Two local insurance companies, namely Amin Re and Mellat Insurance, have received regulatory permission to issue reinsurance bonds for the first time in Iran.
According to a press release seen on the Central insurance company of Iran (CII) website, the decision has been approved by the CII executive board and Security and Exchange Organization (SEO) to transfer risks to capital market.
As per the plan, Mellat will offer 1 trillion rials ($2.46 million) in reinsurance bonds and Amin Re 12 trillion rials ($29.55).
The move is in the framework of CII's agenda to employ innovative instruments to strengthen the insurance industry and augment its efficiency.
Reports earlier said the SEO is working on plans to introduce insurance-linked securities (ILS) so that domestic insurers can offload some portfolio risk in the capital market.
ILS are typically tied to natural disasters such as earthquakes and offer high yields; investors can lose the principal if a catastrophe unleashes a major loss.
They can serve as an alternative to reinsurance cover, which is scarce because the US sanctions have shut out Iran from global reinsurance markets such as Lloyd’s of London.
An Insurance bond or catastrophe bond (CAT) is a high-yield debt instrument that is designed to raise money for companies in the insurance industry in the event of a natural disaster.
A CAT bond allows the issuer to receive funding from the bond only if specific conditions, such as an earthquake or tornado, occur. If an event protected by the bond activates a payout to the insurance company, the obligation to pay interest and repay the principal is either deferred or completely forgiven.
The reinsurance industry has attracted investors in Iran in recent years. Amin Re and Iranian Re were the two main reinsurance companies for years. Recently, the CII issued operation license for Saman Reinsurance Company.
The regulator also gave permit to Iran Moein Insurance Company to move from general insurance to reinsurance. As per a CII notice, this company was slated to discontinue insurance business from last March.
Tehran Ruck Reinsurance Company (Tehran Re) received operating permit from the CII last week as the fifth reinsurance company. Ava Pars Reinsurance Company (Ava Pars Re) was the other firm that made debut in October.
A limited number of firms have permits from the regulator to enter the gradually growing reinsurance industry. Market observers say loopholes and poor regulations are depriving the reinsurance industry from playing its deserved and desired role.
