Insurance companies are required to enhance resilience and increase their capital before the current fiscal year is out in March, head of the Central Insurance company of Iran said.
Underscoring the need for capital restructuring, Gholamreza Soleimani said the risk retaining capacity of insurers is low due to high inflation.
“Insurance companies have not restructured their capital proportionate to high inflation and the ballooning money supply. Not doing so will [further] undermine their risk retention capacity,” he was quoted as saying by the IRIB.
Risk retention in the insurance sector refers to the amount of risk that an insurance company is willing to pay for a policy, risk or group of risks.
The more risk a company accepts by underwriting new insurance policies, the more premium it collects and invests. However, when an insurer accepts additional hazards by selling more policies it also increases the likelihood of insolvency.
Soleimani said capital increase is indispensable as per a decision last week by the government for “improving the industry’s potential for risks”.
In recent weeks some companies have increased capital and others have announced similar plans.
Iran Insurance Company, the sole state-owned and largest domestic insurance company, said earlier in the week it was increasing capital by to 189 trillion rials ($821.6 million), up from 34.2 trillion rials ($148.6m) by revaluating its forex assets.
Razi Insurance Company has said it will boost capital by 600% to 22 trillion rials ($100m) as it strives to rank among the top three insurers in terms of risk cover.
Managers of Mellat Insurance Company are to meet next week to decide on capital increase. It plans to raise capital by as much as 1,049% to 32.74 trillion rials ($145m) from 2.85 trillion rials. Likewise, Day Insurance Company is expected to raise new capital to the tune of 6 trillion rials.
The government last week announced regulations doubling the minimum capital required for establishing insurance companies.
Henceforth the minimum capital for new insurance companies will be two trillion rials ($8.69m), according to a report seen on the government’s website earlier in the week.
The move is reportedly to discourage insurance companies from investing in business beyond their purview and pave the way for a robust insurance sector.
Currently 33 insurance companies operate in Iran including offshore firms and reinsurance companies. The CII has supported the founding of new firms. "Newcomers will help boost competitiveness in the gradually growing industry," it has been reported as saying.
The regulator approved the establishment of five insurance, life insurance, and reinsurance companies in the last fiscal year that ended in March.
