The Central Insurance company of Iran (CII), the industry’s regulator, has reduced the share of mandatory reinsurance both in life and non-life segments for the current fiscal year to help empower reinsurance companies.
As per a notice seen on Risknews website, insurance companies are required to pay 17% of their premium income from life insurance and 9% of the premium from selling non-life insurance to the CII.
This share was 20% for life insurance and 10% for non-life insurance policies in the last Iranian fiscal year that ended in March.
Elaborating on the new policy, the CII head Majid Behzadpour, said that the Sixth Five-Year Economic Development Plan (March 2016-2021) required the CII to lower its participation in the reinsurance sector in order to expand the role and presence of non-government companies in the market.
As per regulations, insurers are obliged to cede a portion of all their non-life and life insurance premium to the CII for reinsurance needs. The CII reinsurance business was created to handle risks that could not be covered by insurers.
CII’s reinsurance arm is also set to support the sector against potential losses due to the US sanctions and the absence of foreign peers.
A review of the share of mandatory reinsurance in the past ten years shows that the CII has steadily reduced this share from 25% and 45% for life and non-life categories posted in 2011.
Economy Minister Ehsan Khandouzi recently instructed the CII to terminate its reinsurance operations. "CII's involvement in the reinsurance sector can be understandable in the current economic conditions and international sanctions. However, the CII must stop reinsurance work to help the sector grow," Khandouzi said in a meeting with CEOs of insurance companies in March.
The CII's plan is to increase the number of reinsurance firms while strengthening existing companies.
Amin Re and Iranian Re were the two main reinsurance companies in Iran for several 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 announcement, this company was to discontinue insurance business from the beginning of the fiscal year in late March.
Pars Reinsurance Company, affiliated to Parsian Bank, has also got a permit. In January, TehranRuck Reinsurance Company issued a subscription notice to go public. Raya Reinsurance Company has also obtained approval from the CII.
Reinsurance is the practice whereby insurers transfer a part of their risk portfolios to other parties in some form of agreement to reduce the likelihood of paying large amounts in claims. It allows insurers to function by recovering some or all the monies paid to claimants.
