. For example, the electric company sends out a tender for insurance and 5 or 6 companies participate in the bid to provide the insurance; one is the leader and the rest of the companies share in the tender based on an agreement set forth with the members of the tender proposal. Those 5 or 6 companies retain a small portion of the policy (risk) and rest of the policy (risk) is resold. This is attempted locally, but if the risk can not be sold locally international reinsurance markets are contacted.

18(1) Arab Africans: Morocco, Tunis, Sudan, Egypt, Algeria, Mauritania and Libya. (2) Gulf Cooperation Council: UAE, Bahrain, Saudi Arabia, Kuwait, Qatar and Oman. (3) Arab Eastern countries: Jordan, Syria, Palestine, Lebanon and Yemen. 19 General Takaful is non-life insurance 20Jordan Insurance Federation interviews


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Auxiliary services (Insurance Supportive Services) Auxiliary services consist of seven insurance support services that are shown in Table 13 below. Auxiliary services in the Jordanian insurance market have been developed through out the last decade due to the regulatory framework that established the Insurance Commission of Jordan in 1999 and placed this component of the insurance sector is under its purview. Table 13 shows the development trend and growth of auxiliary services since 2003. As shown above, the largest percentage growth was in Insurance Consultancy which grew over 57% over the period. Actuarial Services grew over 30%, followed by insurance brokers at 22%

Table 13: Development Auxiliary Services Professionals 2003-2007

Auxiliary Service Professions

2003

2004

2005

2006

2007

Growth %

Insurance Agent 247 286 392 385 426 11%

Insurance Brokers 15 24 36 46 56 22%

Reinsurance Brokers - - 1 4 4 0%

Loss Adjuster 38 36 33 33 37 12%

Actuarial Services 17 6 6 10 13 30%

Insurance Consultancy - - 1 7 11 57%

Health Third Party Administrators - - - 10 11 10%

Source: Insurance Commission Annual Report 2007

Table 14 shows the insurance premiums for tight agents,21 brokers22, and bancassurance23 for the year 2007. Tight agent production accounts for the highest share, 16% or JD 46 million of JD 292 million, among the other production channels; brokers constitute 5% and bancassurance 0.4%. If we eliminate the motor premium production (car insurance) of tight agents (JD 27 million out of JD 46 million), the share of 16% would drop to 6.5% and the broker’s premium production would decrease to 2%.24 These conclusions indicate clearly how the contribution of insurance premiums production channels in the market is still very weak because the majority of auxiliary service premiums is related to car insurance. Production of car or motor premiums is very easy and straight forward and does not promotes agency. IC needs to take more steps to increase and strengthen those important production channels.

21A tight agent is an agent that can only be an agent for one insurance company 22The broker represents the client and can therefore deal with any insurance company 23 A commercial bank sells an insurance product. The bank would be a tight agent for a particular insurance company; however they are classified as bancassurance. 24 JD 12 million - JD 5.7 million /JD 292 million


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Table 14: Insurance Premiums Production Channels for 2007

Insurance license Tight agents Brokers Bancassurance

Life 4,335,456 579,090 1,043,793

Motor 27,322,815 5,682,243 271,123

Marine & Transport 2,450,871 1,008,296 0

Aviation 0 516,344 0

Fire & Other Damage to Property 4,471,325 1,157,542 0

Credit and Surety ship 0 0 0

Others 712,288 482,018 9,501

Health 6,751,075 2,743,102 0

Total 46,043,923 12,168,637 1,324,418

Source: Insurance Commission Annual Report 2007

3.0 General Business Environment Certain economic activities, like investment in undeveloped land and developed property registered the highest rate of growth and development over the last decade, both on the domestic level and in terms of foreign investment from primarily the Gulf area. The Jordanian insurance sector is directly and positively affected by these developments, as insurance is essential to maintaining the stability and security of these investments by covering any risk that these investments may face. The effect and evidence within the insurance sector is noted by a steady growth of insurance premiums on an average of 15% over the last few years, according to the Insurance Commission25. On the International level, the Jordanian insurance sector has also been affected negatively in certain areas. Two important examples can be noticed in this regard: 1. The events of September 11, in the USA caused many problems for the Jordanian insurance sector regarding the high cost, terms, and conditions of re-insurance packages that the local insurance market obtains from international re-insurance markets. As mentioned above, there are no Jordanian re-insurance companies currently operating in the market26. Leading insurance groups started to raise their prices of re-insurance and institute tight terms and conditions after 9/11. The result was that local insurance companies had difficultly obtaining re-insurance coverage from those leading groups and local companies were forced to obtain re-insurance coverage form other sources. As a result, unsecured insurance companies started to enter the local market. Local companies sold to unsecured reinsurance companies to keep their retention rates low so most of those premiums went to the international re-insurance companies and was not held domestically. For example if a local company sells 97% of policy with a 100JD premium to an international re-insurance firm, 3JDs of the premium stays in Jordan but 97 JD goes to the international market and does not help the local economy.

25 Interviews at the insurance commission 26By law Jordanian companies can be licensed for re-insurance however local insurance companies are not interested in the market because the re-insurance companies have to possess very high levels of capital (US$100,000,000 minimum capital requirement);.Moreover, the local market is very small. In re-insurance, one company buys risk from many among different markets regionally or around the world as compared to retrocession which is the pooling of local resources. Re-insurance is a cross border operation and companies have to be able to do business around the world.


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Based on interviews with insurance agents, brokers, reinsurance brokers, loss adjusters, insurance consultant, and health third party administrators (TPA), participants feel that while the IC passes down the required legislative rules for licensing auxiliary services according to the best international practices, local field practices, in most cases, are far below international standards with regard to the code of ethics and conduct, claims handling, and insurance technical knowledge. Moreover, efficient mentoring of regulations related to those services is

lacking.

2. The mortgage crisis that started in the USA four years ago has also affected

the sector as well. Foreign and local investors established a mortgage insurance company two years ago, during the real estate boom, that specialized only in the insurance of housing loans that Jordanian banks offered to individuals and corporations. The company was licensed by the IC with very high expectations that this line of insurance would develop on the local and regional level. Unfortunately, the company did not issue any insurance policies for the two years it was in existence. The company's license was cancelled in January 2009 by the IC, causing the loss of one of the insurance companies listed in Figure1, the Housing Loan Insurance Company (Darkom). The reason for the company not issuing a single housing loan insurance policy for two years can be attributed to the USA mortgage crisis coupled with a weak public awareness of the insurance market.

The setting up of new agencies or insurance brokerage firms lies within the purview of the Insurance Commission. The Companies Law does not apply to firms providing insurance and insurance service firms.

4.0 Legislative and Regulatory Environment

4.1 Measures related to domestic regulation Insurance Commission of Jordan (Regulator) In 1999, the government of Jordan passed the New Framework of Insurance Supervision, which accompanied the establishment of the Insurance Commission according to Insurance Regulatory Act No. 33 of 1999 and the amendments thereof. The IC has a corporate status and is financially and administratively independent. The Commission's main objectives are to protect the rights of the insured, improve the performance of the insurance companies and develop insurance products in the Kingdom. Since the establishment of the Commission, a number of pieces of legislation including regulations, instructions and decisions were issued pursuant to the

The sequence of these events allowed for non-internationally rated re-insurance companies to enter the Jordanian insurance market; providing the local market with un-secured re-insurance packages, which forced the Insurance Commission (IC) to issue a regulation, The Re-Insurance Arrangement Instruction No. (4) of 2002 (Re-insurance Instructions and the Amendment there of), .which regulates re-insurance arrangement that the local insurance companies have with international re-insurers. The Act required that all policies must be written and set forth procedures to document and in writing how the re-insurance will take place, and placed guidelines for which of the international rated insurance companies were allowed to operate in the market. In regards to tendering, the Act created written procedures of handling tenders for re-insurance required that companies must have made re-insurance arrangements before entering the tender, among others. This regulation has been the first of its nature on the regional level and has a position effect to get the international credit rating in three years time to maintain their market share of re-insurance in Jordan.


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Insurance Regulatory Act No. 33. These pieces of legislation regulate financial, corporate, and the market issues in accordance with the needs of the Jordanian insurance market and in keeping with recently developed international standards. The most important topics that the legislation covers is minimum capital of insurance and reinsurance companies, solvency margins, reinsurance, technical provisions, corporate governance, professional code of conduct and ethics, basis of investing the assets of insurance companies and regulating the business of insurance supporting services providers such as insurance agents and brokers, reinsurance brokers, loss adjustors, actuaries and administrating expenses and medical insurance services. The main source of IC funds is the annual fee payable by the insurance company, whereby the percentage shall not exceed 0.75 % of the gross written premiums. Annex No.2 shows the main sources of IC funding. The IC follows the rules of insurance supervision recommended by International Association of Insurance Supervision (IAIS), and the latter's Insurance Core Principles (ICPs) are integrated into IC regulations. The core principles are provided in Annex 3.

Most of the legislation issued by the Insurance Commission is posted on the IC’s website: www.irc.gov.io. The number of regulations, instructions and decisions are to numerous to list here, however a complete listing is provided in Annex 6. The table below provides the number of edicts issued over the period 1999, the date of establishment of the IC, to 2007 per the phases of the IC's chronological legislative framework.

Table 15: The Legislative Framework of Insurance Sector

Phases No. of

Regulations(1)

No. of Instructions(2)

No. of Decisions(3) Total

1st Phase 1999-2003

6 12 11 29

2nd Phase 2004-2006

1 17 28 46

3rd Phase 2007-To date

1 4 10 15

Total 8 33 49 -

(1) Regulations: Issued by the Council of Ministers upon a recommendation of IC. (2) Instructions: Issued by the Board of Directors of IC. (3) Decisions: Issued by the Director General of IC.

IC’s three-year strategy 2009-2011 points out that IC will develop its legislative framework up to the international insurance supervision practice, and be able to issue an average of six legislative instructions on a yearly basis. This would reflect the advanced and positive legislative environment that IC trying to accomplish within the next three years. However, as stated earlier, despite the number of pieces of model legislation regulating the sector, monitoring of the regulations and compliance is weak because although the IC now has 78 professional supervisory staff, it still does not have the capacity in terms of manpower to monitor effectively.27 Moreover, the expected issuing of six legislative instructions (Regulations, Instructions, Decisions) on yearly basis for the period of 2009-2011, taking into account the above set of legislative instructions already issued, may have an adverse effect on the sector. There should be a balance between the issuance of regulations, close monitoring of the regulations, and the evaluation of its effect over the sector by an independent professional party. A stable legislative strategy is always required and expected by both local and foreign investors toward reaching advance international best practices environment.

27Jordan Insurance Federation Interviews

http://www.irc.gov.io/


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Professionals from The Jordanian Insurance Federation, the membership of which encompasses all the insurance companies and auxiliary services professionals, who were interviewed for this study agreed that the insurance market was highly and heavily regulated in a very short period of time from 2003-2006 to the extent that the ability of the IC to monitor the number of regulations is questioned. According to the interviews, besides a shortage of manpower, there a high level of turnover in IC staff because financial packages in the private sector are much more attractive than those of the IC, which affects IC effectiveness. Consistency is also an issue not only in terms of monitoring but in terms of regulation issuance: insurance companies face new regulations on a continuous basis, which makes it difficult for the companies to comply with such a large number of regulations. This is especially true because most insurance companies in Jordan are small in size and their market share of premiums is less than 5%, according to IC’s sources. To meet the requirements of the new regulations, more administrative and technical operational expenses are required, which negatively affects the local companies because they do not have the manpower to keep up with all regulations effectively. Regulations to Establish an Insurance Company

Under "Instruction No. 1 of 2003: Instructions for Granting and Renewing a License to Transact Insurance Business and the Amendments Thereof", the following requirements must be met to establish an insurance company as set forth in regulation. The full instruction is provided in Annex: ARTICLE 3 A. The following data must be provided.

1) Type of insurance required to be transacted. 2) Classes of insurance required to be transacted. 3) Authorized capital and the amount earmarked for underwriting. 4) Names of the constituents, chosen addresses for the purpose of notification

and the number of shares for each of them. 5) Name and address of the legal counselor during establishment. 6) Name and address of the Auditor during establishment. 7) Name and address of the Actuary during establishment. 8) Name and address of the accredited bank by the constituents during

establishment. B. Along with the following documents

1) Signed memorandum of association and articles of association of the Company.

2) Constituent minutes of meetings that include the election of the constituents committee which shall supervise the establishment procedures and the authorized signatories during establishment.

3) Detailed information about the constituents, including information about their educational qualifications, experiences, ownership in other companies and their membership in the board of directors of these companies.

4) Business Plan for the first three financial years of the operation of the Company.

5) A certificate from the Actuary that includes his approval based on calculating the premium rates; the adequacy of the Technical Provisions, and the possibility of compliance with the Solvency Margin and the Minimum Guarantee Fund during the first three years of the operation of the Company.

6) A list of the proposed names for the post of the director general of the Company and the key employees therein, with a detailed description that includes the qualifications and expertise of each of them

7) Copies of the agreement forms that will be concluded with insurance Agents, insurance Brokers, Reinsurance Brokers and the providers of insurance services.


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8) Proof of paying the fees and charges legally determined. 9) Any other requirements, data, documents or information requested by the

Director General. C. The applicant shall present a written declaration that all the data and documents submitted correct and consistent with the provisions of the Act, Regulations, Instructions and Decisions issued pursuant thereto, as the case may be. ARTICLE 4 Also the following must be submitted according to the section given alphabetically below:

a) A detail business plan that includes a strategic plan, activates, organizational chart, details of computerized systems to be used

b) The types of obligations and liabilities and risks of company c) Projected Financial Statement for 3 years d) Distribution Channels e) Re-insurance arrangements f) Statement of each type of insurance policy offered g) Technical basis proposed by an actuarial for each type of business h) Projection of business development i) Written company policies, procedures and system, including corporate

governance, anti-money laundering and secure Information Technology systems.

j) Asset and liability management policy k) Emergency strategy l) Description of the accounting system m) Human Resources plan

A proposed financial statement for 5 years based on sensitivity analysis must also be submitted. Article 7 stipulates that the applicant must show what value-added will be given to the sector by the granting of the application. The proof of value-added has now become an important criterion for whether the IC issues a license for a new company. Applicants are notified in one month as to the completeness of the application; final approval takes 3 months according to the regulation. After approval, a financial certificate from a bank approving the payment of the full minimum capital is required. To open a foreign branch, all of the above requirements must PLUS the ones given below:

1) Detailed description of the qualifications and expertise for the Authorized Manager.

2) A copy of the license to transact insurance business in the home country 3) Certified statement that proves the solvency margin of the foreign company

from its regulator 4) Audited balance sheet for three years 5) Profile of the mother company 6) Last annual report of the mother company 7) Proof that foreign company is assigned proactive credit rating (top ranking,

Group1) 8) Other requirements as stipulated by the Secretary General 9) Application for transacting insurance types or classes.


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Other Regulatory Bodies Currently, different independent regulators like the Insurance Commission, Stock Exchange Commission, Central Bank of Jordan, and the Companies Controller Department have there own regulations pertaining to insurance and therefore make it extremely difficult for insurance companies to comply and deal with the edits of those authorities; especially in some situations where no cooperation is existent between authorities. For example the situation arises where one regulator could issue a regulation, which may adversely affect the regulation of another independent regulator; making the companies comply with the first one, while not being able to comply with the second regulation. The Jordanian Insurance Federation, which encompasses all the insurance companies, has lobbied for a more comprehensive and integrated legislative and regulatory environment from the Government, under which financial sector supervision would be under one regulatory independent authority similar to that of Canada or the UK.

There are also public shareholding companies operating in the Jordanian financial sector that are selling insurance related services to certain lines of business in the local market but are not regulated under the IC. Some are under the supervision of the Central Bank of Jordan, such as the Loan Guarantee Company that operates as an insurance company; it issues securities for banks that give small loans and export guarantees to exporters. Others like health and private pension funds have no supervision; they have their own independent regulators. Islamic Banking Regulations Islamic Banks operating as Jordanian Banks are regulated by the IC. The Islamic Financial Services Board (IFSB) is the equivalent for the Islamic insurance market of the International Association of Insurance Supervisors-IAIS. The two organizations work together and complement each others work. The Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI); is working to establish national regulatory frameworks for the Islamic financial industry. Currently the IC does not have the means to monitor where or not the Islamic insurance companies are in actuality complying with Sha'ria law. Jordan Insurance Federation (JIF) Jordan Insurance Federation is the legal representative of all insurance companies operating in the market. The Federation in its current status was established in the mid 1989 and has the following key functions:

The legal representative of all insurance companies

Manage the pool of 3rd -party foreign motor insurance across the board of Jordan.

Manage the implementation of the Orange Card Agreement between some Arab countries, that is the 3rd -party motor insurance between the member countries with regard to premiums, and claims settlement. There is an office in each insurance company federation of all members.

Serve the insurance companies by holding of different training courses for their staff.

Independent authorities that regulate the financial sector should have a high level of cooperation and create MOUs between them. Because financial services today are highly complicated and integrated, banks are offering different insurance products such as bancassurance (the selling of insurance products by banks). The absence of efficient cooperation and sharing of information may lead to an unhealthy situation;


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As a member in the Arab Insurance Federation, Jordan Insurance Federation held and hosted different conferences, and training courses on the Arab regional level.

JIF also manages special pools of insurance underwriting for certain lines of businesses, where some insurance companies agree to participate, in those pools, to underwrite policies for hard to insure business.28 Participation in special pools of insurance is not mandatory.

Membership in the federation is mandatory for all insurance companies operating in the market. There are 29 insurance companies that make up the general assembly of the federation. The General assembly selects the Board of Directors and the Chairman of the federation. 4.2 Measures related to professional qualification As set for by Insurance Commission regulations, the following requirements are set upon the professions listed below: Insurance Agent

1) A diploma degree -2yr degree- in any subject 2) Security clearance from the Public Security Department 3) 2 years experience in insurance or a 30-day training certificate of completion

from an insurance company 4) Official identification (passport, national card) 5) An agency agreement with an insurance company 6) Two photos 7) Sit for the exam given by the Insurance Commission 8) Fee of 250JD

To Be a Broker:

1) A four- year university degree OR 8 years experience in an insurance company

2) Senior position in an insurance company for 5 years 3) Security clearance from the Public Security Department 4) Sit for the exam given by the Insurance Commission 5) Fee is 500JD

Insurance Consultant

1) A four- year university degree plus 12 years experience OR if no degree, 20 years experience in an insurance company

6) Security clearance from the Public Security Department 7) Sit for the exam given by the Insurance Commission 8) Fee is 500JD

Re-insurance broker

2) A four- year university degree plus 12 years experience OR if no degree, 20 years experience in an insurance company

3) Security clearance from the Public Security Department 4) Sit for the exam given by the Insurance Commission 5) Fee is 1000JD

Loss Adjusters

1) A four- year university degree plus 5 years experience 6) Security clearance from the Public Security Department 7) Sit for the exam given by the Insurance Commission

28 For example motor insurance for large hauling vehicles that most insurance companies would not want to insure.


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2) Fee is 1000JD Actuarial

1) Must hold the rank of Fellow in one of the five international Actuarial Institutes( (British, American, Swiss, German, French)

2) If rank is below full Fellow, such has as an Associate, must have 5 years experience under the supervision of a member who is a Fellow.

3) Fees are 500JD All IC staff must complete various professional training programs and acquire international qualification in insurance, accounting and finance. The IC invests heavily in further professional training to keep its staff educated on recent international practices in insurance supervision. The professional training programs such as CII, LOMA, BIFI, and CFA. New regulations state that agents and employees of the IC and employees insurance companies should hold at least a first level university degree. However many practitioners currently operating in the market do not hold a degree. 4.3 Effect of measures on international participation in the market

According to IC officials, the assessment of compliance of the Jordanian insurance sector to the Core Principle (CPs) has reached 85%. It is expected that at the end of the three-year strategy of the IC this percentage of compliance will reach 94%. This indicator will have a very positive effect with regard to the advancement of insurance supervision, which will make Jordan more attractive to international investment groups to enter the Jordanian insurance market. Furthermore, the Insurance Commission of Jordan has a strategic objective of developing Jordan as a regional insurance centre in the area. The IC has already put into action its three-year strategy 2009-2011 whereby, international insurance investment groups will be invited to Jordan to start their operations in a very advanced international insurance supervisory framework and environment. It is expected according to IC’s above strategy, that 15 international insurance companies and auxiliary insurance services companies will enter the Jordanian insurance market, with IC inviting on average five companies each year starting in the year 2009.29 The heavy regulations environment according to the best international practices is a positive security factor for most foreign investment. However, once these firms have entered the market, the number of regulations and lack of adequate monitoring may lead less than expected results.

5.0 GATS Restrictiveness Measures 5.1 GATS commitments of the sector/ sub- sector Table 16 shows the GATS restrictiveness measures regarding the insurance sector, the limitation on market access, and national treatment according to the following modes of supply:

1. Cross-Border 2. Consumption abroad 3. Commercial presence 4. Presence of natural persons

The restrictions for entering the local insurance market have been removed recently due to the fact that IC is a member of IAIS and practices best practices. And the IAIS

29Insurance Commission Three- Year Strategy (2009-2011)


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supervises According to WTO regulations; no national insurance company should enjoy a privileged treatment over a foreign insurance company or a foreign branch.

Table 16: GATS Commitments Insurance Sub-Sector Category Limits on Market Access Limits on National Treatemetn

a) Life, insurance services

including health insurance services (CPC 81211) and (CPC 81212) excluding pension fund management.

b) Non- life insurance services (including accident insurance) (CPC 8129)

1) Commercial presence is

required. 2) None (Unbound) 3) Access is restricted to public

share holding companies constituted in Jordan and to branches of foreign insurance companies.

4) Unbound, except as indicated in the horizontal section.

1) Commercial presence is

required. 2) None (Unbound) 3) None 4) Unbound, except as indicated

in the horizontal section.

c) Reinsurance and retrocession (CPC 81299)

1) None 2) None 3) Access is restricted to Public

Share Holding companies constituted in Jordan and to branches of foreign reinsurance companies.

4) Unbound, except as indicated in horizontal section.

1) None 2) None 3) None 4) Unbound, except as indicated

in horizontal section.

d) Auxiliary Services (CPC 8140)

Agency services (CPC 81401)

1) None (Unbound) 2) None (Unbound) 3) None (Access restricted to

Jordanian natural persons, Jordanian general partnerships with majority ownership by Jordanians, and limited liability companies with Jordanians as majority in board of directors. Insurance agent or director of agent company must be Jordanian nationals)

4) Unbound, except as indicated in the horizontal section. Insurance agent or director of agent company must be Jordanian nationals.

1) None (Unbound) 2) None (Unbound) 3) None 4) Unbound, except as indicated


Insurance consultancy (CPC 81402 excluding

pension consultancy)





Average and loss adjustment services (CPC 81403)




in the horizontal section. Source: WTO Services Database

The Jordanian insurance sector, embodied by the Insurance Commission, complies with WTO recommendations. Thus, every party operating in the Jordanian insurance market as an insurance company, branch of an insurance company, or an auxiliary service receives equal treatment according to IC officials.

1. Cross-Border In the local market, the Cross-Border supply of life-insurance and health insurance services exists through different marketing channels; such as internet and unlicensed brokers. No data is available on cross-border activity, according to IC’s officials.


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Reinsurance by its nature is a cross border business. There is no administrative or legislative restriction in this regard. The IC has stated on many occasions that it encourages the existence of reinsurance companies in Jordan. The auxiliary services recently recorded entry of foreign loss adjusting services, reinsurance brokerage services, actuarial services, and TPA (Third Party Administrator) for medical services. 2. Consumption abroad The Consumption abroad category for the insurance sector has no restrictions across all sub-sectors. 3. Commercial presence The trend toward commercial presence has been improving in Jordan over the last few years. With regard to insurance companies, they are required to be public shareholding companies, with no limit as to the percentage of foreign equity. The legal entity form for auxiliary services can be of any legal format according to Companies Act. 4. Presence of natural persons The Presence of natural persons has no restrictions except for those listed in the horizontal commitments that pertain to all sectors. This can affect the presence of foreign technical insurance expertise, especially in certain areas like actuarial services where Jordan has few Jordanian actuarial professionals.

Horizontal commitments affecting the sector: There are foreign equity requirements have been phased out; and the needs test for employees is still applied but limited in terms of foreign managers of foreign branches.

6.0 Benchmarking Main insurance related indicators of neighboring countries are highlighted in Table 15 below. Those insurance markets selected have similar features to the Jordanian market and are categorized with Jordan as emerging insurance markets. These countries are also within the process of reforming their sectors up to the international best practices and are members in IAIS. Table 17 along with the related summary explanations from each regulator in those insurance markets shown in Annex 5 give a clear picture about the key role that insurance markets may play in the region.

Table 17: Insurance Benchmarking of Neighboring Countries

Country Population million

GDP USD billion

Insurance premium US$ Insurance

penetration %

Insurance density US$30

Non life Life

Jordan 5.9 16 366 41 2.6 68.6

Syria 19.7 37.76 196 1 0.5 9.9

Lebanon 4.1 22 483 278 3.4 185.7

Bahrain 0.72 19.7 278 73 2.0 465.7

Qatar 0.8 59 510 29 0.9 640.2

Oman 2.6 39 339 75 1.1 159.5

Tunisia 10.3 35 621 73 2.0 67.2 Source: Middle East Insurance Review: Mini Guide to Insurance Markets of the Middle East & North Africa


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The regional countries depicted above have many similar common factors such as a lack of public awareness concerning insurance policies, number of private insurance companies, the potential development of Takaful insurance, and the cost of living. The differences in population between some countries within the region, like Syria compared with Bahrain, is reflected in primary insurance indicators, like insurance density,30 which measures the level of insurance development in any country (US$ 9.9 for Syria and US$ 465.7 for Bahrain). The density is also higher in Bahrain due to the fact that Syria was a closed economy until 5 years ago hosting only one state owned Insurance Corporation, while Bahrain has been an open economy and regional financial centre for about two decades. Syria has had an independent regulator for the insurance sector for four years, and about 14 new private insurance companies have started operations in the last three years of which four of them are Takaful insurance companies. The market is still underdevelopment, but the expected growth within the next few years is expected to be positive.

Table 18: Minimum Capital Requirements

Country Minimum Capital Requirements

to establish a new company In US$ Million

Life Non-Life composite Re-

insurrance

Jordan 35M 35M 140m

Syria 17 14 -

Lebanon 1.5 1.5 -

Bahrain31 13.3 13.3 26.5

Qatar 10 10 20

Oman 13 13 -

Tunisia 2.48 2.48 8.6 - Source: Middle East Insurance Review: Mini Guide to Insurance Markets of the Middle East & North Africa

Jordanian capital requirements are extremely excessive compared to the other countries in the region, however most of the other counties noted are currently upgrading there sectors and it can be expected for capital requirements to increase. In Syria for example, the 17 million is a new regulation. Capital requirements are high because there are no international rules or standard for capital. Is assumed that the high capital requirement in Jordan is in place to keep small investors out of the market; however, it makes it much cheaper for new investors to purchase existing companies, which has been in Jordan the trend over the last 5 years.

The foreign investor analyzing the neighboring countries regarding insurance investment would first look at the political risk: Jordan is one of the most stable countries in the region. Other important indicators would be considered, like population level, development of legislative environment, insurance penetration, and insurance density. Jordan has relatively good and acceptable indicators taking into account IC’s three-year strategy to promote Jordan as a regional insurance center. However, more effort from different parties of Government and private sector, should be taken to support IC’s objectives

30 Insurance density is the total insurance premiums divided by the population of a country 31Minimum capital requirements listed are those for Bahraini companies only. Overseas insurance firms and insurer are not subject to the minimum capital reqiorem but have to comopy with a Reqiuied solvencyu Mrgin


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6.1 Competitive strengths

The Jordanian model of Insurance supervision is commended by international bodies such as the World Bank (WB), the International Monetary Fund (IMF) to be implemented in neighboring countries. Countries such as Syria, Palestine and Iraq that are attempting to implement the Jordanian insurance supervision model are doing so without any customization due to the lack of necessary expertise of the sector in their countries. In other Arab countries, regulators are trying to make use of different aspects of the Jordanian model and regulations, such as the risk based model of supervision, corporate governance, and auxiliary services regulations. In its aim to develop Jordan as the hub for insurance services, the IC has developed a three-year action plan, focused on increasing investments into the sector and attracting foreign insurance firms. Table (19) shows the current status and 3-year targets of major insurance indicators that IC plans to implement within the next three years.

Table 19: IC’s Three –Year Strategy 2009-2011

Insurance Indicator Current status Target in 3-year 1. Companies Shareholders Equity JD 320 million JD 570 million

2. Increase Insurance Premiums JD 290 million JD 490 million

3. Insurance Density JD 50 JD 70

4. Meeting and invitation of international insurance firms and insurance services firms

- 15 companies

5. Compliance of IAIS’s Core Principles 85 % 94 %

Development of Supervision Indicator:

6. Compliance of Solvency Margin Regulations 75 % 95%

7. Compliance of Investment Regulation 55% 95%

8. On-sit Inspection of Insurance Company - 6 visit per year

9. On-sit Inspection of Auxiliary Services 40 visits per year 60 visit per year

10. Corporate Governance Compliance 30% 95 %

11. Minimize Claims Settlement Period 20 day 7 day

12. Compliance of Codes of Ethics and Conduct 35% 90 %

13. Increase Insurance Public Awareness Source: Insurance Commission

6.2 Competitive weaknesses The competitive weakness of the insurance sector can be summarized into three general categories:

1. Large number of small insurance companies operating in a relatively small market.

The market share of most companies is 5% and approximately 18 companies have a share that is even less than 5%. The cost of living in Jordan is high compared to income levels and even though penetration rates are low the lack of sufficient disposable income to cover insurance premiums limits expansion of the sector.

2. Weak life insurance market. Because of the mis-structure of the life versus non-life insurance markets over the last 30 years due to the continuing existence of composite companies, the life insurance market has not been developed.

3. Weak supervision of Takaful insurance.


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Although Takeful insurance is regulated by the IC with the same regualtuion as other types of insurance, no specific Takaful supervision is conducted to make sure that the companies who offer Takaful policies are indeed complying with Sha'ria law.

5. Fraud and corruption within the sector Fraud and corruption in terms of medical and motor claims hurts the sector in several ways. Companies suffering from fraud have a higher likelihood of going into bankruptcy. Moreover, if a company goes bankrupt, the policy holder loses their rights to their claim payment. This leads to a decrease in public trust and the public will have less confidence in insurance companies. It should be noticed that beside the promising potential development of the insurance sector and IC’s strategic 3-year plan to transform the Jordanian insurance market, to be a regional insurance centre within this time frame (three years 2009-2011), attention and serious steps and procedures should be taken from the related authorities like the Anti-corruption Commission and the Insurance Commission should work to resolve existing fraud and corruption within the sector Over the last decade approximately six insurance companies faced serious problems; some of those are about to go into bankruptcy, a seventh went bankrupt and is still under liquidation. 32. The problem of fraud and corruption accounts for about 26% of the number of insurance companies operating in the market (6+1 companies out of 27 companies). Most of those companies are small family majority owned firms. Having 7 companies facing corruptions cases over the last 10 years within such a small market makes the issue critical. Table 20 shows the insurance companies mentioned above; some have turned into success stories by finding new investors and management which saved those companies. Others are still in the process of recovery.

Table 20: Insurance Companies Facing Problems through last decade

Insurance Company Name Previous Name Year of New Investor

1. Al-Barakah Takaful Al-Saqure Ins. Co. Arab American Ins. Co.

1998 2005

2. Euro Arab Ins. Group Amman Ins. Co. 2004

3. Al- Manara Arab Seas Ins. Co. 2008

4. Al- Waha - 2009

5. Housing Loan (Darkom)√33 - 2009

6. The Arab Assurers - 2008 Source: Insurance commission interviews

6.3 Potential for growth The recent trend and development of Takeful Insurance is expected to play a major role toward the development of the Jordanian Insurance sector in the future. The expected growth of Takaful in Jordan and the region in the next decade may reach to outstanding growth rate of 15-20% per year34.

Jordan should assess the importance and need for Jordanian companies to specialize in technical and strategic partnerships in the field of Takaful insurance, evaluating the anticipated added value, identifying different contacts in this regard on the regional or international levels that achieve the interests of the shareholders of

32 The last case mentioned in Table 16 on the following page was published recently in Al-Rai Daily Newspaper on Sunday, February 8, 2009, No.1400 Vol.38 Amman-Jordan Page (34). Details of other cases mentioned in Table 16 can be obtained from IC. 33This company was established in 2007 and went out of business in January 2009. More details about this company are provided in the General Business Environment section of this study. 34Insurance Commission interviews


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each company and achieve, at the same time, the interests of anticipated strategic partners, to increase the value of their participation in the future.

7.0 SWOT Analysis

Table 21: SWOT Analysis of the Jordanian Insurance Sector 1- Strength: 1. Independent financial resources of insurance

supervision. 2. High technical and professional staff within the

Insurance Commission. 3. The availability of advanced technical and

administrative training program for IC and the sector.

4. The IC's commitment and support towards corporate development.

5. The stability of policies of insurance supervision through written strategy and yearly action plan.

6. The adoption of advance information technology in IC, and some of insurance companies.

7. The completion of most regularity framework of insurance supervision according to the best international standards.

8. The adoption of risk based approach within a comprehensive supervision model in insurance sector.

9. The leading membership and member of IC in the most regional and international organization related to insurance Supervision.

2- Weaknesses: 1. The high turn over of qualified staff within the

insurance commission and insurance companies 2. The lack of employment incentives within the

sector comparing to other financial sectors 3. The lack of research and development expenditure

toward producing new insurance programs and proved to meet the social and economics developments needs and requirement.

4. The family ownership concentration of most insurance companies which limit the saving and investment channels in the national economy, enhanced fraud and corruption

5. A large number of existing insurance companies operating with relatively small levels of capital

6. Large number of local companies with small market share creates unhealthy competition among companies

7. The absence of on line connection between the IC and insurance companies.

8. Lack of corporate governance in the insurance companies.

9. Lack of actuarial technical staff 10. High administrative and technical cost of operation

to comply with IC regulations 11. Lack of development of advanced information

technology systems to up-grade company operations.

12. Lack of professional practice, technical insurance knowledge, codes of ethics and conduct in auxiliary services

3- Opportunities: 1. The increasing trend of Islamic insurance (Takaful)

at both local and regional level 2. The potential development of bancassurance 3. The continuing growth and development of

Jordanian sector 4. The international and regional trend to support and

develop an independent insurance supervision 5. The technological development in international

insurance markets and its reflection in the local market

6. The increase of foreign investment 7. The national security and political stability

4- Threats: 1. The insurance fraud and corruption in local market, in

particular in motor and medical claims settlements, and operations, has led to lack of public confidence and trust in local companies

2. Limited investment channels that comply with Islamic principles, makes it very difficult for Takaful companies to invest their funds in Jordan.

3. Lack of developing compulsory and micro-insurance products35

4. Lack of developing private pension insurance programs

5. Lack of efforts to resolve 3rd party motor insurance36 6. Lack of competitive packages for professionals at the

IC and insurance companies leads to technical and financial professionals leaving the public sector for private local financial sectors, or employment outside Jordan

7. The delay of issuing laws and regulations prepared by the IC because of lags in approval by Government, and other related parties.

8. Weak insurance public awareness within the Jordanian society

9. The establishment of advanced regional insurance services centers, like in Bahrain and Qatar, which promote a very competitive investment environment

35Compulsory insurance, for example, motor insurance or medical insurance in some countries; micro insurance products are targeted for certain categories of people such as orphans, those with limited income, in order to resolve social problems. They are small products with small premiums and coverage; for example, a life insurance policy that pays only 5,00- 10,000 JDs as opposed 100,000JD. 36 3rd party motor insurance, the compulsory motor insurance, causes accumulated losses for the insurance sector. The premiums are within a government tariff and are very low.


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10. The negative external events, such as financial crisis and the War in Gaza, and political instability with in the region.

8.0 Opportunity Scan The sub sectors that have a potential growth to increase national income as well as employment generation:

Life insurance

Takaful Insurance

Auxiliary Services. Takaful Insurance The local and foreign investment in Takaful insurance has been growing since the year 2005. According to sector experts interviewed for this study, It is expected that increased foreign investment, primarily from the Gulf area, in Takaful insurance will occur. On local level, Takaful is becoming more attractive than non-Takaful insurance investments for most individuals and corporate investors due to potential development of this line of business in the region over the next few years37. Investment prospects, joint ventures and export potential According to Jordanian law, insurance companies have to be Jordanian public share holding companies or a foreign branch. The potential export in insurance is very limited. Only two insurance companies have branches outside Jordan. Another insurance company became a strategic partner in establishing new insurance company in Syria three years ago. However, technology and expertise is highly needed in areas like actuarial, lost adjusters and other insurance services. Increasing numbers of Jordanian insurance technical staff has been moved to work in Syria recently to provide expertise to the Syrian private sector. The Syrian insurance sector is in a high need for technical professional staff from its neighboring countries like Jordan and Lebanon. Additionally, many Jordanian technical staff in insurance used to work in the gulf area through out the last 25 years. Jordan has very limited insurance activities off-shoring in the area. Only one off-shoring re-insurance company was established five years ago with a capital of US $ (150) millions. The Insurance Commission does not have supervision over such types of companies, because there is no regulation by IC to supervise such activities. Such off-sharing companies are controlled by Companies’ Controller Department at the Ministry of Trade and Industry. An insurance brokerage off-shoring company established three years ago and targets its operations in Iraq. 38

9.0 Constraints to development 9.1 Constraints both in terms of sector growth and trade in services The Jordanian insurance sector's growth faces some constraints in its development, which can be summarized as follows: 1) Level of technical knowledge:

37 Insurance commission interviews; sector expert interviews 38 This off-sharing insurance brokerage operates from Jordan due to the situation in Iraq.


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The level of technical knowledge of insurance in Jordan is still weak on average. The IC is leading the process to upgrade the educational and technical knowledge of the sector by adopting certain professional programs that were developed at the regional and international level and target insurance company staff. Insurance qualification standards have improved since the establishment of the IC; however not all participants are degreed. It should be noted that even though many employees have received this education, many leave their jobs looking for a better employment opportunity outside the insurance sector or the country.

2) Fraud and Corruption of Claims

The main other restrictiveness that foreign and local investment faces at present across the above four modes of supply is fraud and corruption in the insurance sector; if the current insurance advance legislative environment represented by IC’s, the Government, along with the related authorities, like the Anti-corruption commission do not take clear and straight forward actions and procedures to protect the local and foreign investment from the risks of fraud and corruption; the insurance sector may face critical status. The past historic of failure insurance companies in Jordan shown in Table (16) in the SWOT analysis section in this research paper is very serious. The expected potential threat of another five to six insurance companies which may still in the market, which may face similar corruption circumstances within the next few years is more risky situation. Assuring the safe entrance of foreign investment, and keeping the existing foreign and local investments in insurance sector away from the threat of fraud and corruption should be the top national Jordanian priority above all related strategies, or government policies, such as the IC’s strategy mentioned in Table (14) of Section (6) Benchmarking. Cleaning up our home local insurance market should come first.

9.2 Related policy factors Some policy factors that may affect the development of the sector are related to the overall government policy regarding the tariffs on third party compulsory motor insurance. This problem is a key issue hindering the development of the sector since losses are reported continuously by insurance companies' financial statements each year. The government policies to resolve corruption and fraud problems which affecting the insurance sector need to be restructured as a written and transparent strategy. Following ICP, being member in IAIS does not 100% guarantee elimination of fraud and corruption. It should minimize fraud and corporation by adopting such strategy, the losses mentioned above, if any, will be minimized. The IC aims at developing the Jordanian insurance sector to be a regional insurance center. 9.3 Specific recommendations for remedial actions


33

Recommendations:

1. Issue regulations for existing composites to separate operations. The historic mis-structure between life and non-life insurance needs to be resolved. The miss-structure means that the regulator in the past used license both life and non-life to the some insurance company. This is one of the main factors that weakness the life insurance in the Jordan Insurance sector through the last decades. The insurance sector still has 18 composite companies with weak contribution to the life insurance business. The international best practice is to separate life from non-life insurance. Since most insurance composites in Jordan are family run; the issue of composites will not be resolved without government intervention. This would allow new investors to enter the market.

2. The government should encourage mergers and acquisitions within the

market. The sector demanded tax incentives from the government for this purpose. The government, however, argues that market forces should be the driving the sector and does not support its intervention in terms of encouraging these mergers and acquisitions among firms. There should be a balanced formula as a compromise between the two arguments (industry and government). The large number of small insurance companies operating in the market is causing unhealthy market conditions. In spite of the regulations that exist in the market, the IC has not yet been able to minimize the number of small companies.

3. Takaful insurance is very promising in Jordan and the region; however, it is

not yet well organized and regulated. The IC to start giving more attention to this important sub-sector, as more Takaful insurance is expected to enter the market with the next years. Islamic insurance, both General Takaful: General Insurance, and Family Takaful: Life Insurance & Pension should be included as sub-sector of the Jordanian Insurance Sector

4. The IC needs closer monitoring of its regulations through on-site field

inspections. By implementing advanced international models of risk-based supervision and using information technologies, it can minimize the human manpower needed, especially, since the IC suffers from a high turnover of its staff

. 5. The corruption and fraud environment within the insurance sector is one of

the major challenges that the government, the IC and society is facing. This leads to mistrust and lack of confidence between the insurance policy holders and the insurance companies. Strong and straight forward actions should be taken towards resolving this problem in a joint effort by the government, the IC and the Anti-corruption commission.39

6. Independent authorities that regulate the financial sector should have a high

level of cooperation and create MOUs between them. Because financial services today are highly complicated and integrated, banks are offering different insurance products through bancassurance, for example. The absence of efficient cooperation and sharing of information may lead to an unhealthy situation; where one regulator could issue a regulation, which may adversely affect the regulation of another independent regulator; making the

39 Interviews were held with top executives at the Anti-Corruption Commission to get official feedback and documentation about the potential role, contribution, policies, and strategies to resolve existing fraud and corruption within the insurance sector. However, this issue is still under discussion within the commission's designers; no decisions have yet been taken, in spite of, the extreme concern about this issue.


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companies comply with the first one, while not being able to comply with the second one


35

Annex 1: Instructions of the Basis of Investing the Funds of the Insurance Company and Determining the Nature and the Location of the Insurance Company’s Assets that Match its Insurance Obligations Instructions No. (1) of 2006 Issued by the Board of Directors of the Insurance Commission pursuant to the provisions of paragraph (D) and paragraph (E) of Article (23) of the Insurance Regulatory Act No. (33) of 1999 and the Amendments Thereof Article (1): These Instructions shall be known as the (Instructions of the Basis of Investing the Funds of the Insurance Company and Determining the Nature and the Location of the Insurance Company’s Assets that Match its Insurance Obligations of 2006) and shall come into force as of the date of its publication in the Official Gazette. Article (2):

A. The following words and phrases, mentioned in these Instructions shall have the meanings ascribed thereto in Article (2) of the Insurance Regulatory Act No. (33) of 1999 and the Amendments Thereof, unless otherwise indicated by context.

B. The word (Act) wherever mentioned in these Instructions, shall mean The Insurance Regulatory Act in force.

C. For purposes of these Instructions, the phrase “The Related Parties” shall have the meaning adopted according to the International Accounting Standards.

D. For purposes of these Instructions, the phrase “Key Employee” shall mean the employee who occupies any of the following occupations at the company:

1- General Manager or Authorized Manager.

2- Deputy General Manager.

3- Assistant General Manager.

4- Head of Department or Division.

5- Internal Auditor.

6- Compliance Officer.

7- Branch Manager.

8- Any other occupation considered to be a key occupation by the Director General.

Article (3):

A. The board of directors of the company shall adopt a sound and prudential investment policy that complies with the provisions of the Act, Regulations, Instructions and Decisions issued by virtue of any of them, and shall include the following as a minimum:

1- The permitted or not permitted investments, provided that the desired investments shall be specified, if possible.

2- The company’s investments limits regarding the geographical location, markets invested therein, economic sectors, currency and the allowed deviations, if any.

3- The concentration of investments with any entity.

4- Risk management policy related to investment such as market risks, credit risks, liquidity risks and operations risks.

5- The authorities and the administrative and financial responsibilities to implement the investment policy.

6- Contracting basis with external entities to implement and manage the investment policy.


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7- Cases where the company is entitled to mortgaging or lending its assets including granting loans to the employees.

8- Procedures to solve conflict of interests and means for dealing therewith.

9- Procedures of monitoring the implementation of the company investment policy.

10- Basis to grant remunerations to the employees which is related to the investments profits.

11- Basis to distribute the investment’s profits over the income statement and underwriting accounts.

B. When the company sets its investment policy, the nature of liabilities shall be taken into consideration, in particular the underwriting liabilities, nature of underwriting business and the actual investments of the various assets, in order to enable the company to fulfill its liabilities once due, in addition to the following:

1- Underwriting policy.

2- Reinsurance policy accredited by the Board of Directors according to the Reinsurance Instructions in force.

3- Financial markets.

4- Capital and owner’s equity.

5- Solvency and liquidity.

6- Minimum rate of return guaranteed from the underwritten policies or relevant undertakings.

7- Relevant legislations C. The board of directors of the company shall annually evaluate its investment

policy, or when necessary during the year, and shall annually provide the Director General with a copy thereof by the end of the first quarter, maximum. The board of directors of the company shall also provide the Director General with any changes or amendments occur during the year at this policy.

Article (4): The management of the company shall, upon implementation of its investment policy pursuant to the provisions of these Instructions, maintain a safe and sound financial position and preserve the value of the investment of the company as a whole, including achieving an appropriate return from the invested capital, in addition to the following:

A. Risk management related to investment, which includes a description and specification of measurement basis:

1- Market risks including interest rates risks, equity risk, currency risk, in addition to the minimum guaranteed rate of return from the underwritten policies or relevant undertakings.

2- Credit risk.

3- Liquidity risk B. Set procedures to monitor the remitted limits of the various forms of

investment and the tolerance deviations. C. Formalize an emergency plans to be followed in the case of crisis. D. Set detailed procedures to monitor the implementation of the investments

policy of the company. E. Specify the nature of the reports to be prepared and the basis and frequency

thereof, provided that such reports shall include cases of deviations and corrective procedures thereof.

F. Ensure that there are no restrictions on transferring capitals and profits thereof abroad in respect of external investments.

G. Ensure that the investment policy of the company is compatible with the relevant legislations


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Article (5): The company may contract with external entities to implement and manage their investment policy, provided the following: -

A. Specify the basis of risk management related to these contracts. B. Specify the entities contracted with according to the investment policy

determined by the board of directors of the company, evaluate the contracted entities including the financial position of such body, and obtain the approval of the third of the members of the board of the directors in case a contract is concluded with related parties.

C. Ensure that investments are being administered and implemented according to the investment policy determined by the board of directors and in compliance with the related legislations.

D. Request monthly reports regarding the status of the investments concerning the company, to be submitted by external entities with which contracts are concluded.

E. Provide the Commission with the treaties concluded with external entities. Article (6): Where the insurance company is a subsidiary, the company shall apply risk management standards depending on legal entity basis. Article (7):

A. The company shall not keep assets of a value exceeds the percentages determined in the Appendix No. (1) enclosed with these Instructions. The Investment Linked Policies shall be excluded.

B. No company shall invest in any investment fund which investments percentage in financial instruments issued by the company exceeds (10%) of its total investments.

C. No company shall keep assets with the same body or with a body by which the assets are guaranteed, of a percentage exceeds the percentage specified in the Appendix No. (2) enclosed with these Instructions. The Investment Linked Policies and the investments specified in Article (10) of these Instructions shall be excluded.

Article (8):

A. The company shall not:

1- Invest or lend secured by the shares of the company it self.

2- Issue a letter of guarantee or any other commitment for the benefit of a key employee or a board member.

3- Invest in a capital of a company in which one or more of the key employees or board members, directly or indirectly, own a percentage of (10%) or more of the capital of the company.

4- Invest in a General Partnership Company or a Limited Partnership Company.

5- Purchase or sell any assets owned by key employees or board members.

B. Notwithstanding what is mentioned in item (3) of paragraph (A) of this Article, the company may invest in companies, directly or indirectly, owned by board members if such member is a Public Shareholding Company, Social Security Corporation or Jordan Armed Forces, provided that the percentages of investments, in all companies mentioned above, shall not exceed (50%) of the owner’s equity of the insurance company after deducting cash dividends proposed for distribution.

C. Notwithstanding what is mentioned in item (5) of paragraph (A) of this Article, the company may, in emergency and justifiable cases and in a preferential


38

manner to the company, purchase or sell any assets from key employees or board members, provided that the company shall obtain a prior approval from the Director General upon recommendation of the concerned department at the Commission.

D. The company may grant loans to employees according to the Articles of Association of the company and/or within the usual conditions for policyholders.

E. The company may purchase or sell any assets to relevant parties other than those mentioned in item (5) of paragraph (A) of this Article, provided the following:

1- That the purchasing or selling transaction is conducted according to market rules and conditions or in a preferential manner to the company.

2- In case of selling, the amount shall be in cash and fully paid. Article (9): The company shall not invest in derivatives for speculating purposes, while such investment is allowed for hedging purposes and within a determined scope in the investment policy of the company. Article (10): The company may invest more than (20%) of the capital of any of the companies mentioned hereunder:

A. Financial companies. B. Financial consulting and portfolio management companies. C. Investment fund companies. D. Property investments companies. E. Information services companies. F. Real estate brokerage companies. G. Companies providing auxiliary services to the transactions of the company or

its subsidiaries. H. Financial holding companies, provided that the investment percentage shall

not exceed (20%) of the invested capital of the company, except for the investments specified in paragraphs (A-G) of this Article.

Article (11):

A. The company shall provide the Commission quarterly, with details regarding operations conducted with related parties of an amount exceeds (5%) of the total assets or five hundred thousand Dinars for each, whichever less, as well as details of the total operations conducted with related parties of an amount exceeds (5%) of the total value or five hundred thousand Dinars for each, whichever less. The operations shall include, for example, the following:

1- Transfer of assets and liabilities.

2- Loans and letter of guarantees.

3- Investments.

4- Reinsurance pursuant to the provisions of paragraph (C) of this Article.

5- Treaties for sharing expenses.

6- Provide services by or on behalf of these parties regardless of collecting charges for these services.

B. Details of the operations shall include the following:

1- Parties of the operation.

2- Description of the relationship between parties.

3- Description of operation.

4- Amount of operation.


39

5- Any additional information necessary to understand the effect of operation on the financial position or performance of the company.

C. The company shall provide the Commission quarterly, with details of operations conducted with relevant reinsurance companies or investment management companies.

D. Operations frequently conducted with banks shall be excluded from the provisions of this Article.

E. The company shall provide the Commission with details of written-off debts and shall specify the debts of the related parties. Article (12): Assets that match the net technical provisions according to Basis of Calculating Technical Provisions Instructions in force, may be invested with the instruments mentioned hereunder, Investment Linked Policies shall be excluded:

A. Cash on hand and current accounts at banks. B. Deposits and certificates of deposit at or issued by banks. C. Bonds issued or guaranteed by the Jordanian Government and local

Treasury bonds. D. Foreign bonds, subordinated loans and deposits at foreign banks listed within

group one, pursuant to Solvency Margin Instructions in force and Decisions issued by virtue thereof.

E. Local listed shares and foreign shares rated within group one, pursuant to Solvency Margin Instructions in force and Decisions issued by virtue thereof, provided that the underwritten percentage in both general insurance business and life assurance business, shall exceed (10%) of the total amount of underwritten policies by a company licensed to transact both general insurance business and life assurance business, otherwise, the percentages regarding the majority of the company’s underwritten policies shall be accredited as follows:

1- A limit of (25%) of the total technical provisions for general insurance business.

2- A limit of (20%) of the total technical provisions for life assurance business.

F. Investment funds rated within group one or capital guaranteed funds by an entity rated within group one, according to the Solvency Margin Instructions in force.

G. Loan’s to life policyholders not exceeding the surrender value of each policy. H. Property investments, provided that the underwriting percentage in both

general insurance business and life assurance business shall exceed (10%) of the total of the company underwritings for companies licensed to transact both general insurance business and life assurance business, otherwise, the percentages regarding the majority of the company underwritten policies shall be accredited as follows:

1- A limit of (10%) of the total technical provisions for general insurance business and (20%) of the total technical provisions for Islamic insurance companies.

2- A limit of (20%) of the total technical provisions for life assurance business and (30%) of the total technical provisions for life assurance business of Islamic insurance companies.

Article (13): The investment percentage at cash on hand, current accounts and deposits at banks shall not be less, all together, than (25%) of the total of the net technical provisions after deducting the net mathematical provision, and (15%) of the net mathematical provisions, in accordance with Basis of Calculating Technical Provisions Instructions in force.


11

Article (14):

A. Where the net technical provisions, in any currency, exceed (5%) of the total technical provisions, the company shall maintain assets by the same currency that covers, at least, (80%) of the net technical provisions.

B. Where no currency determined for the net technical provisions, it shall be determined by the currency of the country in which the liability exists therein

C. The provisions of paragraphs (A) and (B) of this Article shall apply on life assurance business and general insurance business separately.

Article (15):

A. The Investment Linked Policies may be linked with an investment fund internally managed by the company or a third party.

B. The link between liabilities and assets regarding Investment Linked Policies, shall not be less than the percentage determined in the insurance policies or (80%) where it is not determined therein. The company may maintain the difference in cash on hand or accounts at banks.

C. Where the Investment Linked Policies are linked with an investment fund internally managed, the following shall be taken into consideration:

1- The investments shall be compatible with the declared policy of the fund, provided that the investment policy shall be clear in the conditions of the Investment Linked Policies and shall be referred to in all media and marketing materials related to these policies.

2- Keep accounts and records necessary to determine the assets and liabilities of the fund, and to determine the number and the value of units regarding each policy at all times.

3- Add additional benefits, which are not classified with in investment linked benefits, to the Investment Linked Policies, if its appropriate

D. Where the Investment Linked Policies are linked with a fund managed by a

third party, the following shall be taken into consideration:

1- The necessity of dividing the fund into units where the value of each unit shall be permanently specified, according to the net value of each unit.

2- Declare regularly the purchasing and selling rates of the unit.

3- Keep accounts and records necessary to determine the number and the value of the unit regarding each policy at all times.

Article (16):

A. The company shall apply the investment policy and the percentages determined in these Instructions, on all levels of the company as follows:

1- The business of the company in the Kingdom.

2- The business of the company in the Kingdom and outside branches.

3- The business of the company in the Kingdom, outside branches and the subsidiaries thereof.

B. The provisions of Article (10) of these Instructions shall apply on items (1) and (2) of paragraph (A) of this Article.

Article (17): A- The company shall upon the date of commencement of these Instructions to adjust its status in accordance with its provisions, within a period not exceeding one year as of the date the provisions of these Instructions came into force, provided that the company shall not invest in a manner that contradicts with the provisions of these Instructions as of the date of its commencement.


11

B- The company shall reduce the amount of any investments inconsistent with the provisions of these Instructions, from the available capital according to Appendix No. (2) Enclosed with Solvency Margin Instructions in force and Decisions issued by virtue thereof. Article (18): The appendices attached to these Instructions and shall be read with these Instructions and considered an integral part thereof. Article (19): The Director General shall issue the Decisions necessary for implementing the provisions of these Instructions. Appendix (1) Description Limit

1) The local non-listed financial instruments (bonds and stocks), except those which are issued or guaranteed by the Jordanian Government.

(10%) of the total owner’s equity after deducting proposed cash dividends, and (20%) of the total owner’s equity after deducting proposed cash dividends to Islamic Companies.

2) Foreign investments including bonds, subordinated loans and deposits at foreign banks that are not rated within group one, according to the Solvency Margin Instructions and Decisions issued by virtue thereof.

(10%) of the total owner’s equity, after deducting proposed cash dividends. (3 0%) of the total owner’s equity-after deducting proposed cash dividends to Islamic Companies, provided that the non-listed investments shall not exceed (10%) of the owner’s equity after deducting proposed cash dividends.

3) Property Investments

(10%) of the paid capital to companies specialized in mortgage insurance, provided that a prior approval shall be obtained from the Director General. (20%) of total assets for companies licensed to transact general insurance business, and (25%) of total assets for Islamic Companies licensed to transact general insurance business. (30%) of total assets for companies licensed to transact life assurance business, and (35%) of total assets for Islamic Companies licensed to transact life assurance business. The limit shall be specified in proportion with the percentage of underwriting business for companies licensed to transact both general insurance business and life assurance business (provided that the underwriting percentage in each shall exceed (10%) of total underwritten policies of the company), otherwise the percentages applicable in the majority underwriting business shall be applied.

4) Investment Pools and Funds except those which are rated within group one or of a capital guaranteed by banks or investment institutions which are rated within group one according to Solvency Margin

(10%) of the total owner’s equity, after deducting proposed cash dividends. (20%) of owner’s equity after deducting proposed cash dividends for Islamic

Appendix (2)

Entity Percentages in Proportion to Total Assets

General Life Composite Islamic

Any person/ entity/ company or investment fund except banks and Jordanian Governmental entities or AAA countries.

10%

Assets except deposits at banks 10% 15%

Current accounts, deposits at banks and certificate of deposits with or issued by any bank.

20 %

Undetermined, provided that the amount of deposits at any bank shall not exceed (60%)


12

of the total amount of deposits.


13

Annex 2: IC’s main source of funds Article (18) of Insurance Regulatory Act (33) of 1999:

A. The Commission shall collect the following Fees: 1. Annual fee payable by the Company, a percentage of which shall

not exceed 0.75% (7.5) per mille of the gross written premiums. 2. Application fee for a License. 3. Fee for granting a License. 4. Registration fee of the Branch of the Company. 5. Registration fee of an Agent. 6. Licensing fee of a Broker. 7. Licensing fee of an Actuary. 8. Licensing fee of the parties conducting insurance services

B. The amount of each of the stated fees shall be determined pursuant to regulations to be issued for this purpose.

Article (19) of Insurance Regulatory Act (33) of 1999: The revenues of the Commission shall consist of the following resources:

A. Fees collected by the Commission. B. Charges received for the services rendered by the Commission to the

insurance sector pursuant to instructions issued by the Board for this purpose.

C. Fines stated in this Act. D. Aids, contributions, grants and donations accepted by the Board and

approved by the Council of Ministers, if from a non-Jordanian source. E. Any amounts allocated by the Government to the Commission when

necessity dictates. F. Any other revenues approved by the Board

Article No. (3) of Insurance Business Fees Regulation No. (36) and the Amendments thereof, state the following: “The Commission shall collect for the license application to transact the insurance business, the following fees:

A. General Insurance Business

1- Basic Fee: One Thousand Dinars for applying for the first time.

2- Additional Fee: One Hundred Dinars for each class of general insurance business the Company applied to transact.

B. Life Assurance Business

1- Basic Fee: One Thousand Five Hundred Dinars for applying the First time.

2- Additional Fee: Two Hundred Dinars for each class of life assurance business the company applied to transact.

C. Reinsurance Business: Twenty Thousand Dinars for applying for the first time.”

Article No. (4) of the above Regulations state the following: “The Commission shall collect for granting the license to transact the insurance business, the following fees:

A. General Insurance Business

1- Basic Fee: Fifteen Thousand Dinars.

2- Additional Fee: Two Thousand Dinars for each class of general insurance business.

B. Life Assurance Business

1- Basic Fee: Twenty Thousand Dinars.

2- Additional Fee: Three Thousand Dinars for each class of life assurance business.

C. Reinsurance Business: Eighty Thousand Dinars


11

Annex 3: Insurance Core Principles (ICP)

Source: International Association of Insurance Supervisors, IAIS, Insurance Core Principles and Methodology, 2003.

- Conditions for effective supervision: ICP 1

- The supervisory system: ICP 2 to ICP 5

- The supervised entity: ICP 6 to ICP 10


15

- On-going supervision: ICP 11 to ICPO 17


16

- Prudential requirements: ICP 18 to ICP 23

- Markets and consumers: ICP 24 to ICP 28


17


18

Annex 4: Sample Insurance Companies and Officials interviewed 1. The sample of the insurance companies are as follows:

Company Name The nature and reason

1. American Life Insurance Co. (ALICO)

Sole 100% foreign –owned life insurance company

2. Jordan Insurance Co.

The largest insurance company operating in Jordan, and the first to be established, offering life and non-life insurance.

3. Arab Orient Insurance Co. Bank owned

4. Philadelphia Insurance Co. Non- life insurance company

5 Euro Arab Insurance Group Co. A successful company.

6 Al-Manara Insurance Co. Newly foreign owned company

7 Mediterranean and Gulf Insurance Co.

New foreign owned company entering health insurance field.

8. Al Nisr Al-Arabi Insurance Co.

50% + 1 share owned by the largest bank in Jordan, the Arab Bank.

9. Jordan Insurance Federation Professional Association

2. A preliminary meetings have been taken with the following parties:

Name Title Company

Habash M. Farraj Consultant Fenchurch Faris (Jordan) Ltd. Insurance Brokers

Khawla F. Al-Nobani Partner Specialist in Islamic Banking & Insurance

BDO National Brothers Public Accounts Management Consultants

Robert Jenevizian General Manager Guardian Insurance and Reinsurance Brokers & Consultants

Reyad Y. Arsalan General Manager Gab Robins Jordan Chartered loss Adjusters & Surveyors

Dr. Nazeer Bate’ General Manager Medexa Health Insurance Management

Dr. Mousa M.Alqudah Executive Sharia Board Member & member of the Board of Directors

Al Barakah Takaful Co. Insurance In Compliance with Islamic Sharia

From the regulatory body (IC):

Name Title

Dr. Bassel Hidawi Director General Insurance Commission

Rans K. Tahbob Assistant Director General Insurance Commission


19

Annex 5: Managers from the following companies were interviewed:

Company Name The nature and reason of selection

American Life Insurance Co. (ALICO) Sole 100% foreign –owned life insurance company

Jordan Insurance Co. The largest insurance company operating in Jordan, and the first to be established, offering life and non-life insurance.

Arab Orient Insurance Co. Bank owned

Philadelphia Insurance Co. Non- life insurance company

Euro Arab Insurance Group Co. A successful company according to industry survey respondents survey40

Al-Manara Insurance Co. Newly foreign owned company

Mediterranean and Gulf Insurance Co. New foreign owned company entering health insurance field.

Al Nisr Al-Arabi Insurance Co. 50% + 1 share owned by the largest bank in Jordan, the Arab Bank.

Jordan Insurance Federation Professional Association

Interviews were also conducted with the following stakeholders:

Name Title Company

Habash M. Farraj Consultant Fenchurch Faris (Jordan) Ltd. Insurance Brokers

Khawla F. Al-Nobani Partner Specialist in Islamic Banking & Insurance

BDO National Brothers Public Accounts Management Consultants

Robert Jenevizian General Manager Guardian Insurance and Reinsurance Brokers & Consultants

Reyad Y. Arsalan General Manager Gab Robins Jordan Chartered loss Adjusters & Surveyors

Dr. Nazeer Bate’ General Manager Medexa Health Insurance Management

Dr. Mousa M.Alqudah Executive Sharia Board Member & member of the Board of Directors

Al Barakah Takaful Co. Insurance In Compliance with Islamic Sharia

And from the Insurance Commission, the following were interviewed.

Name Title

Dr. Bassel Hidawi Director General Insurance Commission

Rans K. Tahbob Assistant Director General Insurance Commission

40Euro Arab Insurance company faced serious problems when its major shareholder filed for bankruptcy .in 2003.,

Previously known as Amman Insurance company, used to be owned by 70% of another insurance company Jordan Life went bankrupt. The new investor took over the 70% of the Amman Insurance turned over the company, in a short period of time, with new management to be a successful insurance company. In 2008, this company (Euro Arab Ins. Co.) has been internationally credit rated by Standard & Poor.


51

Annex 6: List of Regulations, Instructions and Decisions Issued for the Insurance Sector

Regulation No. (36) of 2000 Insurance Business Fees Regulation and The Amendments Thereof Regulation No. (32) of 2001 Civil Liability Compulsory Motor Insurance Regulation Regulation No. (40) of 2001 Financial Regulation of the Insurance Commission Regulation No. (44) of 2001 Procurement Regulation for the Insurance Commission Regulation No. (59) of 2001 Organizational Structure of the Insurance Commission Regulation No. (87) of 2002 Personnel Regulation of the Insurance Commission and the Amendments Thereof Regulation No. (73) of 2005 Minimum Capital of Insurance and Reinsurance Companies Regulation and the Amendments Thereof Regulation No. (107) of 2008 Jordan Insurance Federation Regulation Instructions

Instructions No. (1) of 2000 Classes and Licenses of Insurance Business Instructions

Instructions No. (3) of 2001 Survey and Assessment of the Damages of the Carried and Insured Goods Instructions

Instructions No. (4) of 2001 Implementing International Accounting Standards Instructions

Instructions No. (5) of 2001 Deposit of the Insurance Company Instructions

Instructions No. (1) of 2002 Compulsory Motor Insurance Unified Bureau Instructions

Instructions of Compulsory Motor Insurance Premiums and the Liability of the Insurance Company for the Use Thereof of 2002 and the Amendments Thereof

Instructions No. (2) of 2002 Basis of Calculating the Technical Provisions Instructions

Instructions No. (3) of 2002 Solvency Margin Instructions

Instructions No. (4) of 2002 Reinsurance Instructions and the Amendments Thereof

Instructions No. (1) of 2003 Instructions for Granting and Renewing the License to Transact Insurance Business and the Amendments Thereof

Instructions No. (2) of 2003 Instructions of the Accounting Policies to be Adopted by the Company and the Forms Required to Prepare the Financial Reports and Statements

Instructions No. (3) of 2003 Instructions of Licensing and Regulating the Business of an Actuary and the Amendments Thereof

http://www.irc.gov.jo/doc/piod/RegulationNo36of2000.-final-1-08.pdf

http://www.irc.gov.jo/doc/piod/RegulationNo36of2000.-final-1-08.pdf

http://www.irc.gov.jo/doc/Regulation_No._32_%20of_%202001.pdf

http://www.irc.gov.jo/doc/Regulation_No._32_%20of_%202001.pdf

http://www.irc.gov.jo/doc/PIOD/Regulation_No_73_of_2005.pdf

http://www.irc.gov.jo/doc/PIOD/Regulation_No_73_of_2005.pdf

http://www.irc.gov.jo/doc/Instructions%20No._1_%20of%202000%20.pdf

http://www.irc.gov.jo/doc/Instructions%20No._1_%20of%202000%20.pdf

http://www.irc.gov.jo/doc/Instructions%20No._3_%20of%202001.pdf








http://www.irc.gov.jo/doc/car-pm-2002.pdf

http://www.irc.gov.jo/doc/car-pm-2002.pdf



http://www.irc.gov.jo/doc/InstructionsNo._3_of2002.pdf

http://www.irc.gov.jo/doc/InstructionsNo._3_of2002.pdf

http://www.irc.gov.jo/doc/Instructions-No-4-2002.pdf

http://www.irc.gov.jo/doc/Instructions-No-4-2002.pdf

http://www.irc.gov.jo/doc/piod/Instructions_1_-2003-last-9-1-08.pdf



http://www.irc.gov.jo/doc/Instructions-2-2003.pdf



http://www.irc.gov.jo/doc/PIOD/Instructions3_2003-Final.pdf




51

Instructions No. (2) of 2004 Computerization of the Business of Insurance Companies Instructions

Instructions No. (5) of 2004 The Instructions of the Insurance Dispute Resolution Committee and the Amendments Thereof

Instructions No. (6) of 2004 Fund for Remunerating the Injured Parties From Motor Accidents Instructions

Instructions No. (8) of 2004 Instructions of Licensing and Regulating the Business of the Loss Adjuster and the Surveyor and the Amendments Thereof

Instructions No. (9) of 2004 Professional Code of Conduct and Ethics for Insurance Companies Instructions

Instructions No. (10) of 2004 Services Charges Instructions and the Amendments Thereof

Instructions No. (1) of 2005 Instructions of Licensing and Regulating the Business and Responsibilities of an Insurance Agent and the Amendments Thereof

Instructions No. (3) of 2005 Instructions of Licensing, Regulating and Supervising the Business of an Insurance Consultant and the Amendments Thereof

Instructions No. (4) of 2005 Instructions of Licensing and Regulating the Business and Responsibilities of a Reinsurance Broker and the Amendments Thereof

Instructions No. (5) of 2005 Instructions of Licensing, Regulating and Supervising the Business of the Company Administrating the Expenses and Medical Insurance Services and the Amendments Thereof

Instructions No. (6) of 2005 Instructions for Opening A Branch of an Insurance Company Inside or Outside the Kingdom

Instructions No. (7) of 2005 Instructions of the Accreditation of Mediators and Arbitrators in Insurance Disputes at the Insurance Commission and the Amendments Thereof

Instructions No. (8) of 2005 Instructions of the Procedures and Rules of Mediation in Insurance Disputes and the Amendments Thereof

Instructions No. (9) of 2005 Instructions of the Procedures and Rules of Arbitration in Insurance Disputes and the Amendments Thereof Instructions No. (11) of 2005 Instructions of Licensing and Regulating the Business and Responsibilities of an Insurance Broker and the Amendments Thereof Instructions No. (1) of 2006 Instructions of the Basis of Investing the Funds of the Insurance Company and Determining the Nature and the Location of the Insurance Company's Assets that Match its Insurance Obligations Instructions No. (2) of 2006 Corporate Governance Instructions and the Amendments Thereof Instructions No. (3) of 2007 Instructions of Anti Money Laundering in Insurance Activities Instructions No. (1) of 2008 Instructions of Licensing, Regulating and Supervising the Business of Bancassurance and the Amendments Thereof

http://www.irc.gov.jo/doc/Instructions%20_2_%20of%202004%20-%20Final.pdf


http://www.irc.gov.jo/arabic/doc/pdf_new/INSTRUCTIONS%20N.pdf

http://www.irc.gov.jo/arabic/doc/pdf_new/INSTRUCTIONS%20N.pdf

http://www.irc.gov.jo/doc/PIOD/inst-5-2004-rename.pdf

http://www.irc.gov.jo/doc/PIOD/inst-5-2004-rename.pdf





























http://www.irc.gov.jo/doc/Instructions%20_7_%20of%202005%20-%20Final%20_2_.pdf













http://www.irc.gov.jo/doc/piod/inst-1-2006.pdf



http://www.irc.gov.jo/doc/Instructions%20No.(2)of2006.pdf

http://www.irc.gov.jo/doc/Instructions%20No.(2)of2006.pdf

http://www.irc.gov.jo/doc/PIOD/Instructions-2-2006-final.pdf

http://www.irc.gov.jo/doc/PIOD/Instructions-2-2006-final.pdf



http://www.irc.gov.jo/doc/PIOD/AML_Instructions.pdf

http://www.irc.gov.jo/doc/PIOD/AML_Instructions.pdf


52

Instructions No. (2) of 2008 Instructions of Licensing and Supervising the Business of Non-Operating Foreign Insurance Company in the Kingdom (Regional Company/ Representative Office) Instructions No. (3) of 2008 Instructions of Licensing Reinsurance Company and Reinsurance Off Shore Company Decisions

Decision No. (10) of 1999 Decision Dated 23 February 2000 Decision No. (1) of 2000 Decision No. (6) of 2001 Decision No. (3) of 2002 Civil Liability Compulsory Motor Insurance Policy Form Decision Decision No. (4) of 2002 Decision of the Bases of Claims Settlement for Motor Damages Decision No. (5) of 2002 Guidelines for the Solvency Margin Instructions Decision No. (1) of 2003 Decision No. (1) of 2003 Decision for Compliance with the Solvency Margin Decision No. (2) of 2003 Decision on the Financial Reports and Statements for the Supervisory Purposes of the Insurance Commission Decision No. (6) of 2003 Decision of the Forms for Granting, Renewing the License of an Actuary, and the Re-Listing in the Register Decision No. (7) of 2003 Decision of the Forms for Granting, Renewing the License of an Insurance Broker, and the Re-Listing in the Register Decision No. (1) of 2004 Decision on the Transaction of the Insurance Brokerage Business by a Juridical Person Decision No. (3) of 2004 Decision of the Mechanism for the Issuance of the Compulsory Motor Insurance Policies and the Civil Liability of the Use Thereof Decision No. (4) of 2004 Decision of the Forms for the Insurance Brokerage Business Decision No. (5) of 2004 Property Investment Valuation Decision Decision No. (6) of 2004 Decision of the Commissions of the Insurance Brokers and Agents on the Premiums of Compulsory Motor Insurance Policies and the Civil Liability of the Use Thereof Decision No. (7) of 2004 Decision No. (9) of 2004 Decision of the Forms for Granting, Renewing the License of an Insurance Agent, and the Re-Listing in the Register Decision No. (10) of 2004 Decision of the Forms for the Insurance Agency Business Decision No. (14) of 2004

http://www.irc.gov.jo/doc/PIOD/Instructions_No.(2)of_2008.pdf



http://www.irc.gov.jo/doc/Decision%20No._1_%20of%202000.pdf

http://www.irc.gov.jo/doc/Decision_6_2001.pdf



http://www.irc.gov.jo/doc/piod/Decision%20No_4_2002.pdf

http://www.irc.gov.jo/doc/piod/Decision%20No_4_2002.pdf

http://www.irc.gov.jo/doc/PIOD/Decision-5-2002.pdf

http://www.irc.gov.jo/doc/PIOD/Decision-5-2002.pdf


http://www.irc.gov.jo/doc/DecisionN0_1_2003SolvencyMargin.pdf

http://www.irc.gov.jo/doc/DecisionN0_1_2003SolvencyMargin.pdf

http://www.irc.gov.jo/doc/PIOD/Decision_2_2003.pdf











http://www.irc.gov.jo/doc/PIOD/DecisionNo_3-2004.pdf








http://www.irc.gov.jo/doc/Decision_6-2004.pdf



http://www.irc.gov.jo/doc/Decision%20_7_2004.pdf








53

Collecting the Contributions of Insurance Companies in the Fund for Remunerating the Injured Parties From Motor Accidents Decision Decision No. (17) of 2004 Decision Concerning Insurance Agents Working within the Motor Licensing Departments Zones Decision No. (2) of 2005 Auditor's Certificate Concerning Reinsurance Programs Decision Decision No. (4) of 2005 Decision of the Form for the Accreditation of the Juridical Insurance Broker Decision No. (5) of 2005 Decision of the Form for the Accreditation of the Juridical Insurance Agent Decision No. (6) of 2005 Decision of the Form for the Addition of an Insurance Class to the License of the Insurance Agent Decision No. (7) of 2005 Decision of the Forms for Granting and Renewing the License of the Loss Adjuster, the Re-Listing in the Register and the Addition of an Insurance Class Decision No. (8) of 2005 Decision of the Forms for Granting and Renewing the License of the Surveyor, the Re-Listing in the Register and the Addition of an Insurance Class Decision No. (9) of 2005 Decision of the Forms for Granting and Renewing the License of the Consultant, the Re-Listing in the Register and the Addition of an Insurance Class Decision No. (10) of 2005 Decision of the Forms for Granting and Renewing the License of the Reinsurance Broker and the Re-Listing in the Register Decision No. (11) of 2005 Decision of the Form for Granting and Renewing the License of the Company Administrating the Expenses and Medical Insurance Service Decision No. (15) of 2005 Basis of Calculating the Unearned Premiums Reserves for Marine and Transport Insurance License Decision No. (1) of 2006 Decision Concerning the Procedures Related to Suspending the License of an Insurance Agent Decision No. (3) of 2006 Decision of the Form for the Transfer of the Key Employee in Charge of the Insurance Agency Business at a Juridical Insurance Agent to work for another Juridical Insurance Agent Decision No. (4) of 2006 Decision of the Form for the Transfer of the Person in Charge of the Insurance Brokerage Business at a Juridical Insurance Broker to work for another Juridical Insurance Broker Decision No. (5) of 2006 Decision of the Form for the Addition of an Insurance Class to the License of the Insurance Broker Decision No. (8) of 2006 Decision No. (11) of 2006 Decision of the Forms Concerning the Accreditation of Mediators and Arbitrators in Insurance Disputes at the Insurance Commission Decision No. (12) of 2006 Decision of the Forms Concerning the Mediation Agreement, Mediation Request, Agreement Concerning Mediators in Insurance Disputes and a Pledge to Maintain the Confidentiality of the Mediation Proceedings Decision No. (13) of 2006 Decision of the Forms Concerning the Arbitration Agreement, the Arbitration Request and the Agreement Concerning Arbitrators in Insurance Disputes







http://www.irc.gov.jo/doc/DecisionNo_4_of2005-Final.pdf

http://www.irc.gov.jo/doc/DecisionNo_4_of2005-Final.pdf
























http://www.irc.gov.jo/doc/DecisionNo.2of2006Final.pdf









http://www.irc.gov.jo/doc/DecisionNo.(2)of2006-Final.doc



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Decision No. (5) of 2007 Decision of the Form for Obtaining the Prior Approval of the License to Transact Insurance Business for a Jordanian Insurance Company Decision No. (6) of 2007 Decision of the Form for Obtaining the Prior Approval of the License to Transact Insurance Business for a Branch of a Foreign Insurance Company Decision No. (7) of 2007 Decision of the Form for Renewing the License to Transact Insurance Business Decision No. (8) of 2007 Decision Concerning the Forms Required to Prepare the Financial Reports and Statements Decision No. (1) of 2008 Decision of the Form for the Detailed Information about the Constituents of the Insurance Company Decision No. (2) of 2008 Decision Concerning the Scope of Applicability of the Provisions of the Instructions of Anti Money Laundering in Insurance Activities Decision No. (3) of 2008 Decision Concerning the Transaction of a Reinsurance Broker who is not a Resident of the Kingdom with Local Insurance Companies Decision No. (4) of 2008 Formation of the Management Committee of the Fund for Remunerating the Injured Parties from Motor Accidents Decision Decision No. (5) of 2008 Formation of the Committee for Resolving Insurance Disputes Decision Decision No. (5) of 2009 Decision of Collecting the Annual Fee from Insurance Company Decision No. (6) of 1994 Issued by the Council of Ministers Announcement No. (37) of 2000 Issued by the Prime Minister Decision No. (11) of 2002 Issued by the Interpretation Bureau

http://www.irc.gov.jo/doc/PIOD/Decision_No_5of2007-Final.pdf








http://www.irc.gov.jo/doc/PIOD/Decision_No-2.pdf



http://www.irc.gov.jo/doc/PIOD/Decision_No_3_of_2008.pdf



http://www.irc.gov.jo/doc/PIOD/Decision_No4_%20of_2008.pdf



http://www.irc.gov.jo/doc/PIOD/Decision_No-5-2008.pdf

http://www.irc.gov.jo/doc/PIOD/Decision_No-5-2008.pdf

http://www.irc.gov.jo/doc/PIOD/Decision_No._5_Collecting_Annual_Insurance_Fee.pdf

http://www.irc.gov.jo/doc/PIOD/Decision_No._5_Collecting_Annual_Insurance_Fee.pdf


55

Annex 7: Instructions for Granting and Renewing the License to Transact Insurance Business Instructions No. (1) of 2003. Instructions for Granting and Renewing the License to Transact Insurance Business and the Amendments Thereof*Issued by the Board of Directors of the Insurance Commission pursuant to paragraph (B) of Article (45) and paragraph (B) of Article (108)of the Insurance Regulatory Act Article (1):

These Instructions shall be known as (Instructions for Granting and Renewing the License to Transact Insurance Business of 2003), which shall come into force as of 1/1/2003 and shall be published in the Official Gazette. Article (2):

A- The words and phrases, wherever mentioned in these Instructions shall have the meanings ascribed thereto under Article (2) of the Insurance Regulatory Act, unless otherwise indicated by context. B- For purposes of these Instructions, the following words and phrases shall have the meanings ascribed thereto hereunder:- Act : The Insurance Regulatory Act. Prior Approval: The approval stipulated in paragraph (B) of Article (25) of the Act. Business Plan: Summery of the proposed activity the Company will be conducting in the next financial

years, explaining the means for exploiting the available resources to achieve the objectives of the Company. Article (3):**

A- The application for obtaining the Prior Approval shall be submitted according to the form designated for this purpose which shall be issued pursuant to a Decision by the Director General, which includes the following data:- 1- Type of insurance required to be transacted. 2- Classes of insurance required to be transacted. 3- Authorized capital and the amount earmarked for underwriting. 4- Names of the constituents, chosen addresses for the purpose of notification and the number of shares for each of them. 5- Name and address of the legal counselor during establishment. 6- Name and address of the Auditor during establishment. 7- Name and address of the Actuary during establishment. 8- Name and address of the accredited bank by the constituents during establishment. B- The following documents shall be attached with the application:- 1- Signed memorandum of association and articles of association of the Company. * These Instructions were published in the Official Gazette volume (4581) dated 16/1/2003 page (241) and have been amended according to Instructions No. (4) of 2006 Instructions Amending the Instructions for Granting and Renewing the License to Transact Insurance Business No.(1) of 2003. ** This Article has been amended according to Article (2) of Instructions No. (4) of 2007. 2- Constituents minutes of meeting that include the election of the constituents committee which shall supervise the establishment procedures and the authorized signatories during establishment. 3- Detailed information about the constituents, including information about their educational qualifications, experiences, ownership in other companies and their membership in the board of directors of these companies. These information shall be submitted to the Commission according to the form designated for this purpose, which shall be issued pursuant to a Decision by the Director General, and each constituent shall fill and sign the form. 4- Business Plan for the first three financial years of the operation of the Company organized pursuant to Article (4) of these Instructions. 5- A certificate from the Actuary that includes the following:- - His approval on the basis of calculating the premium rates. -The adequacy of the Technical Provisions, and the possibility of compliance with the Solvency Margin and the Minimum Guarantee fund according to the Instructions in force in this regard, during the first three years of the operation of the Company. - His approval on the basis for which the information submitted in accordance with the provisions of Articles (4) and (5) of these Instructions, was based on. 6- A list of the proposed names for the post of the director general of the Company and the key employees therein, with a detailed description that includes the qualifications and expertise of each of them pursuant to the provisions of Article (33) of the Act, and a proof of their fulfillment to the conditions stipulated in Articles (31) and (32) of the Act. 7- Copies of the agreement forms that will be concluded with insurance Agents, insurance Brokers, Reinsurance Brokers and the providers of insurance services. 8- Proof of paying the fees and charges legally determined. 9- Any other requirements, data, documents or information requested by the Director General.


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C- The applicant shall present a written declaration which includes that all the data and documents submitted pursuant to the provisions of paragraphs (A) and (B) of this Article are correct and consistent with the provisions of the Act, Regulations, Instructions and Decisions issued pursuant thereto, as the case may be. Article (4):*

The Business Plan shall include the following data and information as a minimum:- A- A detailed strategic plan for the operations of the Company, which the constituents shall discuss it with the Commission upon request. This plan shall include the following as a minimum:- 1- The activities which the Company will transact and the needed resources for performing it. 2- Details of the organizational structure of the Company. 3- Details of the computerization systems which the Company will apply. B- The types of obligations and liabilities the Company transacting life assurance proposes to incur, and the types of risks the Company transacting general insurance proposes to cover. * This Article has been amended according to Article (3) of Instructions No. (4) of 2007. C- The projected financial statements for the first three years of the operations of the Company, as regulated in accordance with Article (5) of these Instructions. D- The distribution channels of the Company, whether by direct sale, or through agents, insurance Brokers or by the employees of the Company, along with the expected percentages for each channel. E- The reinsurance policy pursuant to the provisions of the Reinsurance Instructions in force. F- Statement for each type of the Insurance Policies, for each year of the first three years of the operations of the Company, including the following:- 1- The benefits and conditions of the Insurance Policies, endorsements, and copies of such. 2- The expected number of these Policies that will be issued. 3- The estimation of the gross premiums and the net premiums, after deducting the shares of reinsurers, and the estimation of the claims after deducting what could be recovered by the Reinsurers. 4- The total sums assured or the amounts of annuity per annum related to life assurance business. G- The technical basis proposed by the Actuary for each class of the insurance classes, including the basis required for calculating the premium rates and Technical Provisions. H- Projections of the expected development of the business of the Company. I- Written preliminary policies of the activities, procedures and systems that will be applied by the Company in order to comply with the Law, Regulations, Instructions and decisions issued by virtue thereof, including issues related to the following:- 1- Corporate Governance. 2- Anti money laundering in insurance activities. 3- Securing the information technology systems. J- Assets and liabilities management policy. K- Description of the plan which the Company will apply for encountering the emergency cases that the Company may face, provided that it shall include as a minimum the arrangements and preparations for dealing with such cases before, during and after its occurrences. L- Description of the accounting system which the Company will apply. M- Human resources development plan in the Company. Article (5):

The applicant shall submit the projected financial statements prepared on the bases of the most possible case and the sensitivity analysis, for each year of the first three years of the operation of the Company, in accordance with the forms necessary for preparing the financial reports issued by virtue of the Instructions prepared for this purpose, provided that the following is included:- A- The sources and uses of funds for the Company. B- The estimated income of the Company and the expected expenditures. C- The estimated Technical Provisions the Company should maintain, the Solvency Margin and the Minimum Guarantee Fund. D- The assumptions and the technical bases used in calculating the expectations and estimations stipulated in paragraphs (A-C) of this Article. Article (6):

A- The Director General shall notify the applicant, within one month as of the date of submitting the application, either by the completion or incompletion of the application to all data and documents stipulated in Articles (3), (4) and (5) of these Instructions. B- In the case of incompletion, the applicant shall fulfill the incompletion within a period not exceeding three months as of the date of notification of such; otherwise the application shall be considered null and void. The applicant shall not be allowed to submit another application before the elapse of six months as of the date of the voidance of the application. Article (7):*

In reviewing the application, the Commission will take into consideration the value added from licensing the Company on the Jordanian Insurance sector and the impacts of its businesses and activities on this sector. The board upon its discretion and according to a recommendation of the Director General, may


57

refuse the application if it appears that there is no value added from licensing the Company or if there are negative or unacceptable impacts on the Jordanian insurance sector. Article (8):**

A- The Director General shall submit to the Board, his recommendation on the application, within a period not exceeding three months as of the date of notifying the applicant with the completion of the application to all the data and documents. B- The Board shall issue a decision regarding the application within thirty days as of the date of submitting the recommendation pursuant to the provisions of paragraph (A) of this Article or in the first meeting to be held by the Board. C- The Board shall issue the decision either with Prior Approval or by rejection; in case of rejection the decision of the Board must be justified. D- The Prior Approval of the Board shall be considered canceled if all the necessary requirements to obtain the License in accordance with the provisions of these Instructions are not fulfilled within one year as of the date of granting the Prior Approval. Article (9):***

In case of the Prior Approval of the Board on the application pursuant to the provisions of Article (8) of these Instructions, the Director General shall request from the applicant the necessary data and documents for obtaining the License, including the following:- A- A certified document from a Jordanian Bank, which proves the full payment of the minimum capital required. B- A proof of the completion of the establishment procedures of the Company. C- Statement of the equipments and real estate required for the operation of the Company. D- A written declaration that all the data and documents mentioned in paragraphs (A-C) of this Article are correct. * Article (7) has been added according to Article (4) of the Instructions No.(4) of 2007. ** Articles (7-19) of the original Instructions has been renumbered to become Articles (8-20) according to Article (4) of the Instructions No.(4) of 2007. Article (7) of the original Instructions has been amended according to Article (5) of the Instructions No.(4) of 2007. *** This Article has been amended according to Article (6) of Instructions No.(4) of 2007. E- Any other requirements, data, documents or information requested by the Director General. Article (10):*

Upon completion of the data and documents as stipulated in Article (9) of these Instructions, the Board shall issue upon the recommendation of the Director General a decision to grant the License within thirty days as of the date of submitting the recommendation to the Board or in the first meeting to be held by the Board. Article (11):**

A- The application for obtaining a Prior Approval for a branch of a foreign insurance company, shall be submitted according to the form designated for this purpose, which shall be issued pursuant to a Decision by the Director General, attached with the data and documents stipulated in Articles (3), (4) and (5) of these Instructions, as the case may be, in addition to the following:- 1- A detailed description that includes the qualifications and expertise of the Authorized Manager pursuant to the provisions of Article (33) of the Act, and a proof of fulfilling the conditions stipulated in Articles (31) and (32) of the Act. 2- A copy of the license to transact insurance business in the country which the mother company carries its nationality, certified according to the rules by the Governmental Supervisory or Regulatory Bodies, including the types and classes of insurance the company is licensed to transact. 3- A certified statement that proves the solvency of the foreign company, in the country which the mother company carries its nationality. 4- An audited balance sheet of the foreign insurance company for the three financial years prior to submitting the application. 5- A copy of the profile of the mother company, the organization thereof, the activities and the markets it covers. 6- A copy of the last annual report of the mother company. 7- A written approval from the Supervisory Authority in the country which the mother company carries its nationality to work in the Kingdom, and a letter of comfort issued by this Authority about the mother company status. 8- A proof that the foreign company is assigned a proactive credit rating within the first group mentioned in the Solvency Margin Instructions and the Decisions issued by virtue thereof, or a proof of the safety and soundness of the financial position of the company. 9- Any other requirements, data, documents or information requested by the Director General. B- The application for transacting insurance types or classes, shall not be different from the types and classes that the foreign company is licensed to transact. Article (12):***


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A- The provisions of Articles (6), (7) and (8) of these Instructions shall be applied for the purpose of issuing a decision regarding the application submitted pursuant to the provisions of Article (11) of these Instructions. * This Article has been amended according to Article (7) of Instructions No.(4) of 2007. ** This Article has been amended according to Article (8) of Instructions No.(4) of 2007. *** This Article has been amended according to Article (9) of Instructions No.(4) of 2007. B- Where the Board grants the Prior Approval, the Director General shall request from the applicant to submit the data and documents stipulated in Article (9) of these Instructions, as the case may be, in addition to the decision of appointing the Authorized Manager and a certified copy of the official document authorizing him with all the powers necessary for managing the branch of the foreign company pursuant to the provisions of Article (43) of the Act. The application shall be resolved by virtue of the provisions of Article (10) of these Instructions. Article (13):

The Director General shall issue the License for the Company that includes the name, address, type and classes of insurance which the Company is licensed to transact, after paying the determined fees and charges for granting the License. Article (14):

The term of the License shall be for one year which shall commence on the first of January and shall end on the thirty first day of December of each year. Where the License is issued during the year, the License term shall commence on the date of granting the License and shall end at the end of the same year. Article (15):

The Company that has been granted the License to transact insurance business pursuant to the provisions of these Instructions, shall immediately notify the Commission of any change that has occurred on the data and information which the Company has been granted the License by virtue thereof. Article (16):

A- The application for renewing the License shall be submitted according to the form designated for this purpose pursuant to a Decision issued by the Director General, forty-five days prior to the date of the expiration of the License. B- The application for renewing the License shall be attached with the following data and documents:- 1- List of the names of the board members of the Company, the director general, authorized signatories and key employees therein. 2- List of the branches of the Company inside and outside the Kingdom. 3- List of the names of the Actuaries, insurance Agents, insurance Brokers, Reinsurance Brokers and insurance service providers, which the Company deals with. 4- Reinsurance programs for the next financial year. 5- Projected financial statements for the next financial year. 6- Any data or documents requested from the Company pursuant to the provisions of the Act, Regulations, Instructions or Decisions issued by virtue thereof, which the Company did not submit during the year. Article (17):*

A- If the application for renewing the License has the complete data and documents; it shall be resolved by a Decision issued by the Director General within thirty days as of the date of submitting the application. In case of approval, the Director General shall notify the Company thereby pursuant to the provisions of the Act. * This Article has been amended according to Article (10) of Instructions No.(4) of 2007. The License shall be issued pursuant to the provisions of Article (13) of these Instructions, as the case may be. B- In case of rejecting the application stipulated in paragraph (A) of this Article, or in case of not completing or not submitting an application for renewal pursuant to the provisions of Article (16) of these Instructions, the provisions of the Act relating to suspending and canceling the License, as the case may be, and the results of such shall be applied. C- The Company shall not be permitted to issue Insurance Policies after the expiration date of the License as stipulated in Article (14) of these Instructions, without obtaining an approval on the application of renewing the License Article (18):

The provisions of these Instructions shall be applied, as much as they are applicable, on any Company requesting to add a license in a class of insurance or more to the classes the Company transacts. Article (19):

The Commission shall keep a special register for each Company that includes all the data and documents submitted pursuant to the provisions of these Instructions.


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Article (20):

The Director General shall issue the Decisions necessary for implementing the provisions of these Instructions. Board of Directors of the Insurance Commission


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Annex 8: Instructions for Opening A Branch of an Insurance Company Inside or Outside the Kingdom* Instructions (6) of 2005Issued by the Board of Directors of the Insurance Commission pursuant to the provisions of Article (28) and paragraph (B) of Article (108) of the Insurance Regulatory Act No. (33) of 1999 and the Amendments Thereof Article (1):

These Instructions shall be known as the (Instructions for Opening A Branch of an Insurance Company Inside or Outside the Kingdom of 2005) and shall come into force as of the date of its publication in the Official Gazette. Article (2):

A- The words and phrases mentioned in theses Instructions shall have the meanings ascribed thereto in Article (2) of the Insurance Regulatory Act No. (33) of 1999 and the Amendments Thereof, unless otherwise indicated by context. B- For purposes of these Instructions, the words and phrases mentioned hereunder shall have the following meaning:- Act: The Insurance Regulatory Act in force. Host Country: The country where the foreign branch of the Company will be opened. Article (3):

A- Subject to what is mentioned in Article (4) of these Instructions, the application for opening a branch outside the Kingdom shall be submitted according to the form designated for this purpose, which includes the following data:- 1- Name of the Company. 2- Number of branches inside and outside the Kingdom. 3- Type of insurance required to be transacted. 4- Classes of insurance required to be transacted. 5- The geographical location where the branch will be transacting business. B- The following documents and information shall be attached to the application:- 1- A decision issued by the board of directors of the Jordanian insurance company for opening the branch. 2- The feasibility study for opening the branch, including the estimated balance sheet for the financial status for the first three financial years of the opening of the branch. 3- A statement that shows the relationship between the Company and the branch, and the authorities granted to it. 4- The organizational structure of the branch, as well as the number of employees. 5- A list of the names of the key employees including the director or the person in charge of the branch, with a detailed description that includes the qualifications and expertise of every one of them, pursuant to the * These Instructions were published in the Official Gazette volume (4726) dated 1/11/2005 page (4554). provisions of Article (33) of the Act, and a proof of fulfilling the conditions, stipulated in Article (31) of the Act, provided that the list shall include names of the authorized signatories of the branch. 6- A statement of the equipment and real estate required for the operation of the branch. 7- A written declaration indicating that all the data, information and documents stipulated in this Article are correct. 8- Any other data, documents or information requested by the Director General. Article (4):

A- The solvency margin percentage, at the level of the unified data, of the Company requiring to open a branch outside the Kingdom shall not be less than (200%) pursuant to the Solvency Margin Instructions in force. The Company shall maintain this percentage during the period of operation of its branch outside the Kingdom. B- When looking into the application for opening a branch outside the Kingdom, the following shall be taken into consideration:- 1- The scope of supervision by the Company on the branch. 2- The regulatory and supervisory environment on insurance business in the Host Country. 3- The financial and technical capability of the Company to open a branch outside the Kingdom, the qualifications and expertise of the persons in charge and scope of compliance with the provisions of the Act, Regulations, Instructions and Decisions issued by virtue of any of them.


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Article (5):

A- The Director General shall notify the Company submitting the application, within a month as of the date of submitting the application, either by the completion or incompletion of the application to all data and documents stipulated in Article (3) of these Instructions. B- In case of incompletion, the applicant shall fulfill the incompletion within a period not exceeding one month as of the date of notification of such; otherwise, the application shall be considered null and void. The applicant shall not be allowed to submit another application before the elapse of six months as of the date of voidance of the application. Article (6):

A- In case of completion of the application to all data and documents stipulated in Article (3) of these Instructions, the Director General shall issue a decision either by the approval or rejection for opening a branch, within a period not exceeding one month as of the date of notification of such. In case of rejection, the decision of the Director General shall be justified. B- In case of approval for opening a branch, pursuant to paragraph (A) of this Article, the branch shall be listed in the register designated for this purpose, after submitting a certified copy, by the Company, for transacting insurance business in the Host Country and paying the fees and charges determined pursuant to the Regulations and Instructions issued for this purpose by virtue of the Act. Article (7):

A- The Company, which obtained the approval for opening a branch outside the Kingdom, shall transact its business through that branch, within a period not exceeding one year as of the date of notification of the approval. B- In case the Company did not transact its business pursuant to the provisions of paragraph (A) of this Article, the Director General may cancel or extend the approval for a period not exceeding six months upon justified reasons. In all cases, if the branch has not been opened within the determined period, the approval shall be legally considered void. Article (8):

It shall be prohibited for the branch of the Company outside the Kingdom to transact:- A- Any insurance business, before obtaining the approval for opening a branch. B- Any type or class of insurance which is not within the Company's license and is not licensed to transact. Article (9):

The Company that has been granted the license to open a branch outside the Kingdom pursuant to the provisions of these Instructions shall immediately notify the Director General of any change that has occurred on the data, information and documents, which the Company has been granted the license by virtue thereof. Article (10):

The Company that has a branch outside the Kingdom shall furnish the Director General with the following:- A- Balance sheet, profits, losses and the underwriting accounts for every license of the first quarter of the financial year by the end of April, at the most, and of the third quarter of the financial year by the end of October, at the most, for all classes for every country separately, according to the form designated for this purpose. B- Semi-annual financial statements, audited by a licensed auditor, by the end of July, at the most, for all classes for every country separately, according to the form designated for this purpose. C- Annual financial statements, audited by a licensed auditor, by the end of February, at the most, for all classes for every country separately, according to the form designated for this purpose. D- Notes related to the temporary audit concerning the examination of the internal audit and internal control systems, for all classes for every country, as soon as receiving of such from these branches. E- Proof of transferring the branch's realized profits, annually, to the Kingdom, in case of transferring its capital from the Kingdom. F- Any directions or correspondences from the Insurance Regulatory and Supervisory Body of the Host Country that has direct relation with the business of the branch, as soon as received. G- Any other data, information or documents requested by the Director General. Article (11):

The branch, outside the Kingdom, shall be subject to auditing pursuant to the provisions of the Act. The Company shall bear full expenses resulting from such auditing, and the provisions of the Personnel Regulation of the Insurance Commission in force, Instructions and Decisions issued by virtue of any of them related to the travel allowances shall be applied in this regard. Article (12):

A- The Company that wishes to close its branch, outside the Kingdom, suspend its business or move its place, shall notify the Director General of the following:-


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1- The approval by the Host Country to close the branch, suspend its business or move its place according to the legislation in force of the Host Country, if any. 2- Plans regarding the closure process of the branch, suspension of its business or moving its place, and results of such. B- Subject to Regulations of the Host Country, the following rules shall be applied upon closure of the branch, outside the Kingdom, or the suspension of its business:- 1- Rights and responsibilities of the branch, after the closure, shall be transferred to the Company. 2- The Company shall not be allowed to submit another application to open a branch in the same location where its branch has been closed or suspended pursuant to the provisions of paragraph (A) of this Article, before the elapse of one year as of the date of closure or suspension. 3- The branch shall not underwrite any new Insurance Policies after the closure or the suspension decision is issued. Article (13):

The branch, outside the Kingdom, shall comply with the provisions of the Act, Instructions and Decisions issued by virtue of any of them, including the Basis of Calculating the Technical Provisions Instructions and Reinsurance Instructions in force, where there is no legislation at the Host Country to regulate its business in this regard. Article (14):

A- The Company that wishes to open a branch inside the Kingdom shall:- 1- Notify the Director General of such, in writing, before the commencement of its business. 2- Provide any data or information requested by the Director General concerning the Company or the branch, within the period determined by the Director General. B- The branch shall be listed in the register designated for this purpose after paying the fees and charges determined pursuant to the provisions of the Regulations and Instructions issued for this purpose by virtue of the Act. Article (15):

The branch, inside the Kingdom, shall not be allowed to transact any type or class of insurance which does not fall within the Company's license and is not licensed to transact. Article (16):

The Company that opened a branch inside the Kingdom pursuant to the provisions of these Instructions shall immediately notify the Director General of any change or modification that has occurred on any of the information, which the Branch has been granted the license by virtue thereof. Article (17):

A- The Company that wishes to close, suspend or move the place of the branch inside the Kingdom, shall notify the Director General of the plans concerning the closure process, suspension of business or moving the place and the results of such. B- The Company shall not be permitted to underwrite any new Insurance Policies through its branch, inside the Kingdom, after notifying the Commission of closing or suspending that branch. Article (18):

A- The Director General may issue a decision to close the branch and cancel its registration, in any of the following cases:- 1- If the approval to open a branch was made upon false information, data and documents attached to the application. 2- If the branch, outside the Kingdom, did not commence its business within the period specified in Article (7) of these Instructions. 3- If the branch lost any of the conditions it has been granted the license by virtue thereof. 4- If the branch breached the provisions of the Act, Regulations, Instructions or Decisions issued by virtue of any of them. 5- If a decision issued by the Host Country relating to closing the branch outside the Kingdom. 6- If the branch stopped transacting its business for a consecutive twelve month, or non-consecutive within a period not exceeding three years. B- If the Director General issues a decision to close the branch and cancel its registration, the Company shall not be allowed to submit another application for opening a branch in the same location, before the elapse of two years as of the date of the closure and cancellation of the registration decision is issued. C- Where a decision to close the branch and cancel its registration is issued, the Director General shall notify the Company with that pursuant to the provisions of the Act. The registration of the branch shall be cancelled from the register designated for this purpose at the Commission. D- Regulations of the Host Country shall be taken into consideration when applying the provisions of this Article. Article (19):

The Company shall undertake to adjust the status of its branches inside and outside the Kingdom pursuant to the provisions of these Instructions, within a period not exceeding one year as of the date these Instructions came into force, subject to closure of the branch and the cancellation of its registration. Article (20):

The Director General shall issue the Decisions necessary for implementing the provisions of these Instructions. Board of Directors of the Insurance Commission


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Annex 9: Insurance Services, CPCprov code 812

I. Life, accident and health insurance services

8121 - Life insurance and pension fund services

81211 - Life insurance services

Insurance underwriting services consisting in making payments upon the death of the policy holder, or at the end of an agreed term, with or without a profit element.

81212 - Pension and annuity services

Insurance underwriting services providing incomes (annuities) upon retirement according to contributions paid to pension schemes during economically active lifetime. Pension fund management services are included.

II. 8129 - Non-life insurance services

This Class is divided into the following Subclasses:

81291 - Accident and health insurance services

III. Reinsurance and retrocession

81299 - Other insurance services n.e.c.

III. 8140 - Services auxiliary to insurance and pension funding

81401 - Insurance broking and agency services 81402 - Insurance and pension consultancy services 81403 - Average and loss adjustment services 81404 - Actuarial services 81405 - Salvage administration services 81409 - Other services auxiliary to insurance and pension funding

http://unstats.un.org/unsd/cr/registry/regcs.asp?Cl=9&Lg=1&Co=8121













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Annex 10: Questionnaire

Financial Services: Insurance Note: Unless specified, please give information for the latest year available and indicate which year. If insufficient space is provided, please attach additional information on separate sheets. Please report all monetary values in their reported currencies. I. Policy Section A. Market Access Commercial presence 1. Are there policy restrictions on new entry of insurance providers in the following segments? Entry by any

insurance providers

If yes, total number of firms allowed

Entry by foreign insurance providers

If yes, total number of foreign firms allowed

Direct life insurance No Yes No Yes

Direct non-life insurance

No Yes No Yes

Re-insurance No Yes No Yes

2. If entry is restricted, what are the reasons provided by the government? To give incumbents time to prepare for competition To increase government revenue from privatization or license fees Exclusive rights to allow the provision of universal service Excessive entry is believed to threaten financial stability Perception of no economic need for new insurance companies Other: ________________________________________

3. Which of the following legal forms of establishment are allowed for foreign insurance companies? Subsidiaries Branches Representative Office All

4. Which of the following services are insurance companies permitted to provide domestically? Domestic insurance companies Foreign insurance companies


Life insurance No Yes No Yes

Property insurance No Yes No Yes

Cargo insurance No Yes No Yes

Medical insurance No Yes No Yes

Automobile insurance No Yes No Yes

Export credit insurance No Yes No Yes

Pension insurance No Yes No Yes

Investment services No Yes No Yes

Other (specify)____________ No Yes No Yes

5. Do the assets of foreign insurance companies established in the domestic country have to be held locally? No Yes If applicable, please indicate the share of assets required to be held locally: _______

6. Underwriting associations


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a) Do domestic underwriting associations41 exist? No Yes b) If yes to a), are foreign insurance companies established in the domestic country given memberships in domestic underwriting associations? No Yes

Cross-border insurance trade 7. Can domestic residents purchase the following kinds of insurance cross-border from a foreign insurance company? Life insurance No Only through resident intermediary Yes Medical insurance No Only through resident intermediary Yes Property insurance No Only through resident intermediary Yes Cargo insurance No Only through resident intermediary Yes Are any of these purchases subject to limits? Life insurance No Yes What type? ______________ Medical insurance No Yes What type? ______________ Property insurance No Yes What type? ______________ Cargo insurance No Yes What type? ______________

8. Are cross-border foreign insurance suppliers allowed to solicit business through advertising in the domestic country? No Yes Are there any limits on this type of advertisement? No Yes

9. Are insurers operating in the domestic country required to offer re-insurance business to nationally owned re-insurers before re-insuring abroad? No Yes

B. Ownership 10. Is private ownership in the provision of insurance services allowed? Existing providers Maximum

private equity permitted (%)

New entrants Maximum private equity permitted (%)


Property insurance

No Yes No Yes

Health/medical Insurance

No Yes No Yes


11. Is foreign ownership in the provision of services allowed?

Existing operators

Maximum foreign equity permitted (%)

New entrants

Maximum foreign equity permitted (%)


Property insurance

No Yes No Yes

Health/medical insurance

No Yes No Yes


41 Some countries have underwriting associations whereby a large proportion of insurance contracts in one or more

classes of insurance is placed with members of these associations.


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A. Regulation

12. Characteristics of regulator Name of insurance regulator

Year of establishment

% of Regulator’s finances from: License and other fees Budgetary allocation Other (specify)

Is the insurance regulator independent of the concerned ministry or other regulatory bodies?

No Yes

Number of professional regulatory and supervisory staff

13. How are insurance licenses allocated? a) If the number of providers is not limited by policy , specify the main conditions new entrants must fulfill: Payment of license fee (indicate amount in local currency: ________) Presentation of a detailed business plan Minimum capital Compatible home country regulation Other: _____________________ b) If the number of providers is limited by policy, through what mechanism are licenses allocated? First come, first served basis Competitive bidding Discretionary decision by the licensing authority

Other:_______________________________

c) Once the licenses have been allocated, are there restrictions on the ability of insurance firms to sell or dispose of these licenses? No Yes

If yes, please specify.

d) Are foreign companies subject to different licensing requirements from domestic insurance companies? No Yes If yes, please specify what additional requirements have to be met by foreign insurance companies: e) Are separate licenses required to establish branches in each state/province? No Yes

14. Administered allocation of resources

Government

Re-insurance that must be ceded to the state-owned

Value of government


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Category

controls on insurance prices?

re-insurers (as a % of gross premiums) 42

insurance contracted ($)

State owned insurance companies

No Yes

Private nationally owned insurance companies

No Yes

Foreign insurance companies

No Yes

15. Please list the following indicators of prudential regulation based on the latest information available.

Category

Minimum capital requirement

Capital adequacy requirement43

Liquidity reserve requirements

Covered by insolvency guarantee Scheme44?

Required frequency of publication of financial statements45

State-owned insurance companies

No Yes

Private nationally Owned insurance companies

No Yes

Foreign owned Branches Subsidiaries

No Yes

No Yes

16. Are the following life-insurance providers subject to restrictions on the type of instruments in which they can invest? Domestic life insurance providers No Yes Foreign life insurance providers No Yes If yes, % of fund allowed to be invested abroad? _____

If yes, please list the type of financial instruments in which those investments can be made.

42 Some countries mandate that companies must compulsorily re-insure either all or part of their portfolio with a state run insurance company. The requirement can also be imposed the other way, namely by requiring that only a certain percentage of gross premiums can be re-insured with private or foreign re-insurers 43 Capital Adequacy ratios for an insurance company are usually measured by the ratio of capital to risk-weighted assets. Sometimes, it is also posed as a solvency margin requirement. Solvency margins may be specified in absolute amounts or as a percentage of premiums. 44 The insurance sector’s equivalent of bank deposit insurance. 45 Please indicate whether financial statements have to be published annually or quarterly.


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17. Are insurance companies required to disclose critical information?

Related to performance No Yes

Related to changes in ownership No Yes

Other: _________ No Yes

18. Public consultation and transparency a) Which of the following are consulted in advance of regulatory decisions? Service providers Consumer groups User industries Other: _____________________ b) How are laws and regulatory decisions made public? Published on the regulator’s website Published in an official gazette Other: _____________________

E. Regional Integration Agreements in Insurance Services

19. Please indicate if there are any preferential arrangements and/or cooperative arrangements affecting insurance services, and list the preferential46 measures. Name of agreement

Partner country(s) in agreement

Date of entry into force

Preferential measures

F. Past and Future Changes in Policy 20. Please indicate major changes in market access policies, ownership rules, and regulation since 1990, as well changes that are anticipated (e.g., privatization of state-owned insurance companies, introduction of competition, entry of foreign insurance, creation of an independent regulatory agency, changes in prudential regulation).

Area of policy change (market access, ownership or regulation)

Year of change

Description of change

II. Market Structure Section

46 Please, specify how the treatment of insurance providers of member countries of the agreement differs from the treatment of insurance providers of non-member countries.


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21. Please list the characteristics of the 6 largest insurance companies in the market for life insurance: Name


Domestically owned equity (%)

Foreign equity (%)

Share in total life insurance premiums (%)

Total number of life insurance providers: ______ 22. Please list the characteristics of the 6 largest insurance companies in the market for non-life insurance: Name


Domestically owned equity (%)

Foreign equity (%)

Share in total non-life insurance premiums (%)

Total number of non-life insurance providers: ______ 23. Please list the characteristics of the insurance distribution/intermediary network. Distributor Whether present? Number of distributors

Tied Agents47 No Yes

Independent Agents No Yes

Brokers No Yes

Banks No Yes

24. Please provide the following information on the actual number of insurance companies: Number of fully state-owned insurance companies: _____ Number of privatized insurance companies: _____ Number of fully domestically owned48 private insurance companies: _____ Number of foreign minority-owned49 insurance companies: _____ Number of foreign majority-owned50 insurance companies: _____

III. Performance Indicators Section A. Employment 25. Main employment indicators How many people are employed in the insurance sector? ________ What share of the total labor force is employed in this sector? ________

47 Agents that sell insurance exclusively for one company. It is claimed that the predominance of tied agents and lack of independent agents and brokers in Japan and some European countries constitute a major structural barrier to entry. 48 Insurance companies that are not state owned where the paid-up share capital is entirely held by domestic residents. 49 Insurance companies where foreigners hold under 50% of the paid-up share capital of the company. 50 Insurance companies where 50% or more of the paid-up share capital of the company is held by foreigners.


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What share of insurance workers is employed by state-owned insurance providers? _______ What share of insurance workers is employed by foreign insurance providers? _________ What is the annual average wage in the insurance sector? ______________ If time series data on these employment indicators are available, please attach them separately.

B. Investment 26. Investment indicators (for the years 1990-2000) What is the total amount of investment in insurance services? _____________ What is the total amount of foreign direct investment in this sector? ___________ What is the total stock of foreign direct investment in this sector? ___________ If time-series data from 1990 to 2000 is not available, please collect indicators for the years 1990, 1995 and 2000.

C. Prices and Performance Indicators 27. Please list the following price and performance indicators for the latest year available. For a comprehensive assessment of insurance sector performance, it would be extremely useful to have historical data on these measures. If time series data are available, please attach them separately (preferably electronically). Category

Average monthly Premium on a 10 year life insurance policy

Average monthly health insurance premium

Loss ratio51

Retention ratio52

State owned insurance providers

National Private Owned insurance providers

Foreign Owned insurance providers

D. Quality and Access to Insurance Services 28. Which of the following new services have been introduced by foreign insurance companies in the last 10 years? Private health insurance Automobile insurance Private pension insurance

29. Please indicate the following: a) Share of adult population or households covered by life insurance contracts: _____ Share of household savings channeled through life insurance: _____ Total Premiums as a percentage of GDP: _____ b) If available, indicate average time (in days) for claims processing in the following segments: Life insurance: ______ Property insurance: _____ Automobile insurance: _____

51 The Loss Ratio of an insurance company is defined as the ratio of losses incurred to premiums earned. 52 Defined as the ratio of net premiums to gross premiums.


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Health insurance: ______

c) In which of the following segments is insurance mandated by law?

Life insurance: ______ Property insurance: _____ Automobile insurance: _____

Health insurance: ______

d) Do foreign insurance companies participate in insuring poor and rural households? No Yes If yes, what is the percentage of foreign insurance companies in the value of total rural insurance contracts? _____

Please, provide the name and contact information of the respondent of this questionnaire, or of a specialist from whom we can obtain clarifications if necessary. Name_____________________________________________________________________ Telephone__________________________________________________________________ Fax_______________________________________________________________________ E-mail address______________________________________________________________

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