Gov't Retains 25% Compulsory Cession for General Insurance Firms

EghtesadOnline: The Cabinet has made decisions concerning reinsurance and debts owed to the Oil Stabilization Fund among other things in their latest meeting on Wednesday.

News ID: ۷۷۴۱۵۸

25 February 2017

During a meeting presided by President Hassan Rouhani, the Council of Ministers decided to keep the cap on compulsory reinsurance unchanged for the current fiscal year (starting March 21), IBENA reported.

As approved by the Cabinet, all insurance companies in Iran must park 15% and 25% of all their reinsurance business with the Central Insurance of Iran for the life and non-life categories respectively.

As decided by the government, the compulsory cession will remain the same until “new rates are devised within the framework of the law”.

According to Financial Tribune, insurance companies keep these funds with CII, the supervisory entity for the sector, so that a portion of their risk is transferred to the reinsurer. The mechanism has been criticized for effectively creating a line of business, but CII calls it an extension of its supervisory mandate.

Members of the Cabinet also approved amendments to a number of articles in a directive related to Oil Stabilization Fund debtors “to resolve the problems of production units and accelerate the return process of government financial assets”.

According to the amendments, those who are indebted to the fund will have until the end of the third month of the next fiscal year (June 20) to repay at least 25% of their outstanding debts. They have been given until the end of the next fiscal year (March 20, 2018) to repay their debts in its entirety.

The deadlines set in this directive will not be extended under any circumstances “while the scope of the directive will be extended to all debtors who have acted to settle their loans within the framework of the directive”.

The Oil Stabilization Fund was founded in 2001 by the reformist government of President Mohammad Khatami to iron out the negative impacts of oil price fluctuations on the fiscal budget. The fund was meant to act as a rainy day fund but excessive withdrawal during the previous administration greatly eroded its efficacy.

The ministers also reviewed a report on “empowering the ecosystem of knowledge-based job creation” and approved that the debt owed to individuals and businesses by government-run entities can be swapped with their debts to the government.