CMA adopts risk-based approach to calculate solvency margin of insurance firms

Muscat: The Capital Market Authority (CMA) has started since the beginning of this year to adopt a new approach to calculating the solvency margin of insurance companies, which reflects the ability of the insurance company to discharge its obligations toward insurance policyholders.

This is in continuation of the methodology of continuous development and evaluation of the legislative structures and regulatory tools adopted by the CMA to protect all the stakeholders in the capital market and insurance sectors.

The risk-based approach for the calculation of solvency margin measures the amount of the insurance company’s capital to support its business in light of the risk exposure, which varies from one company to another.

Previously the calculation of the solvency margin was measured according to the adequacy of assets compared to the liabilities.

The CMA had issued Decision No. (18/2022) regarding the amendment of certain provisions of the Executive Regulations of the Insurance Companies Law published in the Official Gazette No. (1428) on February 6, 2022, which includes the necessary amendments for calculation of the risk-based solvency margin.

This move comes after consideration of the most appropriate approaches used in calculating the solvency margin of insurance companies to develop methods, processes and basis for risk management in the sector companies in Oman, and to adopt the regulatory process and offsite audit of their performance. The solvency margin calculation approach focusing on risk-based capital adequacy to cover the various risk factors is one of the best internationally applicable practices in recent years recommended by the International Association of Insurance Supervisors (IAIS).

The CMA emphasises that the risk-based calculation of solvency margin approach contributes to achieving a number of objects such as enhancing the capital of insurance companies, the possibility of identifying the risks to which each company is exposed according to the nature and size of its business and determining the appropriate methods for management of such risks, as well as its importance in protecting the rights of insurance policyholders, shareholders, related parties, and developing sound management practices in insurance companies, which will reflect in enhancing investor confidence in the insurance sector in Oman.

CMA calls on all insurance companies to adjust their situations during the current year following the requirements of the new solvency calculation approach in preparation for the actual implementation of the audited financial statements for the financial year that ends in December 2022 as the first financial statements to which the new approach will be applied for calculating the solvency.

The CMA also emphasises its steady endeavours to adopt the latest and best regulatory and supervisory practices for all the regulated companies.