The Saudi Arabian Monetary Agency (SAMA) has imposed a ban on combining and insurance and reinsurance brokerage activities in the same firm, Reuters reported. The ban is effective immediately in the Kingdom of Saudi Arabia.
SAMA’s decision stems from an attempt to boost stability in the insurance sector and add value to the Kingdom’s economic growth.
Major problems such as insolvency increased in the insurance industry after its liberalisation. For that reason, SAMA noted in a statement that the decision will further prevent ‘wrong practices’ in the industry. Currently, companies that combine both insurance and reinsurance brokerage activities have one year to restrict the practice.
In a 2017 report, SAMA had noted that it will enforce stringent rules for re/insurers if the restrictions are not followed. The report stated that the new regulation will necessitate insurers to hold more capital to ensure increase in demand for reinsurance protection.
In fact, SAMA announced that the Rowad Insurance Company of the Cooperative Insurance Agency and Forsan Insurance Agency had failed to comply with regulatory requirements. The two insurance providers were urged to quickly comply within 20 working days or face licence cancellation.
SAMA’s ban is an important part of Saudi’s Vision 2030 which aims to build a strong non-oil economy. The insurance and reinsurance companies are vital to the Kingdom’s financial landscape. The Kingdom aims to create more insurance and reinsurance opportunities by 2030. SAMA is the central bank of the Kingdom of Saudi Arabia. It is also responsible for monitoring foreign exchange reserves.