VZCZCXRO2558
RR RUEHDBU RUEHLN RUEHVK RUEHYG
DE RUEHKB #1348/01 3130729
ZNR UUUUU ZZH
R 090729Z NOV 07
FM AMEMBASSY BAKU
TO RUEHC/SECSTATE WASHDC 4212
INFO RUCNCIS/CIS COLLECTIVE
RUEHAK/AMEMBASSY ANKARA 2447
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEATRS/DEPT OF TREASURY WASHDC
RHEBAAA/DEPT OF ENERGY WASHDC
RUEHBS/USEU BRUSSELS

UNCLAS SECTION 01 OF 02 BAKU 001348 
 
SIPDIS 
 
DEPT FOR EUR/CARC 
DEPT PASS TO TDA FOR STEIN, EXIM FOR GLAZER 
ANKARA FOR FCS 
 
SENSITIVE 
SIPDIS 
 
TAGS: ECON ETRD ENRG EFIN AJ
SUBJECT:  AZERBAIJAN PASSES NEW INSURANCE LAW 
 
 
SENSITIVE BUT UNCLASSIFIED - - PLEASE HANDLE ACCORDINGLY 
 
¶1.  (U) On October 9, Azerbaijan's parliament passed an updated Law 
on Insurance Activity that the Ministry of Finance indicates is a 
first step to raising Azerbaijan's domestic insurance up to the 
International Association of Insurance Supervisors'(IAIS) standards. 
 The World Bank and other international donors assisted the GOAJ in 
drafting the new insurance law.  Azerbaijan's insurance services 
sector has developedless in the past 10 years compared to other 
econmic sectors (e.g. oil, banking). 
 
¶2. (U) Accordin to insurance industry contacts, the overall 
insurance market volume in 2006 grew at 7 percent to USD 100 
million, equaling only 0.5 percent of GDP.  According to official 
statistics, the paid-in capital of insurers reached USD 66.7 million 
(USD 5.3 million or 7.9 percent of which is foreign investment), and 
there are 83 insurance shareholders and 29 insurance companies 
operating in Azerbaijan.  Total amount of premiums was USD 48 
million in 2002, USD 75 million in 2004 and USD 101 million in 2006. 
Voluntary insurance services made 92 percent of the premiums, while 
8 percent was generated by the compulsory insurance sector. The 
total payment for insurance claims was USD 48 million in 2006, which 
accounted for 50 percent of the premiums. 
 
¶2.  (U) According to local insurance business contacts (AIG 
Insurance, Ateshgah, MBask), the new draft law brings the following 
key changes: it alleviates the 49 percent participation ceiling for 
foreign capital, which is a positive change.  At the same time, 
however, it requires all the insuring companies to reform into the 
joint stock open societies, which requires the insurers to start a 
company reorganization process.  The law empowers the state 
regulatory body with more control authority, but only allows ranking 
insurers be co-founders of an insurance company in Azerbaijan. 
Given that this creates complications for participation of 
international Financial Institutions (IFIs) at the local insurance 
sector (EBRD is a stakeholder of the local MBask insurance company), 
the Azerbaijan Insurers' Association has applied to the GOAJ with a 
request to change the new law and allow participation of the IFIs at 
the insurance companies. 
 
¶3.  (U) In details, through its 15 chapters, the law 1) clarifies 
insurance terminology, alleviates misinterpretation and clearly 
determines the insurance secrecy aspect; 2) requires all the 
insurers to operate as joint stock companies; includes an article 
about the prevention of money laundering and financing of terrorism; 
gives detailed classification of life and non-life insurance 
classes; sets requirement that life insurance and non-life insurance 
have to be provided by different insurance companies; 3) sets clear 
requirements for founders and stakeholders of an insurance company, 
both - individuals and legal entities; sets requirement that the 
limit of participation of the foreign capital in the insurance 
system of the Azerbaijan Republic is determined by the State 
Insurance Supervisor; 4) requires all insurers establishing the same 
administrative (management) bodies for the sake of consistency; 5) 
provides rules and procedures of issuance and calling back of the 
insurer's license; 6) requires an insurer setting and following 
clearly identified investment policy directions; 7) determines 
categories and volume of deals (business contracts) allowed to sign 
with related parties of the insurers; 8); sets requirements about 
transfer insurance portfolio from one insurer to another insurer and 
about insurance merger; 9) describes requirements of how to hire and 
dismiss an independent auditor; 10) sets rules of providing 
financial stability of the charter capital through initial cash 
installments with further provision of the difference between 
insurer's assets and liabilities; also sets classification of 
insurance funds; 11) introduces a new regulatory element through 
licensing an agent's functions as professional activity; 12) expands 
duties and authorities of the state insurance regulatory body ;13) 
provides rules for preservation of legal rights of those insured 
while shutting down an insurance company as a legal entity; 14) 
final wrap up provisions and 15) transition provisions (from old 
requirements to new requirements). 
 
¶4.  (SBU) Government officials and local businessmen are hopeful 
that the new law will be the impetus to greater development of the 
insurance sector.  Foreign access to the domestic insurance market, 
however, remains a large problem, despite GOAJ's efforts to 
liberalize the sector. According to the Ministry of Finance, 
Azerbaijan "will partly liberalize access to the local insurance 
market, but will not completely open for foreign capital," adding 
that there will be no branches of foreign insurance companies 
operating in Azerbaijan. 
 
 
BAKU 00001348  002 OF 002 
 
 
¶5.  (SBU) Private sector and economic experts believe that there is 
greater potential for insurance sector development but growth has 
lagged behind other non-energy sectors. The head of the Azerbaijan 
Insurers Association says that local insurance companies hope to see 
more progress with the new law, including better protection 
mechanisms for companies and modernization of insurance regulations. 
 
 
DERSE