Regulation Applicable to Insurance Companies in Djibouti

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Regulation Applicable to Insurance Companies in Djibouti 1 Djibouti Regulation Applicable to Insurance Companies in Djibouti Law No. 161/AN/12/6ème L of June 9, 2012 [NB - Law No. 161/AN/12/6ème L of June 9, 2012 updating and supplementing Law No. 40/AN/99/4ème L of June 8, 1999 establishing the regulation applicable to insurance companies] Title 1 - Financial Regime and General Supervision Provisions
Chapter 1 - Technical Provisions
Art. 1.- Provision for premium cancellation: Insurance companies must also establish a provision for premium cancellation as part of technical provisions for property and casualty (P&C) insurance operations. This provision is intended to cover probable cancellations occurring after the inventory, on issued but uncollected premiums. The calculation methods for this technical provision are set by decree taken in the Council of Ministers upon proposal from the Minister of Economy and Finance. Insurance companies must prepare a statistical statement (STATEMENT C9) allocating overdue premiums by underwriting year and by branch according to the model fixed by regulatory means. Art. 2.- Provision for late claims: The methods for estimating the cost of claims that have occurred but not yet reported, or claims reported late, will be fixed by regulatory means. Art. 3.- Technical provisions for branches 4 to 7, 11 and 12: The technical provisions related to branches 4 to 7, 11 and 12 of the aforementioned Law No. 40 on insurance may be represented, up to 30% of their amount, by net premiums or contributions after deduction of taxes and commissions, and dated no more than one year prior. For the representation of these technical provisions, claims on reinsurers are admitted up to 20% of said technical provisions.

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Regulation Applicable to Insurance Companies in Djibouti 2
Chapter 2 - Restructuring and Safeguard Procedures
Art. 4.- Safeguard measures: When the financial situation of a supervised company is such that the interests of policyholders and contract beneficiaries are compromised or likely to be, the Minister of Economy and Finance may take one of the following emergency measures:

• a) placing the company under permanent supervision;
• b) restricting or prohibiting the free disposal of all or part of the company's assets;
• c) appointing a provisional administrator to whom necessary powers for administration and management are transferred.
  The provisional administrator is appointed for a period of six months, renewable once. This appointment is made either at the request of management when they consider themselves unable to normally exercise their functions, or by the supervisory authorities or their representative when the institution's management can no longer be ensured under normal conditions, or when a sanction provided for in paragraph 5 of subsection a) of Article 9 of the aforementioned Law No. 40 on insurance has been imposed. The measures mentioned in b) and c) of this article are lifted or confirmed by the insurance supervisory authorities within four months. Art. 5.- Restructuring plan: When an insurance company does not comply with the solvency margin or regulated coverage regulations, the insurance supervisory authorities require that a restructuring plan be submitted within one month:
• a restructuring plan providing all measures necessary to restore, within three months, compliant coverage if the company does not meet technical provision regulations;
• a short-term financing plan capable of restoring, within three months, the solvency margin if it does not reach the regulatory minimum.
  The Minister of Economy and Finance reserves the right to extend the aforementioned deadlines. It may block or restrict the free disposal of the company's assets and/or appoint an insurance controller to exercise permanent supervision over the company. This controller must ensure execution of the restructuring plan and has broad investigation rights, including immediate notification of all decisions taken by the board of directors or management. If the company fails to submit the required plan within deadlines, if the submitted plan is not approved by the supervisory authority, or if the approved program is not executed under stipulated conditions and deadlines, sanctions provided for in Article 9 of the aforementioned Law No. 40 on insurance will be imposed. Art. 6.- Supervisory Council: When, pursuant to Article 4c), a provisional administrator is appointed for an insurance company, a supervisory council is established by the Minister of Economy and Finance. It consists of the Deputy Director of Insurance or representative, the State's Judicial Agent or representative, and a representative of the Central Bank. It is chaired by the Deputy Director of Insurance or representative. It exercises permanent supervision over the company's management and must be notified, prior to execution, of all decisions taken by the provisional administrator. The supervisory council approves financial statements finalized by the provisional administrator as well as the management report prepared by statutory auditors. Art. 7.- Restriction or prohibition of free disposal of assets: When the Minister of Economy and Finance, after consulting insurance supervision, determines to restrict or prohibit free disposal of a company's assets, one or more of the following measures may be taken:
• prescription by registered letter to any issuing company or depository to refuse execution of any operation concerning accounts or securities belonging to the concerned company, as well as payment of interest and dividends related to said securities;
• subordination of execution of these operations to prior visa by an insurance controller or any accredited person;
• registration on the company's real estate of the mortgage mentioned in Article 16-1 of the aforementioned Law No. 40 on insurance;
• prescription to mortgage registrars, by registered letter, to refuse transcription of all deeds, registration of any mortgage on the company's real estate, and cancellation of mortgages granted by third parties in favor of the company;
• deposit with a bank of certified copies of mortgages granted by said company;
• transfer to a bank, under determined conditions, of all funds, securities, and assets held or owned by the company, to be deposited in a blocked account.
  This account may only be debited upon the order of its holder with express authorization from the Minister of Economy and Finance, and only for a determined amount. Company executives who fail to effect the aforementioned transfer are subject to sanctions provided in Article 9 of the aforementioned Law No. 40 on insurance.

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Regulation Applicable to Insurance Companies in Djibouti 3 Title 2 - Accounting Regime Art. 8.- Risk allocation by category: Risks must be allocated among the following categories:

• bodily injury and illness (including work accidents);
• motor vehicles: civil liability;
• motor vehicles: other risks;
• fire and other property damage;
• general civil liability;
• air transport;
• maritime transport;
• other transports;
• other direct property risks;
• property acceptances;
• individual life insurance: term life contracts;
• individual life insurance: death benefit contracts;
• individual life insurance: mixed contracts;
• individual life insurance: Savings;
• individual insurance: Capitalization;
• individual insurance: Supplementary/Complementary;
• collective life insurance: term life contracts;
• collective life insurance: death benefit contracts;
• collective life insurance: mixed contracts;
• collective life insurance: Savings;
• collective insurance: Capitalization;
• collective insurance: Supplementary/Complementary;
• life acceptances.
  Title 3 - Administrative Regime
  Chapter 1 - Operating Rules
  Art. 9.- Board of Directors and responsibilities: The board of directors delegates its responsibilities and establishes decision-making procedures. It establishes management and ethics rules for administrators, management, and all personnel, concerning in particular private transactions, insider dealing, preferential treatment of certain entities internally and externally, as well as other exceptional commercial practices outside free competition. The company must be equipped with a permanent, appropriate, and effective system guaranteeing compliance with these rules. The board of directors may create committees for specific missions, such as remuneration, audit, or risk management. When these special committees are created within the board of directors, their mandate, composition, and operating procedures must be clearly defined and made public by the board. The board of directors must ensure that the remuneration system for administrators and senior executives is reasonable relative to company resources and excludes exceptional bonuses or benefits likely to encourage imprudent behavior. Art. 10.- Internal control system: Every insurance company must implement a permanent internal control system adapted to the nature, size, and complexity of its activities. This system includes in particular a written internal procedures manual, coherent and covering all activity fields of the company. It must be subject to periodic monitoring to verify constant application of company procedures, assess their effectiveness, and identify any shortcomings. Art. 11.- Internal control report: The board of directors approves, at least annually, an internal control report, which is transmitted to the Minister of Finance and Economy within thirty days following approval of accounts by the general meeting, and no later than August 1 each year. The first part details conditions for preparation and organization of board meetings, administrator attendance rates at meetings, session allowances for administrators, exceptional remuneration and benefits in kind granted to certain administrators, and, where applicable, limitations imposed by the board on the general manager's powers. This part also provides information on administrators' membership in boards of other companies, specifying these companies. The second part details:
  a) Objectives, methodology, position and general organization of internal control within the company; measures taken to ensure independence and effectiveness of internal control, including competence and experience of implementing teams, as well as follow-up to recommendations from persons or bodies in charge of internal control; b) Procedures to verify that company activities are conducted according to policies and strategies established by governing bodies, and procedures to verify compliance of insurance operations with legislative and regulatory provisions; c) Methods used to ensure evaluation and control of investments, particularly regarding quality assessment of assets and asset-liability management; d) Internal control system for investment management, including delegation of powers, information dissemination, internal control or audit procedures, and distribution of responsibilities among personnel; transaction executors cannot simultaneously be responsible for monitoring them; e) Procedures and systems to identify, evaluate, manage, and control risks related to company commitments, as well as methods used to verify compliance of practices regarding risk acceptance and pricing, reinsurance cessions, and provisioning of regulated commitments with company standards in these areas; f) Measures taken to ensure monitoring of claims management, subsidiary management, control of outsourced activities and product commercialization modes, as well as resulting risks; g) Procedures for preparation and verification of financial and accounting information. Art. 12.- Investment policy: The board of directors or supervisory council sets, at least annually, the guidelines for investment policy. It rules in particular on methods for selecting financial intermediaries, asset-liability management, and quality and distribution of assets relative to diversification and dispersion imperatives. To this end, it relies on its management report, which in a distinct section regarding investments presents results obtained over the past period for each portfolio and investment category. Art. 13.- Reinsurance policy: The board of directors or supervisory council approves, at least annually, the guidelines for reinsurance policy. A report on reinsurance policy is submitted annually. This report describes:
• a) Company orientations regarding reinsurance cessions, particularly concerning nature and level of protection sought and choice of ceding companies;
• b) Qualitative and quantitative criteria on which the company relies to ensure adequacy of its reinsurance cessions with underwritten risks;
• c) Reinsurance policy orientations regarding risks underwritten during the exercise following the last closed fiscal year, as well as main reinsurance cessions;
• d) Organization regarding definition, implementation, and control of the reinsurance program;
• e) Analysis and monitoring methods used by the company regarding counterparty risk linked to its reinsurance cessions, as well as conclusions resulting from using these methods.

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Regulation Applicable to Insurance Companies in Djibouti 4 After approval, this report is transmitted to the Minister of Finance and Economy no later than August 1 each year.
Art. 14.- Other reports transmitted to the Minister of Economy and Finance: General information in the annual file to be produced by insurance companies to the Minister of Finance and Economy must also include the following documents:

• a) the internal control report mentioned above in this text;
• b) the reinsurance policy report mentioned above in this text.
  Art. 15.- Dividends, distributions: Distribution of dividends may only proceed after establishment of reserves and provisions prescribed by current laws and regulations, after full amortization of establishment expenses, and after compliance with solvency margin and regulated coverage provisions.
  Chapter 2 - Approval of statutory auditors for insurance companies
  Art. 16.- Approval of statutory auditors: Every approved insurance company must submit to the approval of the Minister in charge of insurance, prior to implementation, any appointment or renewal of statutory auditors' mandates. These statutory auditors must necessarily appear on the list established by the National Commission for Registration of Statutory Auditors. In case of multiple statutory auditors, proposed persons cannot belong to the same firm or structures having links between them. Insurance companies must ensure that approval from the Minister in charge of insurance has been obtained before exercising the designated functions. Otherwise, they commit an infraction to insurance regulations. Art. 17.- Approval procedure for statutory auditors: Insurance companies must submit to the Minister of Finance a request for approval of statutory auditors they propose to appoint or renew. The request must be accompanied by information on their qualification and professional experience, including names of entities already audited or under audit, particularly insurance companies, as well as the period spent in each organization. If deemed necessary, the Minister of Finance may request supplementary information beyond those mentioned above. Authorities have a three-month period from receipt of the complete approval or renewal request to rule. Absence of response within the stipulated period constitutes acceptance. The Minister's refusal decision is subject to appeal before the administrative court. Active insurance companies must transmit the aforementioned information to the Minister of Finance within twelve months from the effective date of this law for approval of their statutory auditors. Art. 18.- Withdrawal of approval: Approval may be revoked by supervisory authorities for reasons they deem appropriate, notably in case of removal from the register of the National Commission for Registration of Statutory Auditors, serious breaches of insurance regulations, deficiencies found in work, or exercise of incompatible activities likely to affect the expected independence of the statutory auditor.
  Chapter 3 - Approval of executives
  Art. 19.- Conditions for approval: To be eligible for the position of General Director of an insurance company, candidates must hold:
• Either a higher education degree in insurance or actuarial science and justify a minimum five-year experience in a senior management position within an insurance company, insurance organization, insurance brokerage firm, or insurance supervision administration;
• Or a higher education degree in economic or legal orientation with five years' experience in management functions of a financial character company;
• Or a higher education degree with a minimum ten-year experience in senior management functions within a company or administration.
  The General Directors must meet the conditions provided in Articles 19 and 20 of this law. Executives active prior to the effective date of this law are not subject to the provisions of this article. However, even if qualification conditions in this article do not apply to them when changing companies, they must comply with Article 20 of this law. Art. 20.- Change of executive: Every insurance company must submit to the approval of the Minister in charge of insurance, prior to implementation, any change of holder concerning President or General Director functions. The Minister of Economy and Finance has a two-month period to rule. Absence of reaction upon expiration of this period constitutes acceptance. The Minister's refusal decision is subject to appeal before the administrative court. Title 4 - Personal Insurance and Capitalization Contracts
  Chapter 1 - General provisions on life insurance
  Art. 21.- Life insurance contract statements: The life insurance contract must indicate, in addition to the statements mentioned in Article 36 of the aforementioned Law No. 40 on insurance:
• 1° Names, first names, and date of birth of the insured person(s);
• 2° The event or term upon which depends the exigibility of the guaranteed capital or annuity;
• 3° Deadlines and methods for settlement of the guaranteed capital or annuity;
• 4° List of documents to be requested by the insurer from the beneficiary for payment of benefits.
  Art. 22.- Fees levied on term life or capitalization contracts: Term life (with or without counter-insurance) or capitalization insurance contracts must indicate fees levied by the company. These fees may be stated in the contract's currency or calculated as a percentage of premiums, mathematical provisions, surrender value, guaranteed capital, or guaranteed annuity. Other contracts containing surrender values must indicate fees levied upon surrender. Art. 23.- Waiver, Indication of surrender values: Any natural person who has signed a life insurance proposal or policy or capitalization contract has the right to waive it by registered letter with request for acknowledgment of receipt or any other means providing proof of receipt within thirty days from the first payment. Waiver entails restitution...