The Kingdom’s Draft Implementing Regulations for Insurance Companies: A Shift Toward Modern Risk-Based Supervision

4 min 39 sec January 16, 2026 (Edited)

The Kingdom’s Insurance Authority (the “IA”) recently released an initial draft implementing regulation for Insurance Companies, Reinsurance Companies and Foreign Branches (the “Draft”). It provides a wide ranging prudential and conduct framework covering licensing procedures and requirements, corporate governance and systems and controls, risk-based capital and solvency, market conduct and online activity, outsourcing controls, macro/group supervision, and recovery and resolution tools. The draft signals a decisive shift toward a modern, risk based supervisory architecture aligned with international standards. We highlight below the key differences, expected significance for the KSA insurance market, affected stakeholders and practical implications for businesses.

Currently, the operation of insurance activities for insurance and reinsurance companies as well as foreign branches is predominantly governed by Cooperative Insurance Companies Control Law, Royal Decree No. M/32 dated 2/6/1424 H, as amended (“Insurance Law”), the Implementing Regulations of the Cooperative Insurance Companies Control Law, Ministerial Decree No (1/596) dated 1/3/1425 H (“Implementing Regulations”) and Rules for Licensing and Supervision of Branches of Foreign Insurance and/or Reinsurance Companies in Saudi Arabia 2018 (“Branches Rules”).

Key differences:

The Draft introduces a comprehensive prudential architecture anchored on defined capital measures — Risk Based Capital Requirement (RBCR) and Minimum Capital Requirement (MCR) — market‑consistent valuation and explicit risk modules with the potential for internal models, replacing a simpler solvency margin construct supported by actuarial reports on provisions and pricing under the existing regime. Valuation principles in the Draft mandate market‑consistent techniques and specify prudent valuation for reinsurance recoverables including counterparty credit and time value of money, as well as explicit adjustments for loss‑absorbing capacity of discretionary benefits and deferred taxes.

On outsourcing, the Draft proposes a notification requirement to the IA for material outsourcing to a service provider with the authority reserving the right to raise concerns, and an express prohibition on outsourcing of core functions, including but not limited to (a) overall management and strategic decision-making, (b) internal audit function, (c) compliance function, (d) risk management function and (e) actuarial function. While there is no explicit provision on outsourcing to a third-party located overseas, Service Provider is defined as “any third party, whether within or outside the KSA, that provides a service or performs an activity for an Insurance Company or a Reinsurance Company under an outsourcing arrangement”. This suggests outsourcing to a third-party located outside KSA is permitted, subject to the compliance of specific outsourcing rules which still primarily rests on the licensed local insurer. By contrast, the current regulations require pre-approval from the IA before outsourcing could take place.

The reinsurance chapter in the Draft becomes significantly more prescriptive around eligibility, ratings, participation ordering, cessations and transparency of treaty economics, requiring the IA sight of profit/loss sharing, caps, swing rates and reinstatement aggregates, while contemplating a prohibition on finite reinsurance. By comparison, the existing regulations emphasise actuarial and product reporting but do not set out the same market‑structure levers.

Dispute resolution is reframed with a mandatory pre‑filing notice to the IA and attendance at a facilitated Alternative Dispute Resolution (ADR) meeting before a claim can be filed with the Insurance Dispute Committee. At the meeting, information on conciliation, arbitration and other methods of ADR will be provided to the complainant. This requirement is however exempted where the IA is satisfied that the matter is urgent and requires immediate resolution by the Committee or is otherwise inappropriate to resolve the dispute using ADR. The Draft therefore adds a structured ADR stage not visible in the existing law and regulations.

Finally, the Draft establishes a modern recovery and resolution toolbox with early intervention triggers, recovery plan content, and resolution tools (including business transfer, bridge insurer, bail‑in, asset separation and mandatory portfolio transfer) under “no creditor worse off” (NCWOL) safeguards. These tools will be deployed to an insurer or reinsuer that is failing, or likely to fail, and where there is no reasonable prospect of recovery. The concept of Systemically Important Financial Institution (SIFI) is also introduced in the Draft. The IA has the power to assess and designate SIFI based on criteria such as size, interconnectedness and complexity. Notably, the SIFIs have an obligation under the Draft to submit annual resolution plans to the IA which shall include provisions for bail-in debt instructs and strategy for the operational separation of its critical functions to ensure continuity in a resolution scenario. This is absent from the existing law and regulations.

Significance for the KSA insurance market

The Draft positions the Kingdom on a trajectory toward global best practice in prudential supervision, market conduct and resolution, likely improving resilience, investor confidence and cross‑border supervisory cooperation. The RBCR/MCR and market‑consistent valuation will better align capital to risk. Reinsurance provisions may deepen local capacity utilisation and improve treaty transparency. Mandatory ADR steps prior to Committee filings should reduce immediate litigation and encourage earlier settlement. The resolution framework introduces orderly failure options, which may lower contagion risk and improve policyholder protection.

All licensed insurers and reinsurers as well as market participants who are interested to become licensed in KSA will be affected by these new prudential, valuation, reporting, governance, outsourcing, conduct and dispute‑resolution processes introduced by the Draft, once the draft provisions have gone through public consultation and officially issued.

What should businesses do now

We anticipate the Draft to be available for public consultation during the course of 2026 which will give an opportunity for the sector stakeholders and interested parties to provide their feedback and opinion. In the meantime, the businesses should start putting together a readiness program in anticipation of the introduction of some of the proposed changes.