New legislaion in Oman requires insurers to become publicly traded firms

In August 2014 amendments to Oman’s insurance law were passed under Royal Decree No. 39/2014. Changes include a doubling of capitalisation requirements for insurance companies – the second minimum capital increase in recent years – and an obligation to list on the local stock exchange, both of which will come into effect in 2017. Industry figures say that the changes will have a positive impact, although some players are calling for further changes to underpin industry stability.

Capitalisation Requirements

The law raises the minimum capital requirements for insurance firms to OR10m ($26m), from OR5m ($13m) previously. The new levels represent the second increase in recent years; minimum requirements were raised from OR500,000 ($1.3m) to OR5m ($13m) in 2011. As of August 2015, six insurers had already met the new capital requirements, according to media reports. The changes aim to encourage consolidation in what many describe as an overcrowded market, with 22 insurers currently operating.

However, some industry figures say that the new requirements remain too low to spark a major wave of mergers in the sector. “The increase will not necessarily result in a great deal of consolidation as OR10m ($26m) is not a huge amount,” said Lo’ai Badie Bataineh, head of investment management and chief investment officer at Oman Arab Bank. Nevertheless, Gautam Datta, CEO of Al Madina Takaful Insurance, told OBG that more mergers and acquisitions could be on the cards. “Few firms will have to merge in order to meet the new capital requirements, but the Capital Market Authority (CMA) is keen to see more consolidation and will put continued pressure for companies to build capacity and increase their retention rates.”

Going Public

Another change under the decree is the requirement to list on the Muscat Securities Market (MSM). Local insurance firms must convert to public joint stock company status, which entails floating an equity stake and listing on the MSM. This obligation does not apply to foreign insurance firms.

The Commercial Companies Law currently mandates that traded firms list a minimum of 40% of their capital on the exchange, though a yet-to-be published amendment is expected to reduce this to 25% (see Capital Markets chapter). As of October 2015, four insurance firms were listed on the exchange – namely Al Madina Takaful, Dhofar Insurance, Oman United Insurance and Takaful Oman Insurance.

The regulations will apply immediately to newly established firms; however, existing companies have until the end of 2017 to meet the new requirements. At least one company is moving to do so well before the deadline; Falcon Insurance’s majority owner Al Anwar Holding in June 2015 announced plans to conduct an initial public offering (IPO) for the firm, and A R Srinivasan, CEO of Falcon Insurance, told OBG in August 2015, he expected the operation to take place within six months. The IPO will exceed the minimum equity listing requirement of 40%, with plans to float a 51% controlling stake in the firm.

Other Changes

The decree also contains other amendments, including a new right of appeal before the CMA against any rejections of applications to establish or convert a new insurance firm. Under the new rules applicants have 60 days from the date of the rejection to mount such a challenge. The decree also puts in place new penalties for firms breaching the insurance law in the form of fines running from OR10,000 ($25,900) to OR100,000 ($259,000), and allows the CMA to reach out-of-court settlements with companies being prosecuted for committing crimes in order to reduce the number of time-consuming court cases affecting the industry.

Positive Impact

Jalila Hamed Al Akhzami, strategy and business development researcher at the CMA, explained some of the advantages the regulator believes will be brought about by the new changes. “The amendment made to the Insurance Companies Law in 2014, which increased the minimum paid-up capital of national insurance companies and branches of foreign insurance companies in Oman to OR10m ($26m), will make the companies able to accommodate and underwrite more risk, and will eventually increase retention ratios in the local market,” she told OBG.

Ali Abduladheem Al Lawati, chairman of the Oman Insurance Association, agreed that the new rules would be positive for the sector. “The requirement for firms to list will help companies keep focused on performance, while the increased capital requirements will also mean that companies have to ensure they put a strong strategy to generate a good return on capital in place,” he said. “It will also allow firms to retain more premiums rather than reinsure them, which will incentivise them to manage their business well and to provide technically sound insurance rates.” However, Datta told OBG that the industry needed new regulations covering capital adequacy and solvency requirements. “Raising minimum capital requirements will not ensure the health of the industry by itself, and there is a need to look at other indicators,” he told OBG. “Capital adequacy ratios were included in the draft of the new insurance law, but in the end it was only partly implemented.”

Some industry figures also regard rules governing insurance company investments as restrictive. Datta said such discussions had been under way for several years. “Relaxing the rules would provide more opportunities for companies to diversify their investments.”

Brokerage Rules

The CMA is also looking to bring in new brokerage regulations. A draft version of the updated rules was made public in April 2015, with brokers invited to provide feedback on it; elements of the draft include raising capital requirements for brokerages from OR50,000 ($130,00) to OR200,000 ($518,000), which industry figures describe as high, and a new requirement to separate brokerage and reinsurance businesses. Al Lawati told OBG that brokers were unhappy with some of the new stipulations, and were awaiting a response from the government regarding their objections. The regulations are due to be implemented before the end of 2015.

Takaful

While the Islamic insurance sector has been up and running since early 2014, new takaful regulations aimed at cementing its legislative basis are also in the pipeline, with the State Council, the upper house of the Council of Oman and the national parliament, approving a draft takaful law in February 2015. In June local media reported that the law would receive final approval; however, as of October the legislation had yet to be promulgated. The law includes a ban on conventional insurance firms offering takaful via Islamic windows, as well as requirements for Islamic operators to have minimum capital of OR10m ($26m) and to list on the MSM, in line with the new law’s requirements.