placing an insurance brokerage company in ksa
TRANSCRIPT
________________________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]
________________________________1 of 44_______________________________
________________________Insurance & Reinsurance Brokerage Company
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
________________________________2 of 44_______________________________
________________________Insurance & Reinsurance Brokerage Company
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
________________________________3 of 44_______________________________
________________________Insurance & Reinsurance Brokerage Company
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
________________________________4 of 44_______________________________
________________________Insurance & Reinsurance Brokerage Company
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.
________________________________5 of 44_______________________________
________________________Insurance & Reinsurance Brokerage Company
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.
________________________________6 of 44_______________________________
________________________Insurance & Reinsurance Brokerage Company
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
+ + + + +
________________________________7 of 44_______________________________
________________________Insurance & Reinsurance Brokerage Company
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.
________________________________8 of 44_______________________________
________________________Insurance & Reinsurance Brokerage Company
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
________________________________9 of 44_______________________________
________________________Insurance & Reinsurance Brokerage Company
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
________________________________10 of 44_______________________________
________________________Insurance & Reinsurance Brokerage Company
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.
________________________________11 of 44_______________________________
________________________Insurance & Reinsurance Brokerage Company
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.
________________________________12 of 44_______________________________
________________________Insurance & Reinsurance Brokerage Company
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
________________________________13 of 44_______________________________
________________________Insurance & Reinsurance Brokerage Company
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.
________________________________14 of 44_______________________________
________________________Insurance & Reinsurance Brokerage Company
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.
________________________________15 of 44_______________________________
________________________Insurance & Reinsurance Brokerage Company
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.
________________________________16 of 44_______________________________
________________________Insurance & Reinsurance Brokerage Company
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
________________________________17 of 44_______________________________
________________________Insurance & Reinsurance Brokerage Company
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
________________________________18 of 44_______________________________
________________________Insurance & Reinsurance Brokerage Company
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
________________________________19 of 44_______________________________
________________________Insurance & Reinsurance Brokerage Company
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
________________________________20 of 44_______________________________
________________________Insurance & Reinsurance Brokerage Company
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
________________________________21 of 44_______________________________
________________________Insurance & Reinsurance Brokerage Company
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
________________________________22 of 44_______________________________
________________________Insurance & Reinsurance Brokerage Company
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
________________________________23 of 44_______________________________
________________________Insurance & Reinsurance Brokerage Company
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
________________________________24 of 44_______________________________
________________________Insurance & Reinsurance Brokerage Company
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
________________________________25 of 44_______________________________
________________________Insurance & Reinsurance Brokerage Company
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
________________________________26 of 44_______________________________
________________________Insurance & Reinsurance Brokerage Company
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.
________________________________27 of 44_______________________________
________________________Insurance & Reinsurance Brokerage Company
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
________________________________28 of 44_______________________________
________________________Insurance & Reinsurance Brokerage Company
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):
________________________________29 of 44_______________________________
________________________Insurance & Reinsurance Brokerage Company
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
________________________________30 of 44_______________________________
________________________Insurance & Reinsurance Brokerage Company
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
________________________________31 of 44_______________________________
________________________Insurance & Reinsurance Brokerage Company
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
________________________________32 of 44_______________________________
________________________Insurance & Reinsurance Brokerage Company
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
________________________________33 of 44_______________________________
________________________Insurance & Reinsurance Brokerage Company
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
________________________________34 of 44_______________________________
________________________Insurance & Reinsurance Brokerage Company
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
________________________________35 of 44_______________________________
________________________Insurance & Reinsurance Brokerage Company
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
________________________________36 of 44_______________________________
________________________Insurance & Reinsurance Brokerage Company
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.
________________________________37 of 44_______________________________
________________________Insurance & Reinsurance Brokerage Company
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.
________________________________38 of 44_______________________________
________________________Insurance & Reinsurance Brokerage Company
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.
________________________________39 of 44_______________________________
________________________Insurance & Reinsurance Brokerage Company
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
________________________________40 of 44_______________________________
________________________Insurance & Reinsurance Brokerage Company
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:
________________________________41 of 44_______________________________
________________________Insurance & Reinsurance Brokerage Company
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.
________________________________42 of 44_______________________________
________________________Insurance & Reinsurance Brokerage Company
• 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]
________________________________43 of 44_______________________________
________________________Insurance & Reinsurance Brokerage Company
________________________________44 of 44_______________________________