Algeria: Regulator directs insurers to carry out audit of technical provisions
Source: Middle East Insurance Review | Mar 2017
The Insurance Supervisory Commission (CSA) has directed insurers to conduct an external audit to evaluate the methods used in determining technical provisions. The external audit report is to be submitted to the regulator by 31 May.
This move follows a statement made last December by Finance Minister Baba Ammi who highlighted the dangers of under-provisioning in the insurance sector, reported All About Algeria (TSA).
A circular by the regulator to insurers mandated that insurers must let auditors check: the constitution of all provisions made as required by insurance regulations; compliance with the rules for determining these provisions; and the reliability of the data relating to the provisions.
Potential challenges
An industry source told TSA that the directive raises many questions. First, the concept of “external” expertise is open to interpretation. Insurers can choose different auditors who may lack know-how. “Nothing prevents an insurer from approaching a small accounting office, paying the proprietor handsomely and getting a positive report,” said the source.
Second, the deadline of 31 May is seen as problematic. A period of four months seem relatively short for an audit to be conducted, given the seriousness of the under-provisioning issue. The deadline also falls at the start of the month of Ramadan, which begins on 27 May this year. This is usually a quiet period. In addition, Algeria will hold parliamentary elections on 4 May which could lead to a change of government. Thus, the process of ensuring adequate reserves by insurers launched by the current minister could be “buried” if he were to leave office.
Third, the audit could have been carried out by the CSA and the Finance Ministry of which the regulatory agency is a part. However, officials of the Ministry of Finance – who are supposed to ensure the proper functioning of the market – sit at the same time on the boards of insurers in the public sector, creating a potential conflict of interest.