Sunday, November 22, 2020

Insurance sector crisis and neglect of regulations

I waited a long time before I wrote this article and to be precise I have waited a whole financial year, and I was hoping that my expectations and financial speculations would come wrong but unfortunately they were not.


The insurance market has seen a significant rise in the prices of many insurance products, particularly medical and car insurance, which account for nearly 80% of the Saudi market, which reached 30 billion in the latest official report issued by the Saudi Arabian Monetary Agency.

But the question that always comes to my mind if insurance companies invest in risk how do they fall into the heart of risk and make huge losses that eat up most of the capital invested!
The answer is that companies could have gone beyond the risk if they were really interested in moderate long-term profitability, focusing on national cadres, renouncing selfishness and personal interests of boards and executive departments, which focused on achieving short-term sales and bonus rates.

The greatest concern of the board of directors was to raise the market value of the shares and withdraw in a timely manner and as we say in colloquial (stapled) loss on the show of small shareholders or clients of the company who we explained in the previous article that they are partners but suspended.

As for the regulator, she had been asleep for many years and had only woken up to the earthquake that killed nearly 20 insurance companies. The Monetary Institution had a duty to have indicators to prevent such a disaster or, at the very least, to save what could be saved. But what is worse is that these indicators were already present and the possibility of predicting the disaster was possible as the regulations of the cooperative insurance companies system issued in 1425 guaranteed the right of the Saudi Arabian Monetary Agency to monitor the finer details of the insurance companies.

For example, financial control and pricing policies in companies are not limited to.
The Executive Regulations of the Cooperative Insurance Companies Control System states:
Article 20.

First, the company should appoint an actuarial expert with an associate degree, or use the services of an expert.

After obtaining written approval from the foundation, actuary performs the following tasks:

  • 1. Get the required information and data from the former actuary.
  • 2. Review the financial position of the company.
  • 3. Assess the company's ability to pay its future obligations.
  • 4. Determining retention rates.
  • 5. Pricing the company's insurance products.
  • 6. Identifying and approving the company's technical allocations.
  • 7. See the company's investment policy and make recommendations on it.
  • 8. Any other actuarial recommendations.

Second: The actuary is held responsible professionally for the consultancy or services it provides to the company,

At the company's request, the actuarial expert must submit the following to the company's management:

  • 1. Correct actuarial information and data about the company's current and future financial situation.
  • 2. An annual report on the adequacy of the company's technical allocations no later than 60 days from the date End of fiscal year.
  • 3. Annual report on the pricing of the company's insurance products no later than 60 days from the date of End of fiscal year.
  • 4. An analysis of the company's return on investment.
  • 5. An analysis of the development of insurance portfolios.
  • 6. Expense analysis.
  • 7. The compatibility of assets with liabilities.
  • 8. Positive and negative developments in the subscription policy.
  • 9. If the company fails to request the preparation of these studies on time, the institution is entitled to appoint an actuarial expert at the expense of the company to perform the required tasks.
Third: The actuarial expert's report is one of the documents seen by the external chartered accountant, especially when any current or future risks to the company are noted, and a copy of this report is provided to the institution in due course.

When noting any current or future risks to the company, the actuarial expert should submit an urgent report directly to the Company's Board of Directors, 
and the Board of Directors should review the report, provide its views and provide it with it within 15 days of receiving the report."
From the above we see the great role played by actuaries in the insurance sector, companies are obliged through this regulation to deal with the actuarial expert to determine the prices of products from the beginning. 

The Monetary Authority also obliges companies to submit an annual report on the adequacy of the prices set by the actuator, so the indications that insurance companies are on the decline have been clear from the outset.

As article 73 of the second paragraph states:
"2. The company and the self-employed persons of the institution submit the accounting report and financial statements, no later than 60 days after the end of the company's fiscal year for approval before publication."

Has the Monetary Institution been looking at these financial statements for the past period and not feeling the danger ahead or was it oblivious to the fact that insurance companies that are supposed to be leading companies in the economy have become a major burden on the national economy.

To this point, I still believe that the future of insurance companies is uncertain and unclear through the negligence and apparent failure of the Monetary Institution to implement the regulations for a full decade.

We do not deny that the Monetary Agency has finally woken up to stop burning prices in the market, but instead of taking drastic measures against companies, the losses have been borne by citizens to save insurance companies.

We also do not deny that the Monetary Authority has undertaken a new internal structure of oversight departments, including the General Directorate of Supervision of Cooperative Insurance Companies, but what shocked us as observers was that instead of holding accountable those who neglected and failed to implement the regulations in Sana, they were appointed to the sector with multiple positions up to executives and with imaginary salaries. Enough, Sana.