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Insurance Companies to be Capitalized by New Schedule in 2009

Business Materials 28 May 2008 16:56 (UTC +04:00)

Azerbaijan, Baku, 28 May / corr Trend I.Khalilova / The Azerbaijani Finance Ministry plans to announce its new schedule on increase of capital of insurance companies on 1 July, Azer Bayramov, the Deputy Finance Minister, said.

According to Bayramov, the capitalization of companies will be carried out by stage with a year-interval.

"The final decision on maximal ceiling of the capital of insurance companies will be discussed and increased gradually up to AZN 1mln, AZN 2mln, etc," the deputy minister said.

From 1 January 2009 the insurance companies will be capitalized in accordance with the new schedule. Bayramov said that it would represent any difficulty for companies to increase the capital to AZN 1mln by the beginning of next year, because in accordance with the existing schedule as of 1 January 2008, minimal requirement set for the statutory capital of insurers made up AZN 800,000.

In compliance with the new Law on Insurance activities, the Finance Ministry is authorized in defining minimum requirement on the statutory capital of insurance companies, though so far the Cabinet had been committed in.

In compliance with the existing program on increase of statutory capital of instance companies, by 2010 it should be increased to AZN 1mln, whereas the requirement for banks are set for their joint capital which as of 1 July 2007 constituted AZN 10mln.

The capitalization ranges as the first for the insurance market, because all other factors do not assume special significance without normal capitalization. The company cannot develop and enjoy the clients' confidence without enough capital.

The private capital is a buffer, protecting the insurance company and obviously, its clients from possible bankruptcy. Existence of enough capital enables to it to invest in the improvement of services. The experience shows that as a rule, companies, facing problems of capitalization, find it difficult to pay the insurance money. In case of low capitalization there is a big risk of sanctions, implying cessation or cancellation of a license, which obviously blows on insurance.

On 27 May official rate of US dollar was AZN 0.8218.

The correspondent can be contacted at [email protected]

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