Azerbaijan’s requirement for insurers’ capital similar to minimum level set in EU

Baku, Azerbaijan, Nov. 17

By Azad Hasanli - Trend:

Capitalization of Azerbaijan's insurance market stands at an adequate level and meets present realities, the Head of the State Insurance Supervision Service of Azerbaijan's Finance Ministry Namig Khalilov told Trend.

"It can be said that our requirement for the minimum total capital is normal and adequate to the level of insurance fees," Khalilov said. "Therefore today, the Finance Ministry sees no need to change it."

He went on to add that a three-year program was adopted in early 2014 to improve the insurance companies' capitalization.

"Currently, the minimum capital stands at five million AZN, and in three years it will be brought up to ten million AZN for life insurance companies," he said.

The Azerbaijani Finance Ministry for the first time started imposing requirements on the life insurance companies' capital, which separate them from the companies not involved in life insurance.

For the insurers dealing with non-life insurance, the requirement remained unchanged, i.e. at the level of five million AZN.

The minimum capital of a new insurance company engaged in insurance not related to life insurance should stand at the same level.

The requirement for the minimum amount of total capital for life insurance companies will be doubled by January 1, 2017 - from the current five million AZN to 10 million AZN.

By January 1, 2015 the life insurance companies in Azerbaijan will have to have a total capital with a minimum size of 6.5 million AZN. From Jan. 1, 2016 this figure will stand at eight million AZN and 10 million AZN from January 1, 2017.

For new life insurance companies the minimum capital requirement is set at 10 million AZN.

The Finance Ministry also doubled the requirement for the minimum amount of total capital of reinsurance companies from 10 million AZN to 20 million AZN.

At the same time, the capital of the insurance companies wishing to obtain a license for reinsurance activity has from March 1, 2014 exceeded the minimum requirement for insurance companies by 2.5 million AZN.

And starting from Jan. 1, 2015 the capital of insurance companies wishing to obtain a license for reinsurance activity will exceeded the minimum requirement for insurance companies by five million AZN.

The minimum requirement for insurance companies currently stands at five million AZN.

Some 11 companies in Azerbaijan have so far received permanent licenses for reinsurance activity.

Khalilov said some insurance companies see the current minimum capital requirement as excessive.

He explained this by the fact that risks grow along with a rapid growth in the market, and such an approach is used to carry out balancing.

Moreover, the level of the minimum capital requirement for insurance companies in Azerbaijan is the same as in the European Union.

"The EU has a minimum requirement and another requirement calculated based on the volume of premiums and fees, which is considered as the required capital. Azerbaijan uses the same system of calculation, and some companies regardless of the minimum requirement size independently raise their capital, which allows them to hold more risks," he said.

It is noteworthy that the country's insurance market has not seen facts of bankruptcy, although there have been cases of suspending licenses due to a non-compliance of capital with the regulatory requirement.

The licenses of the three companies, Royal Sıgorta, Gunay Sıgorta and Bashak Inam Sıgorta Shirketi, were suspended this year.

Under the insurance legislation, six months were given to the insurance companies to address the shortcomings that led to the suspension of licenses.

In early Sept., the Royal Sıgorta's license was completely revoked due to the unmet capital in the mentioned timeframe, while Gunay Sıgorta reinstated its license.

"This process [the temporary suspension of the license] doesn't prevent the companies to carry out a full activity in the future," Khalilov said.

Currently, the Bashak Inam Sıgorta Shirketi, the license of which was suspended in early November, is also taking measures to increase capital.

There are 27 insurance companies and one reinsurance company in Azerbaijan.

The official exchange rate on Nov. 14 is 0.7843 AZN/USD.

Edited by CN

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