is a shortage of non-executive directors with insurance expertise; the requirement of actuarial certification of general insurance business in view of the dearth of qualified actuaries; the determination of sound reserving policies given the absence of a comprehensive statistical databases on mortality, lapse and surrender rates as well as on loss experience, driving records, and other important aspects of insurance business; and the implementation of fair value accounting rules in countries where asset markets are highly illiquid.

These difficulties should not, however, imply a rejection of modern regulatory principles. On the contrary, they imply a greater reliance on an effective and proactive supervisory agency, which should focus on risk-based supervision, emphasize the importance of internal control systems, complement the corporate governance role of non-executive directors, play an active part in developing comprehensive databases, develop objective and uniform valuation models for illiquid assets, and commission special audits of companies with weak financial structures (low reserves and solvency margins and/or large exposure to illiquid assets and accounts receivable). The success of the new regulatory and supervisory approach would require a change of traditional attitudes and acceptance of the rigors of a sound regulatory framework.

The insurance sector will be called upon to play a major role in meeting two important challenges of the Jordanian economy in the future: the mobilization of longterm financial resources for a more stable financing of economic growth; and the financing of the growing retirement needs of an aging population. Even if no major systemic reform of the pension system is undertaken in the immediate future, stimulating the development of life insurance would provide a major impetus to the mobilization of long-term financial savings. This would require the introduction of tax incentives favoring life policies that generate long-term savings and a strengthening of the regulatory framework covering life insurance. A strong regulatory framework offering adequate consumer protection would contribute to building greater public trust in life insurance companies and their intermediaries.

In addition to tax incentives and a strong regulatory framework, the growth of life insurance would also require a positive public image for the whole sector. A negative experience in one part of the insurance market would affect the development prospects of other parts. Every effort would need to be made to complete the ongoing modernization process by eliminating the remaining shortcomings and contradictions of the regulatory framework.

This paper examines the structure and performance of the insurance industry in Jordan.<sup>1</sup> It highlights the positive achievements of the Jordanian insurance industry, but

> 1   Similar analyses have been undertaken for the US insurance industry (Wright 1992, Grace and Barth 1993), for Tunisia (Vittas 1995) and for Mauritius (Vittas 2003). World bank staff has contributed a score of insurance sector studies in financial sector reports of developing countries over the years. These have included Argentina, Brazil, China, Czech Republic, Hungary, Mexico, Slovenia, South Africa and Sri Lanka, while the recent Financial Sector Assessment Program (FSAP) reports have included more or less detailed studies of insurance sectors in most of the countries covered by the program.

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