Instructions on Solvency Requirements for Insurance Companies No. (7) of 2023

In the Name of Allah, the Most Gracious, the Most Merciful

[Logo of the Central Bank of Jordan]

Number: 990/3/15
Date: 2023/6/5
Corresponding to: 16/11/1444

Dear Respected Insurance Companies,

Subject: Instructions on Solvency Requirements for Insurance Companies 2023

Based on the provisions of Article (24/A) of the Insurance Business Regulation Law No. (12) of 2021, we attach to you Instruction No. (7) of 2023 "Instructions on Solvency Requirements for Insurance Companies" issued pursuant to the decision of the Board of Directors of the Central Bank No. (131/2023) dated 2023/5/22.

Please accept our highest respect.

The Governor
Dr. Adel Al-Sharkas

Copy / Jordan Union of Insurance Companies
Attached / Instructions on Solvency Requirements for Insurance Companies

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[Logo of the Central Bank of Jordan]

Instructions on Solvency Requirements
for Insurance Companies
No. (7) of 2023

Issued pursuant to the decision of the Board of Directors of the Central Bank No. (131/2023) dated 2023/5/22

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Instruction No. (7) of 2023
Instructions on Solvency Requirements for Insurance Companies Issued by the Board of Directors of the Central Bank under the provisions of Paragraph (A) of Article (24) and Paragraph (B) of Article (109) of the Insurance Business Regulation Law No. (12) of 2021

Article Number	Contents	Page
Article (1)	...................................................................................................	(2)
Article (2)	...................................................................................................	(2)
Article (3)	...................................................................................................	(2)
Article (4)	...................................................................................................	(2)
Article (5)	...................................................................................................	(3)
Article (6)	...................................................................................................	(3)
Article (7)	...................................................................................................	(3)
Article (8)	...................................................................................................	(3)
Article (9)	...................................................................................................	(5)
Article (10)	...................................................................................................	(5)
Appendices	...................................................................................................	(6)

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Article (1)
These Instructions shall be known as the "Instructions on Solvency Requirements for Insurance Companies 2023", and are issued pursuant to the provisions of Paragraph (A) of Article (24) and Paragraph (B) of Article (109) of the Insurance Business Regulation Law No. (12) of 2021, and shall be effective from the date of (2023/5/22).

Article (2)
A) The words and phrases contained in these Instructions shall have the meanings specified for them in Article (2) of the Insurance Business Regulation Law No. (12) of 2021, unless the context or circumstances indicate otherwise.

B) For the purposes of these Instructions, the words and phrases listed below shall have the meanings indicated next to each of them, unless the context or circumstances indicate otherwise:
1- The Law: The Insurance Business Regulation Law No. (12) of 2021.
2- Solvency: The excess of the actual value of an insurance company's assets over its liabilities, enabling it to fully meet its obligations and pay compensation amounts due to it immediately upon maturity without causing the company's business to fail or its financial position to weaken. 3- Accounting Provision: The provision that an insurance company must set aside and retain to cover future financial liabilities arising from life insurance contracts.

Article (3)
A) In implementation of the provisions of Article (25) of the Law, an insurance company shall separate the assets and liabilities of general insurance business and life insurance business, such that the company is obliged to provide the Central Bank with the solvency requirements for the tables attached to these Instructions for each of the following, as applicable:

1. The insurance company's business in the Kingdom.
2. The insurance company's business in the Kingdom and its foreign branches.
3. The insurance company's business at the group level when the insurance company is the parent company or part of an insurance group.

B) The insurance company is obliged to provide the Central Bank with the requirements set forth in Paragraph (A) of this Article on a quarterly basis within a period not exceeding thirty days from the end of each quarter, except for the fourth quarter of the financial year, in which case the insurance company is obliged to provide the Central Bank with those requirements accompanied by the company's final data in accordance with the provisions of Article (34) of the Law.

Article (4)
The insurance company shall maintain available capital of no less than 150% of the required capital, and if the insurance company has branches outside the Kingdom, the company shall maintain available capital of no less than 200% of the required capital.

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Article (5)
Available capital consists of basic capital and additional capital, in accordance with the total of the items specified in Table No. (1) attached to these Instructions, provided that the total additional capital does not exceed 50% of the total basic capital.

Article (6)
An insurance company is considered non-compliant with solvency requirements if its capital falls below the minimum capital for an insurance company specified by the relevant effective instructions.

Article (7)
Required capital is calculated according to the items specified in Table No. (2) attached to these Instructions.

Article (8)
A) The shortfall in the insurance company's provisions, including technical provisions included in additional capital, is as follows:

1. The decrease in the provision for expected credit losses set aside by the insurance company compared to what was stated in the external auditor's report for the company, or what resulted from field inspection visits by the Central Bank or accountants appointed by the Central Bank in accordance with the provisions of Article (37) of the Law.
2. The decrease in technical provisions set aside by the insurance company compared to what was stated in the report of the actuary appointed or approved by it, or what resulted from field inspection visits by the Central Bank or accountants appointed by the Central Bank in accordance with the provisions of Article (37) of the Law.

B) The supporting loan included in additional capital must meet the following conditions:

1. The due date of the first installment for loan repayment must be five years or more from the date of obtaining the loan, and it must be repaid using the fixed installment method.
2. The repayment priority of the loan must be subordinate to the repayment of obligations due to policyholders and beneficiaries or other creditors of the insurance company.
3. There must be no incentives for early repayment of the loan.
4. The repayment of the loan must be subject to prior approval from the Central Bank.

C) The receivables from reinsurance companies included in Table No. (2-2) attached to these Instructions consist of receivables from local insurance companies resulting from reinsurance arrangements and receivables from foreign reinsurers. The total amount of the reinsurer's share of technical provisions and receivables from reinsurers, minus payables to reinsurers and amounts withheld from reinsurers or any other guarantees, shall be calculated.

D) For the purposes of these Instructions, local insurance companies are classified according to their solvency as of the last published final financial statements of the companies, as follows:

Credit Rating	Solvency
Group One	175% or more
Group Two	From 150% to less than 175%
Group Three	From 125% to less than 150%
Group Four	Less than 125%

E) Foreign reinsurance companies are classified as follows:

Group	Standard & Poor's	Moody's	AM Best	Fitch
Group One	AA+/AA	Aaa/Aa	A++/A/A-	AAA/AA
Group Two	aa-/a+/a-/ bbb+/bbb	A/Baa	B++/B+	A/BBB
Group Three	bbb-/bb+/bb /b+/b	Ba/B	B/B-/C++/C+/C+C-	BB/B
Group Four	Less than the above ratings or unrated

F) For the purposes of classifying bank deposits, bonds, and loan bonds, the classification in the table below applies to Group One, such that banks are classified within Group One, otherwise banks, bonds, and loan bonds are classified within Group Two:

Bank Deposits	Bonds and Loan Bonds for the Issuing or Guaranteeing Entity	Credit Rating Agency
A	A	Standard & Poor's
A	A	Moody's
B	B	Fitch

G) To calculate the net receivables balance, the following shall be deducted:

1. Provision for doubtful debts.
2. The full value of receivables from the Jordanian Government or guaranteed by it.
3. Accrued and deferred installments for life insurance business and actuarially calculated for the purpose of determining the accounting provision, provided that the actuary's certificate regarding the adequacy of the accounting provision includes the value of these accrued and deferred installments.

H) The capital requirements for catastrophic risks for general insurance business are calculated based on the maximum possible loss for the insurance company's retention.

I)

1. For the purpose of calculating the required capital against concentration risks in reinsurers, concentrations in the reinsurer's share shall be determined according to Table No. (2-6) attached to these Instructions, and the weighting factors indicated in the same table shall be applied according to the credit rating of reinsurers for excesses.
2. Capital requirements against credit risks and market risks are calculated after deducting the required capital against concentration risks in investments from the asset balance.

J) The required capital against operational risks is calculated based on the total gross written premiums during the last twelve months and the total gross written premiums during the previous twelve months, according to Table No. (2-8) attached to these Instructions.

Article (9)
The tables attached to these Instructions form an integral part of them and shall be read with them.

Article (10)
Instruction No. (3) of 2002 on the Solvency Margin and the decisions issued pursuant to it are repealed.

Board of Directors of the Central Bank

• Attached

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Solvency Requirements

Company Name:
Solvency Requirements as of:
	Solvency Requirements	Period Ended	Period Ended
First	Total Available Capital (Sum of Table No. 1)
Second	Total Required Capital (Sum of Table No. 2)
Third	Solvency Ratio = Available Capital ÷ Required Capital

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Table No. (1)
Available Capital

Description	Balance
Basic Capital
Paid-up Capital
Disclosed Reserves
Legal Reserve
Voluntary Reserve
Other Reserves
Share Premium and Treasury Share Issuance Premium
Retained Earnings
Proposed Distributed Profits
Deduct
Minority Interests
Issuance Discount
Treasury Shares
Shortfall in Insurance Company Provisions, including Technical Provisions
Total Basic Capital
Additional Capital
Supporting Loans and Loan Bonds
Increase in Value of Real Estate Investments
Cumulative Change in Fair Value through Other Comprehensive Income
Foreign Currency Translation Differences
Total Additional Capital (provided it does not exceed 50% of Total Basic Capital)
Deduct: Investments in Subsidiary and Associate Financial Companies
Total Available Capital

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Table No. (2)
Total Required Capital

Capital Requirements against Asset Risks
Credit Risk	Table (2-2)
Market Risk	Table (3-2)
Capital Requirements against Underwriting Liability Risks
General Insurance	Table (4-2)
Life Insurance	Table (5-2)
Required Capital against Credit, Market, and Underwriting Liability Risks is Calculated
Market Risk
Credit Risk
Life Insurance
General Insurance
Total Sum
Total Required Capital
Required Capital against Concentration Risks
Concentration in Reinsurance Arrangements	Table (6-2)
Concentration in Investments	Table (7-2)
Total (Concentration Risks)
Required Capital against Operational Risks (J)	Table (8-2)
Required Capital against Risks excluding Operational Risks
Required Capital

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Table No. (1-2)

Assets	Balance as per Financial Statements	Excess Balance	Balance within Instruction Limits
Deposits	Due within three months
	Due after three months up to one year
	More than one year
Total Bank Deposits
Financial Assets at Fair Value through Income Statement / Within Kingdom	Shares
	Bonds
	Government Bonds
	Other
	Total
Financial Assets at Fair Value through Income Statement / Outside Kingdom	Shares
	Bonds
	Government Bonds
	Other
	Total
Total Financial Assets at Fair Value through Income Statement
Financial Assets at Fair Value through Other Comprehensive Income / Listed and Within Kingdom	Shares
	Bonds
	Government Bonds
	Other
	Total
Financial Assets at Fair Value through Other Comprehensive Income / Listed and Outside Kingdom	Shares
	Bonds
	Government Bonds
	Other
	Total
Financial Assets at Fair Value through Other Comprehensive Income / Unlisted and Within Kingdom	Shares
	Bonds
	Government Bonds
	Other
	Total
Financial Assets at Fair Value through Other Comprehensive Income / Unlisted and Outside Kingdom	Shares
	Bonds
	Government Bonds
	Other
	Total
Total Financial Assets at Fair Value through Other Comprehensive Income
Financial Assets at Amortized Cost / Within Kingdom	Government Bonds
	Listed Bonds
	Unlisted Bonds
	Impairment Provision
	Total
Financial Assets at Amortized Cost / Outside Kingdom	Government Bonds
	Listed Bonds
	Unlisted Bonds
	Impairment Provision
	Total
Total Financial Assets at Amortized Cost
Investments in Associate Companies
Real Estate / Within Kingdom	Buildings
	Land
	Total
Real Estate / Outside Kingdom	Buildings
	Land
	Total
Total Real Estate Investments
Loans
Other Investments
Total Investments
Cash in Hand
Receivables and Checks for Collection
Debtors	Policyholders
	Agents
	Brokers
	Employees
	Other
	Provision for Debts
	Net Receivables
Receivables from Reinsurers	Local
	Foreign
	Provision for Debts
	Total
Deferred Tax Assets
Fixed Assets	Fixed Assets at Cost
	Depreciation
	Net Fixed Assets
Intangible Assets
Other Assets
Total

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Table No. (2-2)
Capital Requirements against Asset Risks - Credit Risk

Description	Balance*	Weight	Capital Requirements
Cash in Hand and Bank Balances Linked Monthly at Banks and Deposit Certificates		0%
Treasury Bills and Bonds Guaranteed by the Jordanian Government		0%
Loans to Life Insurance Policyholders not exceeding the Contract's Surrender Value		0%
Prepaid Expenses		2%
Accrued Revenues		2%
Bank Deposits, Bonds, and Loan Bonds
Group One	For a term of one year or less		0.1%
	For a term exceeding one year and less than five years		0.3%
	For a term exceeding five years and less than ten years		0.5%
	For a term exceeding ten years		1%
Group Two	For a term of one year or less		0.5%
	For a term exceeding one year and less than five years		1%
	For a term exceeding five years and less than ten years		2%
	For a term exceeding ten years		5%
Loans
Loans to Life Policyholders exceeding the Contract's Surrender Value		15%
Loans to Companies and Individuals with Real Estate Collateral		8%
Loans to Companies and Individuals with Other Tangible Collateral		12%
Unsecured Loans		15%
For a term of one year or less		30%
For a term exceeding one year and less than five years		40%
For a term exceeding five years and less than ten years		50%
For a term exceeding ten years		25%
Receivables and Checks for Collection		15%
Recoveries for Unpaid Premiums		15%
Net Receivables
Policyholders / Agents / Brokers	Not yet due		5%
	Not due for up to 90 days		20%
	Due from 90 to 180 days		50%
	Due from 180 to 360 days		75%
	Due for more than 360 days		100%
Other Receivables	Not yet due		5%
	Not due for up to 90 days		20%
	Due from 90 to 180 days		50%
	Due from 180 to 360 days		75%
	Due for more than 360 days		100%
Receivables / Reinsurance Companies	Group One		0.5%
	Group Two		1%
	Group Three		10%
	Group Four		25%
Other Assets		100%
Total Capital Requirements against Credit Risk

• Balance within Instruction Limits from Table (1-2)
  Includes all assets not included in the appendices for capital requirements, market risks, credit risks, others, guarantees, and any other assets of the same nature.

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Table No. (3-2)
Capital Requirements against Asset Risks - Market Risk

Description	Balance	Weight	Capital Requirements
Bonds and Loan Bonds
Due within one year		1%
Due more than one year and less than five years		4%
More than five years		6%
Shares		15%
Real Estate Investments for Company Use		7.5%
Real Estate Investments		10%
Currency Exchange Risk
Assets Linked to US Dollars or Other Currencies Linked to Dollars		0.5%
Assets Linked to Other Currencies		15%
Total Capital Requirements against Market Risk

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Table No. (4-2)
Capital Requirements against Underwriting Liability Risks for General Insurance

General Insurance Perils	1 (Net Provision for Gross Written Premiums and Provision for Premium Deficiency)	2 (Weighting Factor)	3 (Amount 1*2)	4 (Net Provision for Claims)	5 (Weighting Factor)	6 (Amount 4*5)	7 (Total Capital Requirements 3+6)
Vehicles - Compulsory		30%			20%
Marine and Transport		45%			30%
Fire and Other Property Damages		40%			30%
Liability		10%			5%
Credit and Guarantees		60%			45%
Medical		40%			25%
Aviation		250%			150%
Other General Insurance Branch Perils		35%			25%
Total		60%			40%

Then, the correlation coefficient is applied according to the following matrix:

	Vehicles	Supplementary Vehicles	Medical	Aviation	Liability	Credit	Other	Total
Vehicles
Supplementary Vehicles
Medical
Aviation
Liability
Credit
Other
Total Sum

Total Capital Requirements
Portfolio Diversification Zones
Capital Requirements against Catastrophic Risks Required Capital against Underwriting Liabilities for General Insurance

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Table No. (5-2)
Capital Requirements against Underwriting Liability Risks for Life Insurance

Description	Part One	Part Two	Amount	Capital Requirements
First: Individual Policies
Total Sum Insured		Line 6
Reinsurer's Share of Total Sum Insured (capped at 50% of Line 6)		Line 7
Net (Line 6 - Line 7)		Line 8		0.15%*Line 8
Required Capital		Line 9
Second: Group Policies
Total Sum Insured		Line 10
Reinsurer's Share of Total Sum Insured (capped at 50% of Line 10)		Line 11
Net (Line 10 - Line 11)		Line 12		0.15%*Line 12
Required Capital		Line 13
Third: Catastrophic Risks
Net Sum Insured for all Life Insurance Contracts (excluding investment-linked) after deducting reinsurer's share		Line 14
Net Technical Provisions for Life Insurance after deducting reinsurer's share		Line 15
Net (Line 14 - Line 15)		Line 16		0.10%*Line 16
Required Capital		Line 17
Total Capital Requirements against Underwriting Liability Risks for Life Insurance		Line 18		0.10%*Line 18

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Table No. (6-2)
Required Capital against Reinsurer Concentration Risks

Reinsurer Name	Asset Group	1 Reinsurer's Share of Unearned Premium Provision and Premiums	2 Concentration Limits	3 Total Company Assets * (2)	4 Concentration in Earned Premium Provision (3-1) (Amounts)	5 Weighting Factor	6 Capital Requirements against Premium Provisions and Others	7 Reinsurer's Share of Claims Provision	8 Concentration Limits	9 Total Company Assets * (8)	10 Concentration in Claims (9-7) (Amounts)	11 Weighting Factor	12 Capital Requirements against Reinsurer Concentration Risks	13 Total Required Capital (6+12)
Reinsurers within Group One			40%			60%		40%			90%
Reinsurers within Group Two			30%			90%		30%			90%
Reinsurers within Group Three			15%			95%		15%			95%
Reinsurers within Group Four			5%			100%		5%			100%
Reinsurer's Share of Unearned Premium Provision and Claims Provision

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Table No. (7-2)
Required Capital against Concentration in Investments

Entity Name	Receivables	Loans	Checks for Collection	Shares	Bonds	Other	Total (b1)	Required Capital (10%*Total Assets (b2))
Concentration with any individual, entity, company, or investment fund excluding Banks
Total

Bank Name	Deposits	Current Accounts	Total (b2)	Required Capital (20%*Total Assets (b2))
Concentration in Current Accounts and Deposits with any Bank
Total

Total Required Capital against Excesses in Investments
Table No. (1-7-2)
Table No. (2-7-2)
(1-2) Concentration in Deposits and Current Accounts
(2-7) Concentration in Investments
Total

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Table No. (8-2)
Required Capital against Operational Risks

Part One: Insurance Perils	1 Total Gross Written Premiums for Current Period	2 Total Gross Written Premiums for Previous Period	3 (3%) * (1)	4 (120%) * (2)	5 (1-4)	6 (3%) * For Positive Amounts Only	7 Capital Requirements (3+6)
Vehicles
Marine and Transport
Fire and Other Property Damages
Liability
Credit and Guarantees
Medical
Life Insurance excluding Linked Policies
Total

Part Two:	8 Total Gross Written Premiums for Current Period	9 Total Gross Written Premiums for Previous Period	10 (0.15%) * (8)	11 (120%) * (9)	12 (8-11)	13 (0.15%) * For Positive Amounts Only	14 Capital Requirements (10+13)
Insurance Perils
Investment-Linked Policies
Total

Part Three:	15	16	17 Required Capital against Operational Risks (15,16) Whichever is Less
Description	Total Required Capital against Risks excluding Operational Risks	(14+7)
Total