Fact sheetInsurance regulatoryenvironment in Iraq

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Bahaa ArnoukAudit Senior ManagerTel +964 750 77 66 918barnouk@deloitte.com

Deloitte | Insurance regulatory environment in Iraq

Ayad Mirza Country Managing Partner Tel +964 770 694 6554 aymirza@deloitte.com

Since the release of Insurance Law no.10 in 2005, the Iraqi Insurance Bureau has circulatedseveral instructions in an attempt to ease the implementation of the law.

Our intent here is to provide insight into the new regulations for the benefit of CEOs, CFOs,investors, auditors, and others who might have an interest in learning or even entering theinsurance market in Iraq.

For further information, contact:

Background

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Law no. 10 of 2005 charted prerequisitesfor registering insurance companies in Iraq;it also outlined requirements for grantinglicenses to operate which are subject toannual renewals.

Following this, Instruction no. 9 of 2006sanctioned two main types of insurancelicenses to be granted:

Life insuranceThis license gives its holder the right toissue life, personal accident, and medicalinsurance policies.

General insurance This license gives its holder the right toissue a wide range of insurance policies,such as marine, goods & freight, vessel andaircraft, civil responsibilities, fire, medical,personal and accident, theft, cash andtrust/custodian.

Instruction no. 3 of 2006, amended byInstructions no. 13 of 2009 and no. 15 of2011, mandated that insurance companiesmust meet certain capital requirements andguaranteed minimum deposits as follows:

Capital requirements

for those insurance companies establishedbefore the issuance of Instruction no. 15 of2011; and

for those insurance companies establishedafter the issuance of Instruction no. 15 of2011.

Minimum depositsDepending on the type of license, insurancecompanies must maintain the followingdeposits:

of the minimum capital requirements for lifeinsurance licenses; and

for each type of general insurance licensegranted to the company up to 30% of theminimum capital requirements.

5 billion IQD

15 billion IQD

Types of insurance licenses

Compulsory capital requirementsand minimum deposits

Fun is like life insurance, theolder you get, the more itcosts. – American cartoonist Kin Hubbard

Deloitte | Insurance regulatory environment in Iraq

04

The enacted Insurance Law (no. 5 of 2005)identified minimum technical reserves to bemaintained by each licensee:

of net premiums for different types ofinsurance policies, except for marineinsurance;

of marine insurance net premiums; and

of the outstanding claims incurred but notsettled as losses (IBNR).

These technical reserve calculations werefurther re-visited by the Insurance Bureauand detailed in Instruction no. 2 of 2006 asfollows:

• Based on the allocation of net premiumsover term of the issued policies (in days),annual NPs and technical reserves can becalculated accordingly;

• Irrespective, technical reserves must notbe less than 40% of the calculated netpremiums for life and general insurancepolicies, and not less than 25% for marineinsurance policies;

• If a policy term is more than one year, thereserve shall be based on 80% of netpremiums for those specific policies;

• Technical reserves must also include 100%of the outstanding claims reported but yetto be settled; and

• Technical reserves for life insurancepolicies should be calculated on anactuarial basis but must not be less than40% of net premiums.

40%

25%

100%Net premium (NP)

= Produced premiums (–) Re-insurance on those produced premiums

Premiums are allocated over the term of the issued policies.

Inception date

Maturity date

Insurance policy period

Technical reserves

Deloitte | Insurance regulatory environment in Iraq

05

SR at the entity levelPer Iraqi laws and regulations, insurancecompanies must maintain a minimum levelof equity to ensure a going concern andcontinuity of business. This equity level isthe sum of:

• Paid-up capital; • Additional paid-up capital; • Legal and other reserves excluding

technical reserves; and • Retained earnings (accumulated deficits).

The minimum level of equity is determinedby Instruction no. 3 of 2006, as amended by Instruction no. 14 of 2009 and,subsequently, Instruction no. 16 of 2011,and must be as follows:

IQD IQD IQD IQD IQD IQD IQD IQD IQD IQD

IQD IQD IQD IQD IQD IQD IQD

IQD IQD IQD IQD IQD

IQD IQD IQD IQD IQD IQD IQD

IQD 5 billion for a general insurance license

IQD 7 billion for a life insurance license

IQD 10 billion for a re-insurance license

IQD 7 billion for exceptional cases, whereinsurance companies obtained licenses forboth life and general insurance before theeffective date of the Law no. 10 of 2005.

Solvency Ratios (SR)

Regardless, the absolutevalues of all solvencycalculations should not beless than the compulsoryminimum level of depositsexplained earlier.

Other basic solvency ratios that must beconsidered are:

As a general rule, these ratios should alwaysbe greater than 100%, whereby total assetsare greater than the short-term obligations.

SR (1) = Current assets/Current liabilities *100 SR (2) = Assets/Liabilities *100Where: the SR should be > 100%

Deloitte | Insurance regulatory environment in Iraq

06

For general insurance and non-lifeinsurance companies

For life insurance companies

SR at the policy levelIn addition to the previous criteria, other SR calculations should be considered per type ofinsurance license to ensure that minimum technical reserves are maintained:

The total value of the currentinsurance premiums

SR greater or equal to

minus

Re-insurance premiums up to 50%of the insurance premiums

0.3% of

4% ofThe calculated technical reserves,

provided that the re-insurance premiums shall not exceed 15% of

the technical reserves for the calculation of net premiums

The current received premiums

SR greater or equal to

minus

plus

Re-insurance premiums up to50% of the insurance premiums

20% of

25% ofNet paid claims from the

re-insurance received claims

Additional net outstanding claims reserve booked during the year, where

the deducted re-insurance shall not exceed 50% for the claims reserve

calculation

Deloitte | Insurance regulatory environment in Iraq

Solvency Ratios (SR)

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It is permitted for insurance companies to make investments if, and only if, thefollowing conditions are met:

Real estate investments Property investment in buildings or land ispermitted as long as:• Ownership and title is transferred to the

insurer;• Such investments are not pledged or used

as collateral to third parties; • Investments in agricultural land are not

permitted since they are not readilymarketable.

Financial instruments Short or long-term investments in thefollowing financial instruments, excludingcash, are permitted: • Bonds, treasury bonds and securities; • Covered loans, where each loan balance

does not exceed 60% of the value of thereal estate, and such guarantee should bepledged for the interest of the insurancecompany. Additionally, covered loansshould not exceed 1.5% of the total capitalof the insurance company.

Investments in financial instruments mustalso comply with the following conditions:• They should NOT exceed 10% of the

insurer’s capital; • They should NOT exceed 20% of the

company’s shares, the insurer invested in;and

• They should NOT be investments in otherinsurance companies operating in Iraq,with the exception of re-insurers, wherebythey are allowed to invest in otherinsurance companies operating in Iraq butmust also comply with the conditionsexplained earlier.

*Considered the “father of life insurance” forhis pioneering work in actuarial tables

Investment criteria

While nothing is moreuncertain than a single life,nothing is more certain thanthe average duration of athousand lives. – Americanmathematician Elizur Wright*

Deloitte | Insurance regulatory environment in Iraq

Local insurance regulations in Iraq, in comparison to international best practices,are still in their infant stages. Nevertheless, tremendous potential exists todevelop this industry and its regulatory environment.

A steady increase in population figures (expected to reach 40 million in the nextfew years according to World Bank data), and a healthy stable economy are likelyto attract new players into the Iraq market.

This publication has been written in general terms and therefore cannot be relied on to cover specific situations; application of the principles set out will depend upon theparticular circumstances involved and we recommend that you obtain professionaladvice before acting or refraining from acting on any of the contents of this publication.Deloitte & Touche (M.E.) would be pleased to advise readers on how to apply theprinciples set out in this publication to their specific circumstances. Deloitte & Touche(M.E.) accepts no duty of care or liability for any loss occasioned to any person acting orrefraining from action as a result of any material in this publication.

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