Five to seven insurers could leave the insurance industry in Jordan because of shortfalls in their solvency ratios, according to the chairman of the Jordan Insurance Federation, Mr Maged Smairat.
In a statement to Al Ghad, Mr Smairat said, "The margin of solvency of a number of insurance companies decreased as a result of their losses from third party insurance on vehicles and became less than 150%.” Insurance regulations require that the solvency ratio shall not be less than 150%.
He said that annual losses of the insurance sector from compulsory motor third party liability insurance are estimated at JOD20m ($28m), citing official figures.
Mr Smairat also noted that while the government has maintained the income tax rate for (re)insurance companies at 24%, it has nevertheless introduced a new national contribution tax in the kingdom. The national contribution tax rate is 2% for (re)insurance companies.
He said that the insurance market's response to the impact of the increase in corporate taxes will lead to two scenarios.
The first is the insurance company's need to lower its administrative burden by reducing the number of employees, and the second is to raise the prices of insurance services.
He added that in light of the losses made by insurers and taxes imposed, investment in this sector is no longer viable, pointing out that the return on investment in the insurance sector was a mere 0.04%.
The financial performance of insurance companies in Jordan for the first nine months of 2018 showed that 17 insurance companies made combined profits of JOD14.43 m while five companies suffered losses of JOD3.4m. However, Mr Smairat pointed out that most of the results of profitable insurers were due to capital gains from the sale of real estate in Jordan or abroad, rather than from operating profits.
The Jordanian Parliament approved amendments to the income tax law that were published in the Official Gazette in December and that took effect on 1 January 2019.
Mr Smairat said that before the latest tax changes were announced, insurance companies had lobbied the government to reduce the total corporate tax rate to 14% to be at a similar level to taxes on insurance companies in neighbouring countries. “But we were surprised that instead of reducing them, the government has raised them instead.”
There are 24 licensed insurance companies operating in the Jordanian market, 23 of which are listed on the Amman Stock Exchange. Among them are two companies with branches outside Jordan. There are no reinsurance companies in Jordan.