Placing an Insurance Brokerage Company in KSA

________________________Insurance & Reinsurance Brokerage Company

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

October 2006
Prepared by a team of insurance professional residing in the
Kingdom with collective insurance exposure of eighty years
mainly in the KSA.
Written by one of the team members, Basem Shakib AlShakhshir, insurance consultant and claims arbitrator
registered with the Ministry of Justice, Kingdom of Saudi
Arabia.
Mobile: +966 50-7364741 Email: bshakhshir@gmail.com

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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

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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

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List of Tables Used
Tables

Page

Table – 1

Saudi Market

12

Table – 2

Gross Written Premium

15

Table – 3

Size of Insurance Market

16

Table – 4

Commissions Earned

20

Table – 5

Products as a Percentage of GWP

27

Table – 6

Production & Revenue

28

Table – 7

Pro-Operating Expenses

32

Table – 8

Operating Cost

32

Table – 9a

Earned Commissions

33

Table – 9b

Cash Flow Chart

33

Table – 10

Proforma P&L

35

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Executive Summery
1.

Business idea:
o Insurance and reinsurance brokerage company (to be named) is a
Saudi based company that will provided a much needed services in
a newly founded insurance industry and will play a major role in
the making of the insurance market:
The anticipated boom in the insurance market will increase
the demand for service providers in areas like risk
management, identifying risk exposures and translating
them into insurance terms and insurance buying
requirements ready for risk transfer and the ultimate
protection of investments.
Offer the insurance market access to international
reinsurance markets where facultative reinsurance plays
major role in supporting local insurers accepting risks
transfers and carry risks that are normally restricted by their
existing reinsurance treaties. This is a normal service that
major insurance and reinsurance brokerage companies
worldwide offer to their clients.

2.

The market:
o The direct insurance market in the Middle East is expected to grow
at least 10% per year in the next five years. But, the Saudi
insurance market is expected to double in size by year 2008 and to
triple by year 2009 when compared with current figures.
o The thinning in insurance professionals underwriting insurance
risks, solving claims, servicing major accounts as well as small
ones shall be filled by the expertise of the proposed brokerage
company especially applicable to its founders and their businesses.
o Many insurance companies will register in Saudi Arabia they will
flood the market with their insurance products making it the more
difficult for insured to choose from. The broker is qualified to
advise insured of his insurance buying needs as well as of his risk
exposures and then the broker tailors the insurance protection
plan and invites capable insurance companies to bid for and will
award the competitive and most compliant insurer.

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3.

Strategy:
o The brokerage company shall apply itself to:
Serving all industries including the insurance industry
Providing the required services by having on board the
personnel that have the capabilities to do so. When it can’t,
then the company can sub-contract to other professionals
depending on the field that the company is tackling.
Its customers insurance/reinsurance-buying-needs as it
does possess a deep understanding of insurance and
reinsurance markets, the local and some what regional and
most definitely the international.
Establishing strong ties with reinsurance brokerage firms in
the USA, the UK and the Continent. Such ties will bring to
the Saudi insurance market the reinsurance capacities and
risk carriers for industries like Energy, Wet Risks, Off-shore
Operations, Aviation hulls and liability, Fiduciary exposures,
Pecuniary losses, Professional Indemnities and the like of
specialized risks that require international underwriting.
Penetrating the Saudi market with the intention, within five
years, to expand regionally starting with the GCC, Jordan,
Syria, Lebanon and Egypt.
o The brokerage company can be formed with a wide base of Saudi
investors with conglomerates that demand particular attention by
the insurance market in order to be properly served.
o While it may not be necessary at first but the brokerage company
will bring on board an international reinsurance broker for the
know-how that the international broker will bring to the operation
and access to international markets capacities (reinsurance or
100% risks carriers for a fronting insurer in the KSA) as the local
market may indicate the need for.

4.

Key Challenges:
o The most significant challenges facing the brokerage company is
receiving the positive responses from locally registered insurance
companies to apply internationally acknowledge insurance
practices and work ethics:
SAMA compliant
Acceptable level of professionalism
Honest and fair competition among peers
o Competing with already established brokerage companies existing
in Saudi Arabia which presents a key challenge for the brokerage
company.

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5.

Ownership of Brokerage Company:
o Brokerage Company shall be owned by its founders given the
following scenarios:
One investor with his multi business accounts plus two of
the team members behind this proposal (the writer and
another)
Multi investors with their individual multi business accounts
and team members behind this proposal (the writer and
another)
Multi investors with their individual multi business
accounts, an international reinsurance brokerage company
and two of the team members behind this proposal (the
writer and another)
o Ownership will be structured as per SAMA requirements

6.

Financials:
o The brokerage company will be capitalized with SR 3,000,000
unless SAMA advises differently and imposes more capital for
reinsurance brokerage activities as Regulations are not clear on
this issue
o Brokerage company will achieve gross commissions of ~SR10
million by its third operating year and would at this time operate in
the major cities of the Kingdom and would have more than 18
employees
o The brokerage company would cover investor (s) pre-paid preoperating expense and its own 1st year expenses from its first
year’s revenues

+++++

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A.

Overview

A.1 Purpose of the Submission
This submission promotes the viability of setting up an insurance and
reinsurance brokerage company compliant with the rules and regulations
of the Kingdom of Saudi Arabia and the Law on Supervision of
Cooperative Insurance Companies promulgated on 02/06/1424H.
It is also the vision of the writers that the company would expand
regionally within five (5) years of becoming operational.
The submission will briefly show what the market is and how the
industry is shaping today and what both, market and industry, be like in
five years from today.
The submission will show the structure of the brokerage company that
the writers are proposing to set up, its staff and locations where it shall
operate in the near future.
Finally, the submission also addresses all the concerns of the investor
relating to registering and obtaining the license in the KSA including
dealing with SAMA. It shall also address the financial aspects of the
operation like capitalization, taxes, expenses, reserves, profits and
investment.
Also, this submission highlights pros and cons of a few structures of the
proposed company’s partnerships for investors to choose from.

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A.2 Credentials
At this stage, the writers are at liberty to divulge the identity of only one
of their team members, the undersigned, who has attached his
curriculum vitae at the end of this submission for the reader to refer to
for his own assessment of the quality and seriousness of the plan and
how it measures up in comparison with other plans in the same field.
The writer has chosen ‘insurance’ his career since graduation from
university and kept on structuring it, expanding his career parameters
and sharpening his operating tools throughout his work-life-journey till
the present time. His work journey took him from Abu Dhabi – UAE to
KSA (the present) passing through, Kuwait and Greece. The writer’s
career structuring started in underwriting various insurance business
paramount of which marine (cargo and hulls), aviation (hulls and
liability), on-shore and off-shore oil exploration, energy and property,
casualty and fiduciary; as well as claims and recoveries, then moved on
to international insurance and reinsurance brokering when the writer
gained access to world known reinsurance markets namely the USA, the
UK and the Continent. The KSA insurance market and practices
presented the writer the fore-grounds for becoming an insurance
consultant for both insurers and insured.
The CV attached, includes other details like career achievements, and
work exposure.
Signed:

Basem Shakib Al-Shakhshir

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B Saudi Insurance Market & the Direct Insurance
Market in the Middle East
B1. The KSA as Part of the Middle East Market
The KSA insurance market is growing rapidly prompted by many factors
most direct of which is the introduction of compulsory insurance for
motor and medical (healthcare). Both lines of insurance business shall
yield huge increases in gross insurance premium written in the KSA. Of
the other influencing factors are the joining of KSA the WTO and its
introduction of insurance law permitting companies to register locally to
carryout insurance and reinsurance activities as underwriters, brokers,
consultants and other insurance related activities.
The Saudi insurance market is responding positively to the local and
regional economic challenges faced on the local scene and in the Middle
East. A few of international financial consultants have reported their
positive findings in several business plans, which the writer has read.
The writer outlines few of their findings as ensuing:

o

The Middle East insurance market is attractive
the

profitability

of

direct

insurance

market

is

increasing,
o profitability

has

increased

significantly

over the past few years
o regulatory
weakest

changes

will

rule

players

due

to

out

the

capital

requirements
the direct insurance market in the region is expected
to grow strongly

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o general

acceptance

of

insurance

is

increasing
o mandatory insurance enforced by the
governments is increasing
o strong GDP growth is expected to continue
insurance market in the Middle East is still emerging
and there will be a continued strong demand for direct
insurance as well as reinsurance
insurance

market

is

attractive

as

the

major

international players are merging with local investors
or are limiting their exposure in the region
The overall market indicates that:
o The direct insurance market in the Middle East is expected to grow
by at least 10% per year in the next five (5) years, especially driven
by increased acceptance of insurance among Moslems.
o The profitability of the direct insurance players is generally sound
and has been increasing lately.
o Large international insurance players are gradually pulling back
from the Middle East leaving room for regional and/or local
players.

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B2. This is How the Saudi Market Compares in a Three –
Year Period
Table – 1
Life

Non-Life

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.

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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

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B4. Indications of Comparison Made
In 2003, per capita (insurance density) in Saudi Arabia reached SR 145
compared to SR 142 in 2002. This increase was due to higher oil
revenues during the 2003. Among GCC countries, Saudi Arabia
represents the lowest insurance density in view of its relatively high
population.
Moreover, in 2003 KSA insurance penetration (insurance premiums in
percentage of GDP) remained stable at 0.5% compared to 2002.
Compared to other GCC countries, KSA represents the lowest insurance
penetration in view of its relatively high GDP.
Table – 2 shows the gross written premium (GWP) per insurance class for
KSA market. The total GWP decreased steadily until 2002 when it grew
by 30% followed by 4% increase in 2003. The increase was due to the
September 11 events, which jacked up all premium rates for property
and casualty classes for the year 2002 then receded throughout 2003.

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Table – 2
GWP in SR Million
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.

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Table – 3
Expected Insurance Market Size in SR Million
Insurance Class

2005

2006

2007

2008

2009

Motor

1,387.0

2,358.0

3,537.0

4,067.0

4,677.7

Medical

1,707.0

2,902.0

4,353.0

5,658.9

7,356.6

Property

652.0

717.0

789.0

867.9

954.7

Casualty

174.0

191.0

210.0

231.0

254.1

Marine Cargo

301.0

331.0

364.0

242.0

266.2

Marine Hulls

18.0

20.0

22.0

182.0

200.9

Engineering

311.0

404.0

525.0

577.5

635.3

Energy

107.0

118.0

130.0

143.0

157.3

Aviation

246.0

271.0

298.0

327.8

360.5

Life

166.0

183.0

201.0

221.1

243.2

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.

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C. Insurance & Reinsurance Service Providing in
KSA
C1. Insurance & Reinsurance Broker
Since the submission focuses on insurance and reinsurance service
providers’ aspect of the emerging industry, it is natural that it includes a
brief of brokerage activities of significant presence in the KSA.
Of those companies we mention:

Arab Commercial Enterprises (ACE)
AON Corporation
Saudi Brokers Company Ltd (SBC)
IBC Saudi General Insurance
Arabian International Marketing Company (AIMCO)
Marsh (Inter Reserve)
PWS Insurance & Reinsurance Brokers

There are quite a few of individual operators providing insurance services
on a personal level. Individually they do not constitute a power-play of
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any magnitude but collectively, the writer believes, they amount to
sizable operation worth mentioning. However, because of the insurance
laws and regulations those individual operators will be ousted from the
market unless they either register as individual insurance service
providers or seek employment with registered insurance services
providers companies or individuals.
Unfortunately

reliable

records

and

statistics

of

insurance

and

reinsurance brokerage earned in the KSA are not available. Most
operators view their performances as exclusive and not for the public to
view. Of course the trend will change when insurance laws and
regulations apply and SAMA monitors activities of all the players in the
insurance industry.

C2. Activities of Insurance & Reinsurance Brokers
Whilst few select some fancy names to describe their activities they all
conduct commercial insurance services identified below:
C2.i

seeks

appointment

as

sole

broker

for

acquired

accounts (BoR)
C2.ii

identifies accounts risk exposures and insurancebuying requirements then approaches local market for
insurance quotations

C2.iii

reports to client outcome their market approach with
recommendations

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C2.iv

obtains

client’s

approval

to

proceed

with

given

recommendations
C2.v

instructs local insurer(s) to issue insurance policies.
Debit premiums to clients and deduct earned commissions,
brokerage, from collected premiums before payment to
insurer(s).

However, those companies have more services to offer, such as:
C2.vi

risk management

C2.vii

reinsurance brokerage, i.e. place risks in excess
insurers’ capacities with local re-insurers and/or
regional and/or worldwide

C2.viii

professional and employee benefit consulting

C2.ix

actuarial services

C2.x

consulting

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D. Brokerage Commissions
Insurance

and

reinsurance

brokerage

commissions

earned

are

commensurate with services provided, quality of services and level of
professionalism that the service provider manifests. Insurance brokerage
companies earn commissions within margins identified in the ensuing
table – 4.

Table – 4
Margins of commissions charged by service providers

Insurance Class

Commission Rate %

Engineering

15 – 20

Property & Energy

15 – 20

Life

15 – 20

Marine (cargo, hulls & aviation)

15 – 20

Medical

10 – 15

Casualty

15 – 25

Motor

15 – 20

Others

15 – 20

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E.

Structure of the Proposed Company

As insurance and reinsurance brokers, the company needs to develop a
reliable base of clientele and sound business portfolio. Moving in this
trend the writer proposes a few company structures for investors to
choose from.
1

one investor plus two members of the team behind this
proposal

2

a group of investors with two members of the team behind
this proposal

3

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

E.1 Undertaking of Team Members Behind this Proposal:
o develop the business
o manage the day to day operations
o stay advised of market development
o devise profitable approaches to making sound business
o implement sound management skills and techniques
o qualify employees and ensure their possession of SAMA’s
minimum educational requirements
o ensure to increase the number of Saudi personnel to reach
the 30% minimum at the end of the first five years of
operation. Secure the percentage increase thereafter in
accordance with the Saudization plan submitted to SAMA

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E.2 Role of Investor(s) in the Brokerage Company:
o Put up the finances needed for the company to be registered.
This includes costs and fees to develop business plan and
feasibility

study

compliant

with

SAMA’s

registration

requirements. Also legal fees, bank guarantee, registration fees,
IT fees and costs. A team member’s cost and fees during the
preparation period for the setting up the company (a period not
less than three months). Any other area of expense that might
pop up during the pre-operating period.
o Form the company’s board of directors selected from the team
behind this proposal and other investors
o Promote the business of the company it becomes operational,
and

facilitate

its

obtaining

accounts

offering

help

and

assistance whenever needed.

E.3 Outline of Management:
o Board of Directors
o Audit Committee
o Legal Advisor
o SAMA Compliant observer
o CEO
o COO
o Team for Brokerage activities
o Risk Management team
o Finance team

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Partners are the constituents of the board of directors. All investors, the
writer and another team member behind this proposal are partners.
Distribution of shares among partners is commensurate with volume of
each partner’s business promised to the company to be formed. This
does not apply to the writer and the other team member behind this
proposal.

E.4 Proposed distribution of shares:
SAMA shall approve Brokerage Company’s shares’ distributions. For the
sake of this presentation the writer proposes the following:
E.4.1.

One investor and two of the team behind this
proposal

i.
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

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E.4.3.

More than one investor and two of the team behind
this proposal

vi.

80% total investors’ shares

vii.


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.


x.

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

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F.

Key Personnel & Key Responsibilities

Position

Key Responsibilities

CEO:

o Plays a very active role in driving the final
preparations to launch the Company
o Maintains relations to high priority clients
o Interacts with regulators throughout the
licensing process and maintains relationship
with them as needed
o Manages relationships to investors
o Supports strategy development
o Participates in hiring other management team
members
o Participates in negotiations of major contracts
and accounts

COO:

o Builds and maintains relations to all Company
clients
o Builds and develops brokerage team
o Builds and develops risk management team
o Defines and executes strategies developed for
selected teams
o Leads Negotiates of major accounts
o Participates in negotiating of selected accounts

Brokerage Team
Leader:

o Drives marketing efforts
o Conducts training of brokerage team
o Continuously adapts marketing strategy as
needed
o Maintains relations with Company clients
o Develops final product offering
o Finalizes marketing strategy
o Participates with COO in recruiting of
brokerage team

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Risk
Management
(R/M) Manager:

o
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

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G.

Financial Aspects of the Proposed Company

A number of assumptions can be considered to evaluate the project’s
feasibility and financial aspects. Most of the assumptions are derived
from SAMA’s guidelines along with the vision and input of the team
behind the proposal.
The proposed company will focus on products, shown in Table – 5. They
appear as percentages of anticipated size of the insurance market.

Table – 5
GWP in SR Million
Year

2007

2008

2009

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.

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G.1. Production & Revenues
Table – 6 shows the gross annual income figures in all seven scenarios.
The seven scenarios take into consideration a base-case, three scenarios
above it and three scenarios beneath it:

Table – 6
Market
Size/
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_______________________________


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_______________________________


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_______________________________

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_______________________________

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_______________________________

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_______________________________


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_______________________________


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_______________________________


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_______________________________

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_______________________________


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_______________________________


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_______________________________

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_______________________________

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_______________________________

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_______________________________

• 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: bshakhshir@gmail.com and/or bshakhshir@yahoo.com

________________________________43 of 44_______________________________


________________________________44 of 44_______________________________

Placing an Insurance Brokerage Company in KSA

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