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EghtesadOnline: Capital Intelligence, the international credit rating agency, believes that a strong and comprehensive risk-based supervisory system is essential to ensure the soundness of Iran’s insurance sector.

In its analytical report on Iran’s insurance sector for 2018, it said that the country’s regulatory system is–despite some risk-based features in the solvency formula–still driven by the Solvency I-type rule-based system, with many prescriptive regulations regarding the split of investments, calculation of net retentions, tariffs and solvency.

 On the contrary, a Solvency II-type supervision would be more principle-based and insurers would need to explain how they interpret and adhere to these principles.

CI expects insurance supervision to become significantly more demanding, proactive and more of Solvency II-type supervision but this process is probably going to be a significant challenge for the regulator as well as for insurers, Financial Tribune reported.

On the one hand, this would imply a liberalization of regulation, including tariffs. On the other hand, this would force management to implement value-based management supported by a strong system of self-regulation. The supervisor would then oversee the functioning of such a system, effectively meaning the transition from regulation to supervision.

Financially speaking, an insurer’s market behavior should be driven by its risk-bearing capacity and risks should only be taken with a profit potential to satisfy shareholders and build capital to fund future growth.

The move towards a Solvency II-type of supervision would in CI’s view imply an unprecedented cultural change for Iran’s regulator and insurers. A longer-term dual path may be warranted, as the old system is gradually transformed into the new supervisory world.

CI also notes that the new “corporate governance” bylaw could also be interpreted as a further step toward transparency, as it distinguishes between the duties of setting directions, polic making and executive roles. 

According to this regulation, the board of directors should have an independent member to protect the rights of minority shareholders. It also mandates the establishment of board committees, with regard to risk management, internal control and audit. 

It includes obligations for reporting and disclosure, related party transactions (for shareholders who own more than 20% of shares) and transactions that exceed 5% of shareholders’ equity.


Capital Intelligence Iran insurance sector Solvency Supervision credit rating agency