Article 15 of the Saudi Insurance Control Law

المادة 15 من نظام مراقبة شركات التأمين التعاوني

The article requires insurance and reinsurance companies to allocate at least 20% of annual profits to a statutory reserve until the reserve reaches 100% of paid-up capital.

Official text (Arabic)

This article has not been amended since the law was issued.

على شركات التأمين وشركات إعادة التأمين أن تخصص حصة من أرباحها السنوية لا تقل عن ( 20 % ) كاحتياطي نظامي ، وذلك إلى أن يصل إجمالي الاحتياطي ( 100 % ) من رأس المال المدفوع .

This is the official Arabic wording, the only legally binding version. We do not translate the law itself; the explanation below is ours. Official source: Bureau of Experts at the Council of Ministers

Article 15 explained in plain English

This article requires insurance and reinsurance companies to build a statutory reserve from their profits, under a clear rule:

Percentage: a share of annual profits that is not less than 20%. The percentage is a minimum, and a larger share may be allocated.
Limit up to which allocation continues: until the total reserve reaches 100% of paid-up capital.

The obligation therefore continues year after year as long as the reserve has not reached paid-up capital. The rule is tied to profits; the percentage is calculated from annual profits. The article does not say what applies in years when the company makes no profit, or how the reserve may be used.

In practice, part of the company's profits is not available for distribution to shareholders until the reserve is complete, which strengthens its financial position.

This article comes after Article 14, which requires a statutory deposit with a local bank to the order of the Saudi Arabian Monetary Agency, and before Article 16, which requires building the reserves needed for each branch of insurance and other reserves under the regulations. The statutory reserve here is separate from those reserves. Anyone who needs to assess the effect of this rule on profit distribution should consult a lawyer specialized in insurance and financial-sector matters.

Practical example

An insurance company with paid-up capital of SAR 300 million makes annual profits of SAR 40 million, and its statutory reserve has not yet reached its capital. It must allocate at least SAR 8 million, which is 20% of the profits, to the statutory reserve.

Translated from our Arabic explanation with machine assistance. For guidance only; it does not replace advice from a lawyer on your situation.

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