placing an insurance brokerage company in ksa

________________________Insurance & Reinsurance Brokerage Company

Insurance Brokerage Company A Proposal and a Brief Study Leading to Establishing a Company In Saudi Arabia To conduct Insurance & Reinsurance Brokering activities October 2006

Prepared by a team of insurance professional residing in the Kingdom with collective insurance exposure of eighty years mainly in the KSA. Written by one of the team members, Basem Shakib Al-Shakhshir, insurance consultant and claims arbitrator registered with the Ministry of Justice, Kingdom of Saudi Arabia. Mobile: +966 50-7364741 Email: [email protected]

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TABLE OF CONTENTS Item Page Executive Summery 05 Business Idea 05 Market 05 Strategy 06 Key Challenges 06 Ownership 07 Financials 07 A. Overview 08 Purpose 08 Credentials 09 B. Saudi Insurance Market & the Direct

Insurance Market in the M.E. 10 B1. The KSA as Part of the M.E. Market 10 B2. Saudi Market Comparison 12 B3. The Market Compared with others 13 B4. Indications of Comparison Made 14 C. Insurance & R/I Service Providers

in KSA 17 C1. Insurance & R/I Brokers 17 C2. Activities of Ins & R/I Brokers 19

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TABLE OF CONTENTS….CONTINUED Item Page D. Brokerage Commissions 20 E. Structure of Proposed Company 21

E.1. Undertakings of Team 21 E.2. Role of Investors 22 E.3. Outline of Management 22 E.4. Proposed Distribution of Shares 23

F. Key Personnel & Key Responsibilities 25 G. Financial Aspects 27

G.1. Production & Revenues 28 G.2. Expenses 29 G.3. Pre-Operating Expenses 32 G.4. Operating Cost 32 G.5. Cash Flow 33 G.6. Proforma P&L for Brokerage Company 35

H. Laws Objectives & Licensing 36 Requirements

H.1. Objectives of Laws 36 H.2. Licensing Requirements 36 H.3. Capital Requirement 37 H.4. Other Considerations 38

CV of the Writer 39

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List of Tables Used Tables Page Table – 1 Saudi Market 12 Table – 2 Gross Written Premium 15 Table – 3 Size of Insurance Market 16 Table – 4 Commissions Earned 20 Table – 5 Products as a Percentage of GWP 27 Table – 6 Production & Revenue 28 Table – 7 Pro-Operating Expenses 32 Table – 8 Operating Cost 32 Table – 9a Earned Commissions 33 Table – 9b Cash Flow Chart 33 Table – 10 Proforma P&L 35

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Executive Summery 1. Business idea:

o Insurance and reinsurance brokerage company (to be named) is a Saudi based company that will provided a much needed services in a newly founded insurance industry and will play a major role in the making of the insurance market:

The anticipated boom in the insurance market will increase the demand for service providers in areas like risk management, identifying risk exposures and translating them into insurance terms and insurance buying requirements ready for risk transfer and the ultimate protection of investments.

Offer the insurance market access to international reinsurance markets where facultative reinsurance plays major role in supporting local insurers accepting risks transfers and carry risks that are normally restricted by their existing reinsurance treaties. This is a normal service that major insurance and reinsurance brokerage companies worldwide offer to their clients.

2. The market:

o The direct insurance market in the Middle East is expected to grow at least 10% per year in the next five years. But, the Saudi insurance market is expected to double in size by year 2008 and to triple by year 2009 when compared with current figures.

o The thinning in insurance professionals underwriting insurance risks, solving claims, servicing major accounts as well as small ones shall be filled by the expertise of the proposed brokerage company especially applicable to its founders and their businesses.

o Many insurance companies will register in Saudi Arabia they will flood the market with their insurance products making it the more difficult for insured to choose from. The broker is qualified to advise insured of his insurance buying needs as well as of his risk exposures and then the broker tailors the insurance protection plan and invites capable insurance companies to bid for and will award the competitive and most compliant insurer.

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3. Strategy: o The brokerage company shall apply itself to:

Serving all industries including the insurance industry Providing the required services by having on board the

personnel that have the capabilities to do so. When it can’t, then the company can sub-contract to other professionals depending on the field that the company is tackling.

Its customers insurance/reinsurance-buying-needs as it does possess a deep understanding of insurance and reinsurance markets, the local and some what regional and most definitely the international.

Establishing strong ties with reinsurance brokerage firms in the USA, the UK and the Continent. Such ties will bring to the Saudi insurance market the reinsurance capacities and risk carriers for industries like Energy, Wet Risks, Off-shore Operations, Aviation hulls and liability, Fiduciary exposures, Pecuniary losses, Professional Indemnities and the like of specialized risks that require international underwriting.

Penetrating the Saudi market with the intention, within five years, to expand regionally starting with the GCC, Jordan, Syria, Lebanon and Egypt.

o The brokerage company can be formed with a wide base of Saudi investors with conglomerates that demand particular attention by the insurance market in order to be properly served.

o While it may not be necessary at first but the brokerage company will bring on board an international reinsurance broker for the know-how that the international broker will bring to the operation and access to international markets capacities (reinsurance or 100% risks carriers for a fronting insurer in the KSA) as the local market may indicate the need for.

4. Key Challenges:

o The most significant challenges facing the brokerage company is receiving the positive responses from locally registered insurance companies to apply internationally acknowledge insurance practices and work ethics:

SAMA compliant Acceptable level of professionalism Honest and fair competition among peers

o Competing with already established brokerage companies existing in Saudi Arabia which presents a key challenge for the brokerage company.

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5. Ownership of Brokerage Company:

o Brokerage Company shall be owned by its founders given the following scenarios:

One investor with his multi business accounts plus two of the team members behind this proposal (the writer and another)

Multi investors with their individual multi business accounts and team members behind this proposal (the writer and another)

Multi investors with their individual multi business accounts, an international reinsurance brokerage company and two of the team members behind this proposal (the writer and another)

o Ownership will be structured as per SAMA requirements 6. Financials:

o The brokerage company will be capitalized with SR 3,000,000 unless SAMA advises differently and imposes more capital for reinsurance brokerage activities as Regulations are not clear on this issue

o Brokerage company will achieve gross commissions of ~SR10 million by its third operating year and would at this time operate in the major cities of the Kingdom and would have more than 18 employees

o The brokerage company would cover investor (s) pre-paid pre-operating expense and its own 1st year expenses from its first year’s revenues

+ + + + +

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A. Overview

A.1 Purpose of the Submission This submission promotes the viability of setting up an insurance and

reinsurance brokerage company compliant with the rules and regulations

of the Kingdom of Saudi Arabia and the Law on Supervision of

Cooperative Insurance Companies promulgated on 02/06/1424H.

It is also the vision of the writers that the company would expand

regionally within five (5) years of becoming operational.

The submission will briefly show what the market is and how the

industry is shaping today and what both, market and industry, be like in

five years from today.

The submission will show the structure of the brokerage company that

the writers are proposing to set up, its staff and locations where it shall

operate in the near future.

Finally, the submission also addresses all the concerns of the investor

relating to registering and obtaining the license in the KSA including

dealing with SAMA. It shall also address the financial aspects of the

operation like capitalization, taxes, expenses, reserves, profits and

investment.

Also, this submission highlights pros and cons of a few structures of the

proposed company’s partnerships for investors to choose from.

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A.2 Credentials

At this stage, the writers are at liberty to divulge the identity of only one

of their team members, the undersigned, who has attached his

curriculum vitae at the end of this submission for the reader to refer to

for his own assessment of the quality and seriousness of the plan and

how it measures up in comparison with other plans in the same field.

The writer has chosen ‘insurance’ his career since graduation from

university and kept on structuring it, expanding his career parameters

and sharpening his operating tools throughout his work-life-journey till

the present time. His work journey took him from Abu Dhabi – UAE to

KSA (the present) passing through, Kuwait and Greece. The writer’s

career structuring started in underwriting various insurance business

paramount of which marine (cargo and hulls), aviation (hulls and

liability), on-shore and off-shore oil exploration, energy and property,

casualty and fiduciary; as well as claims and recoveries, then moved on

to international insurance and reinsurance brokering when the writer

gained access to world known reinsurance markets namely the USA, the

UK and the Continent. The KSA insurance market and practices

presented the writer the fore-grounds for becoming an insurance

consultant for both insurers and insured.

The CV attached, includes other details like career achievements, and

work exposure.

Signed: Basem Shakib Al-Shakhshir

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B Saudi Insurance Market & the Direct Insurance Market in the Middle East

B1. The KSA as Part of the Middle East Market The KSA insurance market is growing rapidly prompted by many factors

most direct of which is the introduction of compulsory insurance for

motor and medical (healthcare). Both lines of insurance business shall

yield huge increases in gross insurance premium written in the KSA. Of

the other influencing factors are the joining of KSA the WTO and its

introduction of insurance law permitting companies to register locally to

carryout insurance and reinsurance activities as underwriters, brokers,

consultants and other insurance related activities.

The Saudi insurance market is responding positively to the local and

regional economic challenges faced on the local scene and in the Middle

East. A few of international financial consultants have reported their

positive findings in several business plans, which the writer has read.

The writer outlines few of their findings as ensuing:

o The Middle East insurance market is attractive

the profitability of direct insurance market is

increasing,

o profitability has increased significantly

over the past few years

o regulatory changes will rule out the

weakest players due to capital

requirements

the direct insurance market in the region is expected

to grow strongly

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o general acceptance of insurance is

increasing

o mandatory insurance enforced by the

governments is increasing

o strong GDP growth is expected to continue

insurance market in the Middle East is still emerging

and there will be a continued strong demand for direct

insurance as well as reinsurance

insurance market is attractive as the major

international players are merging with local investors

or are limiting their exposure in the region

The overall market indicates that:

o The direct insurance market in the Middle East is expected to grow

by at least 10% per year in the next five (5) years, especially driven

by increased acceptance of insurance among Moslems.

o The profitability of the direct insurance players is generally sound

and has been increasing lately.

o Large international insurance players are gradually pulling back

from the Middle East leaving room for regional and/or local

players.

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B2. This is How the Saudi Market Compares in a Three – Year Period

Table – 1

Life Non-Life Total 2001 2002 2003 2001 2002 2003 2001 2002 2003 Premium (SR bn)

0.11 0.13 0.16 2.49 2.85 3.83 2.60 2.98 3.99

Contribution

to GDP (%)

0.02 0.02 0.02 0.36 0.40 0.48 0.38 0.42 0.50

Premium

Per Capita (SR)

4.80 5.60 6.60 109.70 121.90 159.10 114.50 127.50 165.70

• Financial analysts anticipate 10% market growth each year for

the coming five years.

• GDP will continue to grow during the coming five years.

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B3. This is How Saudi Market Compares with Others Figures indicate insurance penetration (Percent of GDP) ~3-5 2.4** 2.0 2.1* 1.1 1.1 0.8 0.5 KSA Kuwait UAE Oman Jordan Bahrain Malaysia Europe

• Compared to most countries, the Middle East insurance

market is still an emerging market especially in Saudi

Arabia

• The trend of the KSA insurance penetration is bound to

increase with the creation of the insurance industry and

the introduction of the insurance laws & implementing

regulations

* Non-life penetration ratio

** Figure does not truly reflect the market in Bahrain as several

insurers in the region are registered in Bahrain but do business

throughout the region

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B4. Indications of Comparison Made

In 2003, per capita (insurance density) in Saudi Arabia reached SR 145

compared to SR 142 in 2002. This increase was due to higher oil

revenues during the 2003. Among GCC countries, Saudi Arabia

represents the lowest insurance density in view of its relatively high

population.

Moreover, in 2003 KSA insurance penetration (insurance premiums in

percentage of GDP) remained stable at 0.5% compared to 2002.

Compared to other GCC countries, KSA represents the lowest insurance

penetration in view of its relatively high GDP.

Table – 2 shows the gross written premium (GWP) per insurance class for

KSA market. The total GWP decreased steadily until 2002 when it grew

by 30% followed by 4% increase in 2003. The increase was due to the

September 11 events, which jacked up all premium rates for property

and casualty classes for the year 2002 then receded throughout 2003.

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Table – 2 GWP in SR Million

Life & Med. Non-Life Year Total

GWP Total % of

GWP

Motor Property/

Casualty

Marine

& Avn. Total % of

GWP 1998 3,034 147 4.8 720 1,679 489 2,887 95.2

1999 2,944 162 5.5 701 1,676 405 2,782 94.5

2000 2,925 165 5.6 715 1,634 412 2,760 94.4

2001 2,602 113 4.3 492 1,546 451 2,489 95.7

2003 3,390 142 4.2 762 2,006 480 3,248 95.8

2004 3,529 148 4.2 794 2,088 499 3,381 95.8

But how would the market be after implementing insurance regulations

that SAMA acts the regulator on behalf of the Government?

Due to new rules and regulations in the KSA imposing motor insurance

on all vehicles and drivers’ licenses also healthcare insurance on

residents and the workforce which implementation shall later include the

KSA population the insurance sector is bound to increase in the coming

years.

Table – 3 shows the expected figures for five years to come including

2005 which did not produce the final figures.

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Table – 3 Expected Insurance Market Size in SR Million

Insurance Class 2005 2006 2007 2008 2009

Motor 1,387.0 2,358.0 3,537.0 4,067.0 4,677.7

Medical 1,707.0 2,902.0 4,353.0 5,658.9 7,356.6

Property 652.0 717.0 789.0 867.9 954.7

Casualty 174.0 191.0 210.0 231.0 254.1

Marine Cargo 301.0 331.0 364.0 242.0 266.2

Marine Hulls 18.0 20.0 22.0 182.0 200.9

Engineering 311.0 404.0 525.0 577.5 635.3

Energy 107.0 118.0 130.0 143.0 157.3

Aviation 246.0 271.0 298.0 327.8 360.5

Life 166.0 183.0 201.0 221.1 243.2

Others 63.0 69.0 76.0 83.6 91.9

Total 5,132.0 7,564.0 10,505.0 12,603.0 15,198.4

Predictions of market analysts expect that the Saudi insurance industry

has promises to double in size by end of year 2007 and would be three

times it current size by year 2009.

Those anticipated magnificent jumps in market growth are but indicators

of sound investment in the insurance industry.

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C. Insurance & Reinsurance Service Providing in

KSA

C1. Insurance & Reinsurance Broker

Since the submission focuses on insurance and reinsurance service

providers’ aspect of the emerging industry, it is natural that it includes a

brief of brokerage activities of significant presence in the KSA.

Of those companies we mention:

Arab Commercial Enterprises (ACE)

AON Corporation

Saudi Brokers Company Ltd (SBC)

IBC Saudi General Insurance

Arabian International Marketing Company (AIMCO)

Marsh (Inter Reserve)

PWS Insurance & Reinsurance Brokers

There are quite a few of individual operators providing insurance services

on a personal level. Individually they do not constitute a power-play of

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any magnitude but collectively, the writer believes, they amount to

sizable operation worth mentioning. However, because of the insurance

laws and regulations those individual operators will be ousted from the

market unless they either register as individual insurance service

providers or seek employment with registered insurance services

providers companies or individuals.

Unfortunately reliable records and statistics of insurance and

reinsurance brokerage earned in the KSA are not available. Most

operators view their performances as exclusive and not for the public to

view. Of course the trend will change when insurance laws and

regulations apply and SAMA monitors activities of all the players in the

insurance industry.

C2. Activities of Insurance & Reinsurance Brokers

Whilst few select some fancy names to describe their activities they all

conduct commercial insurance services identified below:

C2.i seeks appointment as sole broker for acquired

accounts (BoR)

C2.ii identifies accounts risk exposures and insurance-

buying requirements then approaches local market for

insurance quotations

C2.iii reports to client outcome their market approach with

recommendations

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C2.iv obtains client’s approval to proceed with given

recommendations

C2.v instructs local insurer(s) to issue insurance policies.

Debit premiums to clients and deduct earned commissions,

brokerage, from collected premiums before payment to

insurer(s).

However, those companies have more services to offer, such as:

C2.vi risk management

C2.vii reinsurance brokerage, i.e. place risks in excess

insurers’ capacities with local re-insurers and/or

regional and/or worldwide

C2.viii professional and employee benefit consulting

C2.ix actuarial services

C2.x consulting

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D. Brokerage Commissions

Insurance and reinsurance brokerage commissions earned are

commensurate with services provided, quality of services and level of

professionalism that the service provider manifests. Insurance brokerage

companies earn commissions within margins identified in the ensuing

table – 4.

Table – 4 Margins of commissions charged by service providers

Insurance Class Commission Rate % Engineering 15 – 20

Property & Energy 15 – 20

Life 15 – 20

Marine (cargo, hulls & aviation) 15 – 20

Medical 10 – 15

Casualty 15 – 25

Motor 15 – 20

Others 15 – 20

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E. Structure of the Proposed Company

As insurance and reinsurance brokers, the company needs to develop a

reliable base of clientele and sound business portfolio. Moving in this

trend the writer proposes a few company structures for investors to

choose from.

1 one investor plus two members of the team behind this

proposal

2 a group of investors with two members of the team behind

this proposal

3 either “1” or “2” above with a foreign insurance/reinsurance

broker.

E.1 Undertaking of Team Members Behind this Proposal:

o develop the business

o manage the day to day operations

o stay advised of market development

o devise profitable approaches to making sound business

o implement sound management skills and techniques

o qualify employees and ensure their possession of SAMA’s

minimum educational requirements

o ensure to increase the number of Saudi personnel to reach

the 30% minimum at the end of the first five years of

operation. Secure the percentage increase thereafter in

accordance with the Saudization plan submitted to SAMA

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E.2 Role of Investor(s) in the Brokerage Company:

o Put up the finances needed for the company to be registered.

This includes costs and fees to develop business plan and

feasibility study compliant with SAMA’s registration

requirements. Also legal fees, bank guarantee, registration fees,

IT fees and costs. A team member’s cost and fees during the

preparation period for the setting up the company (a period not

less than three months). Any other area of expense that might

pop up during the pre-operating period.

o Form the company’s board of directors selected from the team

behind this proposal and other investors

o Promote the business of the company it becomes operational,

and facilitate its obtaining accounts offering help and

assistance whenever needed.

E.3 Outline of Management:

o Board of Directors

o Audit Committee

o Legal Advisor

o SAMA Compliant observer

o CEO

o COO

o Team for Brokerage activities

o Risk Management team

o Finance team

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Partners are the constituents of the board of directors. All investors, the

writer and another team member behind this proposal are partners.

Distribution of shares among partners is commensurate with volume of

each partner’s business promised to the company to be formed. This

does not apply to the writer and the other team member behind this

proposal.

E.4 Proposed distribution of shares:

SAMA shall approve Brokerage Company’s shares’ distributions. For the

sake of this presentation the writer proposes the following:

E.4.1. One investor and two of the team behind this

proposal

i. 51% - 80% investor’s share

ii. 20% - 49% total two team’s share

E.4.2. One investor, an international reinsurance broker and

two of the team behind this proposal

iii. 51% - 70% investor’s share

iv. 20% total two team’s share

v. 10% - 29% foreign international reinsurance broker’s

share

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E.4.3. More than one investor and two of the team behind

this proposal

vi. 80% total investors’ shares

vii. 20% total two team’s share

E.4.4. More than one investor, a foreign partner and two of

the team behind this proposal

viii. 51% - 70% total investors’ share

ix. 20% total two team’s share

x. 10% - 29% foreign insurance/re-insurance broker’s share

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F. Key Personnel & Key Responsibilities

Position Key Responsibilities

CEO: o Plays a very active role in driving the final preparations to launch the Company

o Maintains relations to high priority clients o Interacts with regulators throughout the

licensing process and maintains relationship with them as needed

o Manages relationships to investors o Supports strategy development o Participates in hiring other management team

members o Participates in negotiations of major contracts

and accounts

COO: o Builds and maintains relations to all Company clients

o Builds and develops brokerage team o Builds and develops risk management team o Defines and executes strategies developed for

selected teams o Leads Negotiates of major accounts o Participates in negotiating of selected accounts

Brokerage Team

Leader:

o Drives marketing efforts o Conducts training of brokerage team o Continuously adapts marketing strategy as

needed o Maintains relations with Company clients o Develops final product offering o Finalizes marketing strategy o Participates with COO in recruiting of

brokerage team

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Risk

Management

(R/M) Manager:

o Drives R/M approaches o Conducts training of R/M team o Continuously adapts R/M strategy as needed o Maintains relations with Company clients o Develops final product offering o Finalizes R/M products o Participates with COO in recruiting of

brokerage team Accountant &

SAMA Compliant

Officer:

o Develops and applies appropriate financial

policy framework and systems o Interacts with all Company personnel o Supervises preparation, consolidation and

audit of annual accounts o Advises Company management on major

financial issues o Participates in overall strategy development o With the CEO, ensures all transactions and

account entries conform with SAMA regulations and directives

o Manages investor relations

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G. Financial Aspects of the Proposed Company

A number of assumptions can be considered to evaluate the project’s

feasibility and financial aspects. Most of the assumptions are derived

from SAMA’s guidelines along with the vision and input of the team

behind the proposal.

The proposed company will focus on products, shown in Table – 5. They

appear as percentages of anticipated size of the insurance market.

Table – 5 GWP in SR Million

Year 2007 2008 2009

Gross Written Premium (GWP) 10,505.00 12,603.00 15,198.40

Product as a % of GWP

Property & Energy 08.93 08.02 07.32

Engineering 05.43 04.58 04.18

Marine & Aviation 05.96 05.97 05.44

Casualty, Fiduciary & Others 02.76 02.50 02.28

Motor 33.57 32.27 30.78

Medical & Life 43.35 46.66 50.00

The proposed company will engage all sectors be it industrial,

commercial, real estate, manufacturing, energy, services and others. In

doing so, the proposed company will use the available insurance

products released by the registered insurance companies and will inject,

from its own experience, selling points that have added values to land

targeted account on the proposed company’s books.

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G.1. Production & Revenues Table – 6 shows the gross annual income figures in all seven scenarios.

The seven scenarios take into consideration a base-case, three scenarios

above it and three scenarios beneath it:

Table – 6

Market Size, Production & Revenue in SR million

Base-Case and 6 Scenarios Production vis-à-vis Revenue Yr Market Size/

Revenue -3 -2 -1 0 +1 +2 +3

1 10,505/

Revenue

8.886

1.155

13.333

1.733

20.000

2.600

30.000

3.900

40.000

5.200

53.333

6.933

71.111

9.244

2 12,603/

Revenue

11.259

1.464

16.888

2.195

25.333

3.293

38.000

4.940

50.666

6.586

67.555

8.782

90.074

11.710

3 15,198/

Revenue

22.222

2.888

33.333

4.333

50.000

6.500

75.000

9.750

100.000

13.000

133.333

17.333

177.777

23.111

- Market Size = Forecasts by financial consultants

- Production = Proposed Company’s market share

- Revenue = Brokerage commissions earned calculated on average

13% of production size

- (0) = Base case is 3 per thousand in years 1 & 2 and 5 per thousand in year 3

- (-1) = Base case reduced by 1/3

- (-2) = is (-1) reduced by 1/3

- (-3) = is (-2) reduced by 1/3

- (+1) = Base case increased by 1/3

- (+2) = is (+1) increased by 1/3

- (+3) = is (+1) increased by 1/3

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G.2. Expenses

There are pre-operating expenses and amortization, and then operating

expense including SAMA’s costs of inspection and supervision.

o Pre-operating expenses include feasibility study, license cost,

establishment fees and other incidental expenses and costs. These

expenses will be paid up during the first year of operations and will

be amortized over a maximum period of 5 years. Our presentation

accounts for these expenses to be paid back in the first year after

the full payment of the capital. Refer Table 7 for outlined expenses.

o Operating expenses include fixed and variable expenses which

include office rent, furniture fixtures and fittings, IT, salaries,

SAMA’s cost of inspection and supervision (currently calculated at

1% of total commissions and fees earned within an accounting

year). Also, under operating expenses we may include promotion

and advertising, maintenance, communications, audit and legal

fees, consulting fees (if needed), utilities, business travel expenses,

stationary and office tools, staff training, hospitality expense, bank

expense, board of directors fees, depreciation expense,

amortization cost, doubtful debts, other expenses. These are

itemized as ensuing (See Table 8):

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G.2.i. Overall cost drivers for build up of particular

estimate * FTE is full time employee

G.2.i.1. Personnel related costs

a. Salaries, which are determined by salary level and number of

FTEs*

i. Management

ii. Non-management

b. Other FTE driven costs, which are determined by cost per

FTE, number of FTEs, % of salary pool,

i. Travel

ii. Cars

iii. Office material

iv. Communication charges

v. PCs etc.

vi. Benefits

vii. Yearly office rent

G.2.i.2. Other internal costs

c. Rent, which is yearly office rent determined by space per

person and general use of areas

d. Depreciation of systems, which is determined by investment

level

i. Accounting systems

ii. Brokerage systems

e. Office equipment

i. Furniture, which is determined by cost per sq m. and

office space

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ii. Office equipment, which is determined by cost per FTE

f. Representation costs

i. Cost of activities related to customer interaction,

which is determined by number of client-facing FTEs

and budget per client-facing FTE

G.2.i.3. External services costs

g. Audit

i. Yearly audit fees payment to company appointed

auditors

ii. Yearly payment of SAMA inspection fees

h. Legal

i. Yearly legal fees payment to appointed legal

ii. Ad hoc legal fees incurred during the year

G.2.i.4. Other costs

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G.3. Pre-operating Expenses

Table – 7 Estimated during a period not exceeding three months

Item Cost (SR)

BSS Fees, Team Leader in-charge. 100,000

Financial Consultant Fees 75,000

Actuary Fees 50,000

Legal Fees, 150,000

SAMA License Cost & Registration Fees 35,000

Ministry of Trade Registration Fees 25,000

Utilities, entertainment and PR 10,000

Secretarial expenses 9,000

Public Notary & Other expenses 46,000

Total 500,000

G.4 Operating Cost

Table – 8 Estimate Operating Cost considering major cost drivers in F.2.i.

Fiscal Year (in SR) Item 1st 2nd 3rd

Pre-operating expenses 500,000 Nil Nil

Salaries, wages and benefits 750,000 1,250,000 1,900,000

Rents 70,000 70,000 70,000

Furniture, fixtures & equip’t. 60,000 60,000 60,000

Comm., travel & off. Material 100,000 140,000 200,000

IT & IT professional fees 50,000 75,000 90,000

Insurance & advertisement 30,000 30,000 100,000

Utilities, entertainment and PR 70,000 80,000 100,000

Auditor, SAMA & legal fees 70,000 115,000 200,000

Zakat, tax 50,000 80,000 180,000

Total 1,750,000 1,900,000 2,660,000

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G.5. Cash Flow

Earned commissions are the detrimental factor that generates the cash

flow for the proposed Company. On-time collected earned commissions

generate healthy cash flow for the Company. Table – 9 reflects both

factors: earned commissions and on-time collections.

Table – 9a……Earned Commissions in (SR) Earned Commission estimated per quarter

Year 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter

Total

1st 400,000 800,000 400,000 2,000,000 3,600,000

2nd 560,000 1,000,000 600,000 2,400,000 4,560,000

3rd 1,200,000 2,000,000 1,000,000 4,800,000 9,000,000

Table – 9b……Cash Flow Chart Year 1st 2nd 3rd

Jan _ 100,000 250,000 + 50,000

Feb _ 100,000 + 70,000 150,000 + 50,000

Mar 100,000 700,000 + 70,000 600,000 + 100,000

Apr 250,000 350,000

May 100,000 + 70,000 150,000 + 50,000

Jun 200,000 500,000 + 70,000 600,000 + 300,000

Jul 100,000 250,000 350,000

Aug 100,000 220,000 350,000

Sep 200,000 500,000 + 70,000 600,000 + 300,000

Oct 100,000 320,000 100,000

Nov 100,000 220,000 750,000

Dec 700,000 600,000 850,000

Total 1,600,000 4,210,000 5,950,000

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Note: -

Collectable Jan/ 4th operating year: SR 600,000

Collectable Feb/ 4th operating year: SR 500,000

Collectable Mar/ 4th operating year: SR 500,000

Collectable Apr/ 4th operating year: SR 100,000

Collectable May/ 4th operating year: SR 400,000

Collectable Jun/ 4th operating year: SR 500,000

Collectable Jul/ 4th operating year: SR 500,000

Collectable Aug/ 4th operating year: SR 500,000

Collectable Sep/ 4th operating year: SR 500,000

Collectable Oct/ 4th operating year: SR 1,300,000

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G.6. Proforma P&L for Brokerage Company

Table – 10 Rough Estimate Base-case (SR)

Description Year 1 Year 2 Year 3

Gross Premium Account 30,000,000 38,000,000 75,000,000

Gross Commissions 4,500,000 5,700,000 11,250,000

Acquisition Cost (900,000) (1,140,000) (2,250,000)

Earned Commissions 3,600,000 4,560,000 9,000,000

Doubtful Debts (360,000) (456,000) (900,000)

Operating Costs (500,000) (700,000) (1,100,000)

Surplus 2,740,000 3,404,000 7,000,000

Salaries (750,000) (1,200,000) (1,800,000)

Pre-Operating Expenses (500,000) _ _

Investment Income 80,000 150,000 300,000

Total Profit 1,570,000 2,354,000 5,800,000

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H. Law’s Objectives & Licensing Requirements

H.1. Objectives of Law & its Implementing Regulation

The regulators have identified four (4) objectives for implementing the

insurance law:

i. Protect policyholders and shareholders

ii. Encourage fair and effective competition

iii. Enhance stability of insurance market

iv. Enhance insurance sector in the Kingdom and provide

training and employment opportunities to locals

H.2. Licensing Requirements

The writer is proposing to set up insurance and reinsurance brokerage

company, which operation SAMA has classified as insurance and

reinsurance services provider. Accordingly, the proposed company shall

apply to SAMA submitting the following:

1. completed licensing application

2. memorandum of association

3. articles of association

4. organizational structure

5. feasibility study

6. three-year business plan that shall include:

a. classes of insurance that the proposed

company intends to provide services to

b. projected costs and financing to start the

operation

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c. projected growth of the business

d. expected number of employees and a

saudization plan for training and employment

e. annual cost based on projected growth rate

f. projected financial statements related to the

growth rate

g. branching distribution plan in the Kingdom

7. any agreements with outside parties

8. an irrevocable bank guarantee issued by one of the

local banks for the capital required, such guarantee

must continuously renew until capital is fully paid

H.3. Capital Requirement

The capital required to set up insurance brokerage company is SR

3,000,000 (three million). The operation that this proposal is

recommending is not limited to insurance brokerage but includes

reinsurance brokerage as well. We are not sure whether investors need to

raise additional SR 3,000,000 for the two activities. Released regulations

are not clear in this area. Therefore, our best advice at this stage is that

we submit the full documents to SAMA with a bank guarantee for SR

3,000,000 and will act upon their directives as and when SAMA reverts

with comments on our level of readiness. However, we would ask

investors to be ready to be asked to put up bank guarantees from SR

three million up to SR nine million.

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H.4. Other Considerations

Insurance and reinsurance brokerage company will:

o Have to raise the minimum capital.

o Have to buy professional indemnity insurance policy for a

minimum limit of SR 3,000,000 (three million) for insurance

brokerage and SR 6,000,000 (six million) for reinsurance

brokerage.

o Pay SAMA SR 10,000 (ten thousand) to study its submission,

which if accepted will pay additional SR 25,000 (twenty five

thousand) in registration fees.

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Basem Shakib Shakhshir

SUMMARY OF QUALIFICATIONS:

Possess 33 years of insurance experience the last twenty years of which in the KSA operating as an insurance consultant. The writer possesses sound knowledge of insurance and reinsurance applications with the expertise to tailor and execute functional insurance coverage schemes for large businesses including financial institutions. Ability to communicate with international reinsurance markets in support of local business. Tailor and manage insurance schemes for local businesses similar to and naming a few, Saudi Arabian Marketing and Refining Company (SAMAREC), Electricity Western Region (EWR), Grain Silos & Flour Mills Organization (GSFMO) and Arabian Cement Company (ACC). Negotiate and conclude insurance claims settlements on behalf of claimants involving substantial amounts. Work closely with individual investors in the local insurance market for forming joint ventures, insurance companies and or any insurance vehicle in the Saudi insurance industry. Prepare market studies, which include overall look of Saudi insurance market and an independent look on medical insurance and where it is heading. Between 1995 and 1996 the Nazer Group contracted with the writer to spearhead their negotiations with BUPA that lead to forming BUPA Middle East early 1997.

Maintain sound relations with international reinsurance markets and connect through reinsurance brokerage firm mainly in the USA.

Also can oversee operations of insurance companies and assist managements maintain healthy business portfolio and sound insurance products.

In 2005 and the good part of this year, contracted with Dar Mousa Advisory Services to apply myself to the KSA legislative requirements assist investors set up insurance and reinsurance companies complying with the SAMA observed regulations as set by the country's Legislators.

Currently, I am an appointed consultant to an insurance company registering in the Kingdom. Also am advising a group of investors interested in setting up an insurance vehicle in the KSA.

Additionally, the writer is a registered arbitrator at the Ministry of Justice.

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PROFESSIONAL EXPERIENCE:

AMITY INSURANCE CORPORATION E.C. (Jeddah then Riyadh) May 2003 to July 2005

Regional Manager (Western Region), then Business Development (Central Region)

Senior position responsible to manage operations of the Company in the Western Region mainly in Jeddah and Mecca. Responsible to maintaining well spread business portfolios and healthy percentage of growth rate. Observe all work codes and business ethics with peers in the same field based on market understandings and healthy competition. Introduce new businesses and maintain sound market approach to writing insurance accounts. Interact with the market and maintain sound client service approach. Moved to Riyadh, in May 2004, to put together a business plan for the approval of the management. This entailed a study of the market sectors, segmenting the market for formulating efficient approaches that would be effective and yield the desired results. Still sponsored by Tataly General Trading, and operate as a freelance insurance consultant until this date. As Regional Manager • Achieved an average of 8% growth in written business

• Maintained sound relations with major accounts

• Maintained a healthy work atmosphere among employees directing them in discharging of their duties, motivating them to apply themselves to their responsibilities and duties.

INSURANCE CONSULTANT (Jeddah based operation covering the KSA) 1986 to 2003

Executive Vice President, Insurance Consultant SAMAREC, Insurance Consultant (part of MMA Est.)

Co-founded CIC Co. Ltd. Moved to the Kingdom in 1986 with responsibilities to manage and run a new operation together with the original company founder. In a span of four years the Company became the first known Insurance Consultant in the Kingdom with an impressive business portfolio incorporating the Country's Oil Industry like, Jeddah Oil Refinery, Riyadh Oil Refinery and Yanbu Oil Refinery among other businesses in all three Regions of the Country. Then was chosen the Insurance Consultant for SAMAREC with duties to put together and manage a comprehensive insurance coverage scheme for all the Company's operations. Of the duties executed were identifying and defining risk buying

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requirements, tailoring insurance program with selected local insurance company (NCCI), identifying risk management approaches together with ceding insurer and lead re-insurer with the assistance of international re-insurer brokerage company. Later on founded and managed my own business as Insurance Consultant after SAMAREC merged under ARAMCO in 1994. The continuity of my practice landed me the assignment as Insurance Consultant for J H Minet & Company giving them advice on Saudi Insurance Market and maintaining sound relationship with local insurers most important of which NCCI. I lead a market research and study for Al Nazer Group, in KSA together with BUPA International which led to the setting up of a joint venture between the two parties. The joined venture is BUPA Middle East, registered in Bahrain and currently registering in the Kingdom with an impressive capital of SR 400 million. Of my most valued clients were Arabian Cement Company and Shahini Cold Stores Company. • Established sound approach to Consultants in the Insurance field

under the name of CIC CO. LTD. • Established sound relations with local insurance companies among

them NCCI, SAICO (ACE), MedGulf, SACIR and BUPA Middle East, Al Rajhi Insurance Company.

• Established good relations with international re-insurers like AIU. • Established good name with international contractors operating

within the Kingdom in connection with SAMAREC. Companies like Bechtel and Foster Wheeler.

• Worked closely with internationally acknowledged Medical Insurance Specialist – BUPA Int'l., which acquired me a special working arrangement with its Saudi based joint venture – BUPA M.E. and the Al Nazer Group.

• My practice as an independent insurance consultant made me well reputed among my peers in the market as we all met for the best interest of all the parties involved in the venture.

ARAB COMMERCIAL ENTERPRISES (ACE) 1980 - 1985

Assistant Vice President, Brokering (based in Athens – Greece)

Based in Athens - Greece overlooked Company operations in the Kingdom relating to various non-Marine Cargo and Property insurance lines like:

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Casualty, Engineering, Liabilities, Fiduciary and specially designed insurance plans. • Responsible to place facultative reinsurance for businesses generated

in KSA and the Gulf States. • Established good position with insurers and re-insurers alike and was

able to acquire competitive rating structures as recommended by field operators from underwriters for their lead share prior to ceding balance with facultative re-insurers in the international markets.

• Studied the GOSI Industrial Injuries Insurance Plan, identified insurance gaps with applicable Saudi Labor Law and designed and applied a Difference in Cover Workmen's Insurance Policy that exists in the Saudi Market, with minimal variations, till this date.

CANTON INSURANCE COMPANY 1978 - 1980

Agency Manager (based in Kuwait – Kuwait)

Managed and organized the operations of the Agency for both the Agent (Mohmmad A. Al Bahar) and for the Principal based in the UK. The company was operated as an in-house operation servicing the insurance buying requirements of the Agent and a number of other businesses known to the Agent. It was the policy of the Agent not to acquire new businesses until the Principal discloses his business plan regarding Kuwait operation. It was simple operation to run and maintain sound and viable contacts between Agent and Principal. • Maintained a smooth operation and work understanding between the

Agent and Principal.

ABU DHABI NATIONAL INSURANCE COMPANY (ADNIC) 1973 - 1977

Manager Marine Department (Abu Dhabi - UAE)

It was my fresh start in Insurance with the then newly established ADNIC. My responsibilities, before becoming Manager, were to issue insurance policies and handle marine cargo insurance claims and recoveries. With the fast growth rate of the Company I soon became Manager with full authorities to underwrite Marine Cargo and Hull business including Aviation, Off-shore Oil Explorations and Rigging Risks.

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• Responsible for the growth of the business of the Department from a humble start of few insurance policies to an impressive business portfolio

• Expanded the operations of the Department to writing Marine Hulls for mammoth tankers and fleets belonging to ADNATCO and ADNOCFOD. Price guidelines acquired from international reinsurance markets with the assistance of international reinsurance brokerage firms.

• Expanded the operations of the Department to writing Aviation Hulls and Liability in collaboration with international reinsurance markets through international reinsurance brokerage firms.

EDUCATION / PROFESSIONAL DEVELOPMENT: • Two weeks course seminar on Understanding Average Adjusting

including General Average claims settlement, Richards Hogg International – Average Adjusters.

• Few courses, Chartered Insurance Institute

• BA, American University of Beirut

OTHER PROFILE HIGHLIGHTS:

o Jordanian Nationality, fluent in Arabic and English speaking and writing. o Date of Birth: July 10th, 1947 o Married o Reside in Riyadh – KSA

Contact Numbers:

+966 50-736 4741 Mobile +966 1-453 5878 Residence

Email: [email protected] and/or [email protected]

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mailto:[email protected]

mailto:[email protected]


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placing an insurance brokerage company in ksa

Economy & Finance