Placing an Insurance Brokerage Company in KSA


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Placing an Insurance Brokerage Company in KSA

  1. 1. ________________________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 AlShakhshir, insurance consultant and claims arbitrator registered with the Ministry of Justice, Kingdom of Saudi Arabia. Mobile: +966 50-7364741 Email: ________________________________1 of 44_______________________________
  2. 2. ________________________Insurance & Reinsurance Brokerage Company TABLE OF CONTENTS Item Executive Summery Page 05 Business Idea Market Strategy Key Challenges Ownership Financials B. Overview 08 Purpose Credentials A. 05 05 06 06 07 07 08 09 Saudi Insurance Market & the Direct Insurance Market in the M.E. B1. The KSA as Part of the M.E. Market 10 B2. Saudi Market Comparison B3. The Market Compared with others B4. Indications of Comparison Made Insurance & R/I Service Providers in KSA 17 C1. Insurance & R/I Brokers C2. Activities of Ins & R/I Brokers C. 10 12 13 14 17 19 ________________________________2 of 44_______________________________
  3. 3. ________________________Insurance & Reinsurance Brokerage Company TABLE OF CONTENTS….CONTINUED Item Page D. Brokerage Commissions 20 E. Structure of Proposed Company 21 E.1. E.2. E.3. E.4. 21 22 22 23 Undertakings of Team Role of Investors Outline of Management Proposed Distribution of Shares F. Key Personnel & Key Responsibilities 25 G. Financial Aspects 27 G.1. G.2. G.3. G.4. G.5. G.6. 28 29 32 32 33 35 H. Production & Revenues Expenses Pre-Operating Expenses Operating Cost Cash Flow Proforma P&L for Brokerage Company Laws Objectives & Licensing Requirements 36 H.1. H.2. H.3. H.4. 36 36 37 38 Objectives of Laws Licensing Requirements Capital Requirement Other Considerations CV of the Writer 39 ________________________________3 of 44_______________________________
  4. 4. ________________________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_______________________________
  5. 5. ________________________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_______________________________
  6. 6. ________________________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_______________________________
  7. 7. ________________________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 preoperating expense and its own 1st year expenses from its first year’s revenues +++++ ________________________________7 of 44_______________________________
  8. 8. ________________________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_______________________________
  9. 9. ________________________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_______________________________
  10. 10. ________________________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 weakest changes will rule players due to out the capital requirements the direct insurance market in the region is expected to grow strongly ________________________________10 of 44_______________________________
  11. 11. ________________________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_______________________________
  12. 12. ________________________Insurance & Reinsurance Brokerage Company B2. This is How the Saudi Market Compares in a Three – Year Period Table – 1 Life Non-Life 2001 2002 2003 2001 Premium 2002 Total 2003 2001 2002 2003 0.11 0.13 0.16 2.49 2.85 3.83 2.60 2.98 3.99 0.02 0.02 0.02 0.36 0.40 0.48 0.38 0.42 0.50 4.80 5.60 6.60 109.70 121.90 159.10 114.50 127.50 165.70 (SR bn) Contribution to GDP (%) Premium Per Capita (SR) • 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_______________________________
  13. 13. ________________________Insurance & Reinsurance Brokerage Company B3. This is How Saudi Market Compares with Others Figures indicate insurance penetration (Percent of GDP) ~3-5 2.0 0.8 1.1 2.4** 2.1* 1.1 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_______________________________
  14. 14. ________________________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_______________________________
  15. 15. ________________________Insurance & Reinsurance Brokerage Company Table – 2 GWP in SR Million Year Total GWP Life & Med. Total % of Non-Life GWP Property/ Marine Casualty Motor & 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_______________________________
  16. 16. ________________________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 63.0 69.0 76.0 83.6 91.9 5,132.0 7,564.0 Others Total 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_______________________________
  17. 17. ________________________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_______________________________
  18. 18. ________________________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 insurancebuying requirements then approaches local market for insurance quotations C2.iii reports to client outcome their market approach with recommendations ________________________________18 of 44_______________________________
  19. 19. ________________________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: 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_______________________________
  20. 20. ________________________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_______________________________
  21. 21. ________________________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_______________________________
  22. 22. ________________________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_______________________________
  23. 23. ________________________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. ii. E.4.2. 51% - 80% investor’s share 20% - 49% total two team’s share 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_______________________________
  24. 24. ________________________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_______________________________
  25. 25. ________________________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_______________________________
  26. 26. ________________________Insurance & Reinsurance Brokerage Company Risk Management (R/M) Manager: o o o o o o o Drives R/M approaches Conducts training of R/M team Continuously adapts R/M strategy as needed Maintains relations with Company clients Develops final product offering Finalizes R/M products 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_______________________________
  27. 27. ________________________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 10,505.00 12,603.00 15,198.40 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 Gross Written Premium (GWP) Product as a % of GWP 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_______________________________
  28. 28. ________________________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/ Revenue 1 10,505/ Yr -2 -1 0 8.886 13.333 20.000 30.000 +1 +2 +3 53.333 71.111 3.900 5.200 6.933 9.244 12,603/ 11.259 16.888 25.333 38.000 50.666 67.555 90.074 6.586 8.782 11.710 Revenue 3 -3 40.000 Revenue 2 Market Size, Production & Revenue in SR million Base-Case and 6 Scenarios Production vis-à-vis Revenue 1.155 1.464 1.733 2.195 2.600 3.293 4.940 15,198/ 22.222 33.333 50.000 75.000 100.000 133.333 177.777 Revenue 2.888 4.333 6.500 9.750 13.000 17.333 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_______________________________
  29. 29. ________________________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_______________________________
  30. 30. ________________________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_______________________________
  31. 31. ________________________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_______________________________
  32. 32. ________________________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 9,000 Secretarial expenses 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. Item Fiscal Year (in SR) 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 1,750,000 1,900,000 2,660,000 Total ________________________________32 of 44_______________________________
  33. 33. ________________________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 + 50,000 700,000 + 70,000 600,000 + 100,000 250,000 350,000 100,000 + 70,000 150,000 + 50,000 Mar 100,000 Apr May 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 1,600,000 4,210,000 5,950,000 Total ________________________________33 of 44_______________________________
  34. 34. ________________________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_______________________________
  35. 35. ________________________Insurance & Reinsurance Brokerage Company G.6. Proforma P&L for Brokerage Company Table – 10 Rough Estimate Base-case (SR) Description Gross Premium Account Year 1 Year 2 Year 3 30,000,000 38,000,000 75,000,000 4,500,000 5,700,000 11,250,000 (900,000) (1,140,000) (2,250,000) 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) _ _ 80,000 150,000 300,000 1,570,000 2,354,000 5,800,000 Gross Commissions Acquisition Cost Earned Commissions Investment Income Total Profit ________________________________35 of 44_______________________________
  36. 36. ________________________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. ii. Protect policyholders and shareholders 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_______________________________
  37. 37. ________________________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_______________________________
  38. 38. ________________________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_______________________________
  39. 39. ________________________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_______________________________
  40. 40. ________________________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_______________________________
  41. 41. ________________________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_______________________________
  42. 42. ________________________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_______________________________
  43. 43. ________________________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 o o o Jordanian Nationality, fluent in Arabic and English speaking and writing. Date of Birth: July 10th, 1947 Married Reside in Riyadh – KSA Contact Numbers: +966 50-736 4741 +966 1-453 5878 Mobile Residence Email: and/or ________________________________43 of 44_______________________________
  44. 44. ________________________Insurance & Reinsurance Brokerage Company ________________________________44 of 44_______________________________