Country Focus, Iran

The ‘Wildcard’ Of The Region

Internal restrictions
Even without the political constraints that are dogging the country, foreign insurers and brokers would have a hard time in Iran. Foreign entities may set up “contact offices”, which are allowed to liaise between their parent company and Iranian insurance companies for “reinsurance affairs, to offer technical services and to provide insurance technical know-how. However, they are not permitted to offer insurance and to operate in those fields that are within the exclusive duties of the local insurance institutions”, (Bimeh Markazi Iran, Central Insurance of IR Iran, Annual Report 2007-2008).

It is difficult to understand exactly what the purpose of the contact offices would be, unless these regulations are relaxed.

The regulator, Bimeh Markazi Iran, was established “for the purpose of regulating, expanding and guiding the Insurance Industry in Iran”. However, in addition to its regulatory and supervisory missions, Bimeh Markazi Iran “has been entrusted to carry out local compulsory reinsurance and to effect inward and outward reinsurance business in both national and international markets”. It exercises tight controls over the market through the following:

“Under the Iranian compulsory reinsurance regulations all insurance companies operating in Iran are obliged to cede to Bimeh Markazi Iran 25 per cent of their direct non-life business and 50 per cent of their direct life business. Also, if and when, insurance companies intend to acquire reinsurance coverage from abroad, they are obliged to offer 30 per cent of each reinsurance contract to Bimeh Markazi Iran under the same terms and conditions. Bimeh Markazi Iran endeavours to utilise the local reinsurance capacity by retroceding all or part of compulsory reinsurance to the local insurance firms, after which contribution from international markets is invited.” (Bimeh Markazi Iran, Central Insurance of IR Iran, Annual Report 2007 to 2008).

It is interesting to note, however, that Bimeh Markazi has full authority to accept and/or decline such offers of insurance/reinsurance. Declining the offers would put the companies in very difficult positions. Insurance services in Iran are also represented by insurance agents and brokers, both of which are authorised to act in the market after passing the relevant tests and receiving a licence from Bimeh Markazi Iran.

Limited liberalisation
In the event the political situation changes, which seems very unlikely at present, considering the recent election fiasco, the key issue will be the keenness of the government to liberalise the insurance sector. Although there are in excess of 15 private companies operating in the country, the market has been and is dominated by the four state insurers. Bimeh Iran, the government’s own insurer, has an almost total domination of the market. Most of the rest of the market is spoken for by three other insurers which were nationalised in the wake of the revolution of 1979. These key players in the market are the state-owned Alborz Insurance company, Dana Insurance company, Asia Insurance company and Iran Insurance Company (Bimeh Iran).

However, the government announced in October 2009 that about five per cent of Iran’s state-run Alborz Insurance Company’s shares will be floated on the stock market in line with the government’s accelerated privatisation policy. Head of the Iranian Privatisation Organisation (IPO), Gholamreza Kord-Zanganeh, said the shares would be offered on the Tehran Stock Exchange on October 7 by inviting bids from private investors. Iran plans to transfer its three large insurance companies – Dana, Alborz and Asia to the private sector. These three companies are among those state companies scheduled for privatisation in the first half of the current Iranian year (starting on March 21, 2009). The companies must prepare and present their plans and last year’s audited accounts to the Stock Exchange for approval. However, only one of the three, Alborz, has finalised its plans to date.

The government had already permitted the establishment of private-sector insurance companies before the announcement of privatisation of the state-owned companies. The fairly new private sector companies in existence (about 15 of them) are entirely locally owned and appear to be more dynamic than the state-owned insurers. Nevertheless, they are small in comparison to the state-owned insurers and are at a disadvantage at a time in history when no Iranian company can easily access global capital markets. The main line of insurance business in Iran is still third-party motor liability insurance, with health, fire and life assurance contributing accounting for the balance of the premiums.

The long-awaited liberalisation of the market has the potential to include the opening of the insurance market to major multinationals or, at least, non-US multinationals. In this event, Iran could become one of the world’s most exciting insurance markets. This, however, with the current political climate and the increase in sanctions imminent, is now seen as a “wildcard” which is unlikely to materialise in the near future.

Pages: 1 2