Wednesday, June 25, 2008

The Oman Law Digest 2009 - INSURANCE

Insurance in Oman is regulated by Insurance Companies Law [RD 12/79 as amended] and Executive Regulations [MD 5/80] (together, “Law”). Jurisdiction of insurance was transferred from MCI to CMA [RD 90/04]. Since taking over the functions of insurance, CMA has issued: (i) the Code of Corporate Governance for Insurance Companies and (ii) the Code of Practice for Insurance Business.

For conducting insurance business in Oman, an insurance company must satisfy certain conditions: (i) it should be commercially registered in Oman; (ii) the minimum capital should not be less than that prescribed for insurance companies; (iii) it should be a joint stock company; (iv) it should be licenced by CMA to carry on all or some classes of insurance business specified by the Law; and (v) it should deposit requisite guarantees and maintain a required margin of solvency.

Licenced companies, both local and foreign, must comply with reporting requirements and must establish and maintain reserves and deposits as required by the Law.

For foreign insurance companies operating through agents, branch offices or other local service units, the Law stipulates: (i) all policies covering risks situated in Oman and/or originating in Oman and/or connected with property in Oman or long-term policies insuring Omani residents against risks must be issued in Oman; (ii) a record of all policies issued with respect to Oman must be maintained in a local office; (iii) the accounts of the local office should be audited annually by an independent auditor; (iv) the parent company should have been established in accordance with laws of the country of origin; (v) local office is subject to tax laws of Oman; (vi) RO 150,000 must be deposited with CMA for doing business in any class of insurance and not less than RO 300,000 for more than one class; (vii) an amount not exceeding 25% of each insurance policy issued in Oman must be reinsured with a national insurance company; and (viii) provisions of the Law in respect of margin of solvency, principal manager, actuary and accounts are applicable.

Except life insurance, the Law prohibits insurance contracts with foreign companies which are not commercially registered in Oman. This prohibition is applicable to the Government, public authorities, public sector companies and natural and juridical entities registered with the commercial register for doing business in Oman. Insurance companies may reinsure part of the risk with offshore insurance companies and are required to maintain transparency in reinsurance placements. Customers may be involved in negotiations with brokers and underwriters. Insurance companies underwriting businesses must retain at least a small portion of the total risk on its net account.

Following CBO Circular BM 908 issued by Central Bank of Oman (“CBO”) dated 21 January 2001, licenced banks are authorised to collaborate with licenced insurance companies, brokers and agents to sell insurance products subject to conditions: (i) banks must be diligent in selecting insurance companies for association; (ii) formal agreements must be concluded; (iii) banks must assume no liability for acts of insurance companies; (iv) all terms of agreement should be fair and transparent and diligence should be exercised with respect to related party transactions; and (v) the core business of banking should not be affected by the insurance business. The CMA issued a decision amending the Executive Regulations of Insurance Companies Law, increasing the solvency margin for insurance companies.

MOTOR VEHICLE INSURANCE
It is compulsory for all vehicles in Oman to have third-party insurance which must cover death, bodily injury and material damage to third parties.

SOCIAL INSURANCE
Pursuant to Social Insurance Law [RD 72/91 as amended], subscription to the social security system is mandatory for all employers employing Omani employees, who must subscribe on behalf of them and pay a subscription premium of 10.5% of basic salaries of Omani employees towards social insurance, and employees have to contribute 6.5% of basic salary. Social insurance is administered by the Public Authority for Social Insurance. Employers cannot contract out of this liability. Contributions are made by the employer, the employee and the Government to cover death, disability, old age, and occupational hazards (injuries and illnesses caused by work). This law is amended periodically to specify the percentage of basic wage contributable to social insurance and to set limits on basic pay to be used for determining employer and employee contributions.