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French Version

Insurance profits veil underlying irregularities

Jordan Insurance Federation’s (JIF) financial results for the first half of 2004 showed twenty-five insurance companies in the Kingdom doubling their overall gross profits this year to JD 11 million. Profits carried forward, meanwhile, also increased by 16 percent to JD 3.3 million. Having said that, JIF President Sami Qamouh noted that the insurance industry in Jordan still faces challenges despite the positive developments observed earlier this year and manifested in the regulative procedures.

The first half of 2004 returned good achievements in the quantitative aspect where taxes were increased on insurance services by three percent to 16 percent,” said Qamouh, who added that the underwriting premiums have increased by 12.6 percent compared to the same period of 2003. Despite that increase, which was less than the 14.6 percent that the insurance industry made in the first half of 2003; Qamouh expressed hope that the industry would register good results by the end of this year. Motor insurance premiums led the industry at 44.8 percent, followed by the health insurance at 17.2 percent. The motor insurance’s premiums rose this year by 11.1 percent. Compensations paid by the insurance companies in the first half of 2004 totaled JD 60 million, rising by 20.4 percent over the same period of last year. The reason behind the significant increase was due to the high compensations in the motor, health, life and general accidents insurances.

Marine and fire compensations registered a decline by 21 percent and 2 percent respectively. By examining the motor insurance results, the obligatory insurance loss of JD 2.1 million was due to the reduction on guarantees produced by the licensing centers around the Kingdom, causing the insurance companies more than JD 140,000 in losses in the first half of 2004. However, the obligatory insurance on vehicles made JD 2.2 million in profits, thanks to the guarantee premiums that were issued at the borders where hundreds of Iraqi trucks coming into Jordan had to be insured. Qamouh also pointed out to the fact that six insurance companies raised their capitals. The overall capital of all 26 insurance companies increased by 4 percent at the end of the first half of 2004 to JD 84.7 million. According to the Insurance Regulatory Commission (IRC), insurance companies that conduct general assurances (excluding life) must raise the capitals to JD 6 million each before June 30, 2005 and to increase it further to JD 10 million by June 30, 2006. Companies that conduct both general and life assurances would each have to raise the capital during the said time limits, to JD 20 million.

Local insurance companies urged the IRC earlier this year to give them sufficient time to adjust their financial matters, since many of them still suffer from poor liquidity and resources due to the fierce competition. Total investments in the insurance industry failed to go beyond JD 250 million, although they rose by 8 percent over 2003. The insurance premiums remain far below the IRC’s stipulation of JD 350 million. Today, insurance companies can hardly make two-thirds of this figure, as the 2003 statistics showed that these companies made JD 170 million in premiums. An analysis made by the World Bank last May stated that any action to force companies to maintain adequate levels of technical reserves and to meet the new solvency regulations “would encourage the consolidation of the insurance sector into a smaller number of stronger and more efficient companies”.

It is worth mentioning that there are 20 general and life assurance companies, while seven others only carry out life assurance. The IRC advocates mergers among the insurance companies to conform “larger consortiums” that would develop the insurance sector. Although the study praised the commission’s recent measures related to asset valuation, risk-based capital and solvency margin, it also urged it to lower the minimum capital requirements “to more realistic levels, while existing companies should be given a clear timetable to comply with the capital and business separation rules”. “Many companies engage in the life business on a very rudimentary basis and their licenses could be withdrawn without causing a negative effect on competition,” the study warned.

“The IRC should complete the issuance of new instructions strengthening corporate governance and internal controls (of the insurance companies), setting out sound diversification principles for investment policies, and introducing a code of market conduct for both insurance companies and intermediaries,” it added. The contractual savings of the operating insurance companies make about 30 percent of the GDP, with their total assets reaching JD 316 million, up by 6 percent over 2003 level. Jordanian insurance companies are urged by the World Bank to play a major role in meeting two important challenges of the local economy: The mobilization of long-term financial resources for a more stable financing of economic growth, and the financing of the growing retirement needs of an aging population. The WB study also highlighted three significant insurance fields: The motor insurance, the life insurance and the general insurance. It said that these fields face challenges, notably the life insurance, saying, “Stimulating the development of life insurance would provide a major impetus to the mobilization of long-term financial savings.”

As for the motor insurance, the study noted the insured “would be reluctant to entrust their long-term savings to insurance companies if the dealings in the motor insurance continued to be bedeviled by disputes and long delays in settlement of claims”. It added, “A negative experience in one part of the insurance market would affect the development prospects of other parts.”

Ghassan Joha
The Star

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