Saudi Arabian Law Overview

The first Saudi Arabian legislation regulating insurance was enacted as the Control of Cooperative Insurance Companies Regulation, Royal Decree No M/32 of 2 Jumada Thani 1424 Hejra (corresponding to 31 July 2003), which entered into force on 20 November 2003 and which became effective with the publication of its Implementing Rules on 23 April 2004. The legislation regulates insurance brokers, insurance agents, insurance consultants, surveyors, loss adjusters and actuaries, who must be licensed to carry on business in Saudi Arabia.

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

It is further required that Saudi insurers must operate on a cooperative basis. There is no detailed framework as to how cooperative insurance is to be conducted. Rather, within the regulatory framework the only real restriction on an insurer’s operations is the requirement to maintain separate profit and loss accounts for policyholders and for shareholders, and that there must be a distribution of part of the net surplus from the insurance operations among the policyholders. SAMA’s Surplus Distribution Policy (published in 2015) provides further details on the distributions of surpluses. Thus, it is open to insurers to write business essentially on a commercial basis, subject to the redistribution element on a semi-cooperative basis.

The insurance legislation places several restrictions on transnational transactions. Thus, SAMA’s consent must be obtained:

1. Prior to a Saudi insurer associating with non-Saudi insurance funds;
2. Should Saudi insurers, brokers and agents wish to place cover with Lloyd’s or non-Saudi insurance companies;
3. If less than 30% of reinsurance is placed within the Kingdom.

Previously, only Saudi-registered companies which were incorporated by Royal Decree as public JSCs, with a minimum paid-up capital of SAR 100 million for primary insurers and SAR 200 million for reinsurers, could provide insurance cover in the Kingdom. SAMA is currently assessing plans to quintuple the minimum capital requirements for Saudi Arabian insurers. Primary insurers would see an increase to SAR 500 million, while reinsurers would see an increase to SAR 1 billion. Companies that write both primary insurance and reinsurance would have a minimum capital requirement of SAR 1.5 billion.

In accordance with the Rules for Licensing and Supervision of Branches of Foreign Insurance and/or Reinsurance Companies issued by SAMA according to the Governor’s Decision No 18/440 of 10 Rabi Thani 1440 Hejra (corresponding to 17 December 2020), foreign insurers may establish branches in Saudi Arabia. A foreign branch’s senior managers must be Saudi residents approved by SAMA. Transfers of money from a local branch to a foreign branch of a company are heavily regulated, and require SAMA approval. A foreign company will remain liable for policyholder obligations and other liabilities of their Saudi branch.

To obtain an insurance licence, foreign insurers need to submit an extensive application to SAMA which must include a five-year business plan, the classes of insurance and reinsurance that will be undertaken, plans for marketing and expansion, and projections of underwriting growth, costs and solvency. Additionally, a successful application entails the receipt of various confirmations from the foreign insurance company’s home supervisory authority, namely that the applicant:

1. is licensed to carry out the same type of insurance business in its home jurisdiction, and has been carrying it out for the past three years;
2. is not insolvent and satisfies all the regulatory requirements of its home jurisdiction.

The Implementing Rules also set out detailed guidelines concerning non-Saudi reinsurers with whom cover may be placed.

SAMA has wide-ranging powers of control concerning the management and finances of insurance companies. For example:

1. Board members and senior managers of insurance companies must be approved by SAMA.
2. Mergers and takeovers of insurance companies must be approved by SAMA.
3. Any change of ownership in a block of shares exceeding 5% must be notified to SAMA.
4. SAMA has the right to set minimum and maximum limits of cover and of premiums.
5. Retention of risk must not be below 30%, unless SAMA’s consent is obtained.
6. Cover must be provided on standard form policies, the terms of which must be approved by SAMA.

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

The provisions of the Control of Cooperative Insurance Companies Regulation and its Implementing Rules are limited to setting out a regulatory framework. There is not at present a comprehensive code of rules governing insurance contracts generally, but SAMA in recent years has released a steadily growing body of rules aimed at governing various types of insurance, and the relationships between insurance providers and their customers. These include:

1. The Cooperative Health Insurance Policy, approved by Ministerial Decision No R/1/18/3 of 12 Jumada Al Awwal 1439 Hejra (corresponding to 29 January 2018), which regulates the mandatory health insurance scheme currently in place within Saudi Arabia;
2. The Rules Governing Insurance Aggregation Activities, issued according to Governor’s Decision No 441/4 of 25 Jumada Thani 1441 Hejra (corresponding to 19 February 2020), which set out the requirements for granting a licence to carry out online insurance aggregation activities and contain provisions governing relationships between insurance aggregators and insurance companies;
3. The Rules Governing Bancassurance Activities, issued according to Governor’s Decision No 188/441 of 14 Shaban 1441 Hejra (corresponding to 7 May 2020), which regulate bancassurance activities and practices in Saudi Arabia and govern the relationship between companies and banks in this regard; and
4. The Rules for Comprehensive Insurance of Motor Vehicles Financially Leased to Individuals, issued according to Governor’s Decision No 441/191 of 2 Dhul Hijja 1441 Hejra (corresponding to 23 July 2020) which govern the relationship between financing entities and their customers in respect of insurance coverage on leased vehicles.

In general, however, in Saudi Arabia the rights of parties to insurance contracts must be determined by reference to the wording of the policy, without reference to an underlying body of law.

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

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