Law on Insurance Operations in FTZs (Free Trade Zones)

Law of Establishment and Administration of Insurance Institutions in Free Trade Zones of the Islamic Republic of Iran Chapter I: Definitions

Article 1: In these regulations, the following terms are used in lieu of the corresponding phrases:

Free Zones: Free Trade Zones of the Islamic Republic of Iran;

Other parts of the country: The Islamic republic of Iran, excluding the Free Zones;

Zone: Each one of the Free Zones;

Authority: Organization responsible for the administration of each Zone;

Institutions to which these regulations apply: All institutions referred to in Article 2 of these regulations;

Insurance institutions: The insurance institutions authorized to operate, under the provisions of these regulations, in the Zone;

Mutual insurance institutions: Insurance institutions that render services in the form of mutual insurance exclusively to their members;

Insurance brokering institution: A legal entity that acts as an intermediary between the parties to insurance and/or reinsurance transactions in exchange for a commission and whose business is only to provide insurance services;

Branch: A unit, affiliated to one of the Iranian insurance institutions, operating within the framework of functions and duties, and under the name and with the authorization of the principal institution in the zone;

Insurance agency: A real or legal person undertaking some of the functions and duties of an Iranian insurance institution in the Zone, on the basis of an insurance agency contract and provisions of these regulations.

Chapter 2: Establishment

Article 2: Insurance and reinsurance operations in the Free Zones shall be conducted by institutions that, based on the proposal of the Authority and under the provisions of these regulations, obtain permission from CIAI and are registered in one of the following forms:

Iranian joint stock or cooperative insurance companies with real and/or legal Iranian and /or foreign shareholders with registered shares; insurance agency and/or brokering institution.

Note 1: Subject to provisions of these regulations and registration in the Zone, insurance institutions are permitted to establish branches.

Note 2: Subject to rules approved by the High Councilof Insurance, authorizing the operation of insurance agency to real persons is permitted.

Note 3: Operation of branches and agencies of institutions, operating in other parts of the country, is allowed in each Zone, under the provisions of the Law of Administration of CIAI, within the framework of these regulations and other rules governing the said institutions.

Article 3: Institutions authorized to operate in the Zone, within the framework of these regulations, are not permitted to provide insurance services to residents, entities located in other parts of the country and transporters of goods imported from other parts of the country, the contract of which is concluded or its letter of credit opened in Iran. Reinsurance transactions are excluded from the jurisdiction of this article.

Note 1: Institutions authorized to exclusively operate direct insurance in the Zone are not permitted to accept reinsurance from insurance institutions operating in other parts of the country.

Note 2: Insurance institutions are entitled to insure properties and liabilities (expect that of life insurance) of the Special Economic Zones with in the provision of these regulations and in compliance with relevant rules and regulations.

Note 3: Issuance of insurance policies, by the insurance institutions of Free Zones, for entities whose coverage is not offered by Iranian insurance institutions operating in other parts of the country is an exception to this article. The list of such subjects and matters permitted for insurance shall be prepared and communicated to the Authority within three months of the date of the approval of these regulations, at the latest.

Article 4: Minimum capital for insurance institutions, insurance agencies and insurance brokers are as follows:

* Direct insurance institutions may be established with a minimum capital of RIS.15 billion, at least 50% of which must be paid initially;

* Mutual insurance institutions may be established with a minimum capital of RIs.200 million, at least 50% of which must be paid initially;

* Reinsurance institutions may be established with a minimum capital of RIs.85 billion, at least 50% of which must be paid initially;

* Insurance agencies and /or brokering institutions may be established with a minimum capital of RIs. 300 million, at least 50% of which must be paid initially.

Note 1: The amounts indicated in this article may be adjusted every two years, subject to the joint proposal of the Secretariat of the High Council of Free Zones and CIAI, and its approval by the Council of Ministers.

Note 2: Foreign shareholders of institutions to which these regulations apply must pat their rial shares in foreign currencies that are acceptable to the Central Bank of Iran and/or must produce a foreign currency conversion certificate.

Note 3: The capital funds, subject of this article, must be deposited on one of the banks certified by the Central Bank of Iran and preferably in the banks, which have branches in the Free Zones.

Chapter 3: Registrations and Operation Permit

Article 5: The registration of institutions to which these regulations apply, in the Zone, is subject to the presentation of the registration permit issued by CIAI. Also, the incorporation of any subsequent changes in the articles of association, amount of capital and shares of previously registered institutions is subject to the approval of CIAI.

Article 6: To secure a registration permit, the following documents and information must be submitted to CIAI:

* Article of association of the institution;

* The institution's amount of capital, the receipt or a commitment letter for its payment.

* The paid and non-paid portion of the shares and method of payment;

* List of shareholders, inspectors, directors, their nationalities, and number of shares to be owned by each of them;

* Other documents, papers and information confirming financial and technical integrity of the institution and its directors.

Note: The registration permit will remain valid for 6 months. If the institution is not registered within the said period, another registration permit must be obtained.

Article 7: CIAI is obliged to inform, in writing, its acceptance or rejection of the application to the Authority within 30 days of the submission of documents an information, in compliance with Article 28 of the Law of Administration of Free Trade Zones in Iran (ratified in 1993) and its regulations.

Note: In case of rejection, applicants are entitled to submit their objections to the General Assembly of CIAI within 30 days. The verdict of the General Assembly shall be final and binding.

Article 8: Upon receiving the certificate for registering the institution in the Zone, CIAI will issue an operation permit for one or more classes of direct insurance, reinsurance or both.

Chapter 4: Cancellation of Permit and Restriction of Operation

Article 9: The operation permit issued by CIAI for either all classes or specific classes will be canceled in the following cases:

* At the request of the permit-hold-er;

* If the institution does not commence its operations in the Zone within one year of the issuance of the permit;

* Bankruptcy of the institution;

* If, at the discretion of CIAI supported by the High Council of Insurance, the institution is not financially capable of fulfilling its commitments; or if the continuation of the institution's operation is to the detriment of the insured or their beneficiaries;

* On the ground of other cases mentioned in these regulations.

Article 10: In case, the institution to which these regulations apply contravenes its articles of association or provisions of these regulations or, as announced by the Authority, other regulations governing such institutions in the Zone. With the suggestion of CIAI and approval of the High Council of Insurance, its operation in a class or specific classes of reinsurance will be temporarily or permanently prohibited.

Article 11: Issuance and cancellation of the operation permit for institutions to which these regulations apply or temporary suspension of their operation and the information to protect the interests of the insured and their beneficiaries shall be announced twice in one month by CIAI in the official gazette and one of the mass- circulated newspapers in Tehran and the Zone, at the expense of the institution.

Article 12: In case the operation permit of an insurance institution is permanently canceled in one or more insurance or reinsurance classes, with the suggestion of CIAI and the approval of the High Council of Insurance, arrangements will be made to protect the interests of the insured and their beneficiaries. These arrangements might include the transfer of the institution's portfolio together with all the records and documents related to its rights and liabilities to another institution authorized to operate in the Zone.

Chapter 5: Rules of Operation

Article 13: insurance institutions to which these regulations apply are obliged to maintain statutory and technical reserves and specifically disclose the application of such reserves in their accounts, various types of reserves for each of the insurance classes together with the criteria for calculating and using such reserves. The capital of the institution as well as methods of evaluating movable an immovable properties that constitute the financial resources of said institutions should be in accordance with the guidelines approved by the High Council of Insurance.

Article 14: Insurance institutions to which these regulations apply are obliged to reinsure 10% of all their direct insurance businesses with CIAI, which can accept or reject the said reinsurance.

Note: The commission rate and terms of such reinsurance shall be in accordance with the guideline approved by the High Council of Insurance.

Article 15: The properties is insurance institutions to which these regulations apply and also reserves referred to in Article 13 are regarded as securities to protect the rights and interests of the insured and their beneficiaries. In the event of dissolution or bankruptcy of the institution, priority will be given to them over other creditors.

Note 1: Among various classes of insurance, priority is given to life insurance.

Note 2: The institutions referred to in this article are not allowed to transfer the rights of, or mortgage their properties and/or use them in any type of transaction with a right of refund without prior agreement of CIAI.

Note 3: At the time of the registration of transactions, as per Note 2 of this article, public notaries are obliged to ask for the agreement with CIAI and to reflect its contents in the document, on the basis of Article 60 of the Law of Administration of CIAI.

Article 16: Insurance institutions to which these regulations apply are obliged to publish their balance sheet and profit and loss account in one of the mass-circulated new newspapers in Tehran and the Zone.

Article 17: insurance institutions to which these regulations apply are obliged to inform CIAI of any changes in the institution's major shareholders, directors and auditors within two weeks.

Article 18: Persons convicted, in Iran or abroad, for such charges as murder, theft, breach of trust, fraud, drafting bounced check, embezzlement or complicity in the said crimes and also fraudulent or culpable bankruptcy cannot be one of the founders or directors of the institutions to which these regulations apply

Article 19: In case of merger, transfer of operations, dissolution and bankruptcy of insurance institutions to which these regulations apply are subject to the provisions of these regulations and articles 51 to 59 of the Law of Administration of CIAI.

Chapter 6: Supervision

Article 20: CIAI will supervise the operations of insurance institutions to which these regulations apply in the Zone, in accordance with the provisions of these regulations.

Article 21: Depending on the case, institutions to which these regulations apply are required to:

* Prepare and maintain accounts and financial statements in accordance with the formats approved by the High Council of Insurance at the suggestion of CIAI.

* Submit a copy of their financial statements examined by the auditors accredited by the Audit Organization of Iran, or internationally recognized auditors, to CIAI, within 6 months of the end of the fiscal period, at the latest.

* Prepare statement of their annual insurance operations in accordance with the formats prepared by CIAI and to submit it to CIAI within 3 months of the end of the relevant period.

* Provide CIAI with other regular or ad-hoc information and statistics, as it may deem necessary for supervising proper implementation of these regulations.

* Cooperate by putting necessary information at the disposal of inspectors who are assigned, in writing, by one of the members of the Executive Board of CIAI with prior notification to the Secretariat of the High Council of Free Zones.

Note: insurance institutions offering long-term life policies, in addition to observing the above clauses, are obliged to appoint an actuary acknowledged by CIAI to ratify the relevant accounts and technical reserves.

Article 22: In Addition to their legal and professional duties, the auditors of insurance institutions to which these regulations apply are obliged to comment on the proper implementations of provisions of these regulations in their final reports.

Article 23: If CIAI observes any breach in applications of relevant regulations by the institutions, it will give written notices to the institution and the Authority asking for rectification of the case within a specified period.

If the case is not rectified in due course, or if it re-occurs, depending on the importance of the case, CIAI, with a written notice, will enforce Article 10 of these regulations.

Article 24: Net Asset value (the shareholders'equity) of the insurance institutions to which these regulations apply shall at no time be less than the largest figure arising from the following clauses:

* Ninety percent of minimum paid up capital, in accordance with the provisions of these regulations;

* Ten percent of the gross premium for the last fiscal year multiplied by the Loss Retention Ratio of the same period;

* Fourteen point three percent of the annual average of total incurred losses for the last three fiscal periods multiplied by the Loss Retention Ratio for the period.

Note: For the purposes of this article, Loss Retention Ratio for the period is defined as total incurred losses after deducting the reinsurer's shares.

Article 25: An insurance institution, which fails to meet the requirements of Article 24 of these regulations, within three months of the deadline set for the submission of its financial statements, shall present for approval to CIAI, a scheme showing that it will be able to meet the said requirements. If not, CIAI will restrict the operation or cancel the permit of such insurance institutions in compliance with the provisions of these regulations. At any rate, the period for the implementation of such a proposed scheme should not be more than one year.

Article 26: Institutions to which these regulations apply are obliged to maintain and invest all assets representing liabilities and underwriting reserves and also their capital and other reserves, only in the Free Zones or in the other parts of the country.

Note: A portion of the assets, subject of these regulations, might be kept abroad with the approval of the Authority and consent of CIAI.

Chapter 7: Other Regulations

Article 27: Insurance institutions and insurance agents and brokers are liable to compensate for the losses caused to others due to their or their employee's fault or negligence in the course of carrying out their duties. Any insurance institution that directly or through its agents effects insurance in a class or classes, for which it has not permit, is obliged to compensate for the damages sustained by others.

Article 28: The Authority will prevent unauthorized insurance and /or reinsurance operations, upon the instruction of CIAI. If necessary, CIAI will take legal action, according to Article 21 of "Criteria of Registration of Companies, and Industrial and Intellectual Property Rights" in Free Trade Zones of Iran as decreed by the High Council of Free Trade Zones on April 23, 1995, and other relevant laws and regulations.

Article 29: Whenever the head of the High Council of Insurance arranges a Council Meeting to take decisions about issues related to the establishment or operation of insurance institutions in the Free Zones, he will invite the Secretary of the High Council of Free Zones or his representative to attend the meeting. The secretary of the High council of Free Zones or his representative will also have the right to vote at these meetings.

Article 30: The operation of institutions to which these regulations apply is subject only to the provisions of these regulations and in unforeseen cases the institution would be subject to

Commercial Law and the Law on Amending Part of the Commercial Law.

Article 31: From the date of approval of these regulations, all contradictory regulations in the Zone are canceled.

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