The regulator of the insurance industry said reinsurance bonds will be offered soon via the capital market to help boost insurance companies.
Speaking at the 15th Exhibition of Exchange, Banking and Insurance in Tehran, Majid Behzadpour, the head of the Central Insurance company of Iran (CII), said, "We got permission to sell bonds by insurers last year…Reinsurance bonds will be offered in the market by the end of the fiscal year (March 2024)," the exhibition's website quoted him as saying.
"The insurance industry is closely tied to capital investment. We engage in direct investments in the capital market while also providing risk coverage for investment through insurance [schemes]," Behzadpour said.
He recalled the global trend of insurance companies issuing bonds, saying, "Insurance firms worldwide have issued over $37 billion in outstanding securities. In 2022 alone, approximately $11 billion in new insurance securities were released worldwide" demonstrating the potential for growth in the key insurance market.
Last year Iran’s health insurance saw a growth of 17%, reaching 20 million policies sold. The life insurance segment grew 7% with 30 million policies. The number of insured people surpassed 36 million, Behzadpour noted.
Two local insurance companies, namely Amin Re and Mellat Insurance, received regulatory permission to issue reinsurance bonds for the first time in January.
According to a CII press release, the decision was approved by the CII executive board and the Security and Exchange Organization (SEO) to transfer some risk to the capital market.
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 to 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.
Shut Out From Global Markets
They can serve as an alternative to reinsurance cover, which is scarce because the US economic sanctions have shut out Iran from global reinsurance markets such as Lloyd’s of London.
A reinsurance 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 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) made debut last October.
A limited number of firms have permit 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.
