The Financial Services Regulatory Authority (FSRA), the regulatory body overseeing financial services within the Abu Dhabi Global Market (ADGM), has released a Discussion Paper outlining a series of strategic enhancements to its insurance regulatory framework.
The FSRA’s Discussion Paper identifies areas where significant updates to its regulatory approach are planned, focusing on introducing a more risk-sensitive supervisory framework and embedding innovative measures consistent with global developments in the insurance sector.
Central to the FSRA’s proposals are revisions to capital requirements, designed to align more closely with the actual risks insurers face, including underwriting, market, counterparty, and operational risks.
The FSRA intends to calibrate these requirements with advanced actuarial modelling, scenario analysis, and internal models, addressing both loss absorbency and diversification across geographic, sectoral, and product dimensions.
The FSRA proposes a multi-tiered approach to capital, including a standard formula and the option for insurers to develop internal models subject to FSRA approval.
This is aligned with the International Association of Insurance Supervisors’ Insurance Capital Standard, ensuring global consistency. The FSRA’s proposed ADGM Solvency Capital Requirement (ASCR) employs a Value-at-Risk methodology and explicitly recognises diversification benefits. The FSRA expects insurers to maintain capital at 120% of the ASCR under normal circumstances, with higher thresholds of 150% for higher-risk profiles.
Accompanying measures under the FSRA’s review include revisions to the Minimum Capital Requirement and the creation of a structured intervention framework to ensure proportional supervisory action.
The FSRA is also emphasising the role of internal models in supporting robust risk management, permitting insurers to calculate regulatory capital requirements tailored to their own risk profile. The FSRA is considering full and partial internal models, including “off-the-shelf” solutions for specific risk types.
In updating its framework, the FSRA plans to revise own funds requirements, introducing a three-tier capital structure consistent with international best practices, while also evaluating innovative instruments such as synthetic sidecars and insurance-linked securities (ILS) to enhance market capacity and efficiency.
Further FSRA-led enhancements include updated group supervision rules, proportional governance and risk management requirements, and improved reporting and disclosure standards.
The FSRA is exploring synthetic sidecars and ILS structures that would allow risk transfer within insurers without separate legal entities, ensuring fully funded arrangements and dedicated collateral.
Asset-liability matching considerations, including management of duration gaps and the prudent use of derivatives, are also part of the FSRA’s review to address liquidity and risk sensitivity. The FSRA is additionally considering enhanced capital structuring to encourage inward investment, refined valuation practices including recognition of economic contributions from technology and goodwill, updated investment rules under the Prudent Person Principle, and structured procedures for insurers in financial distress. The FSRA is evaluating a holistic consumer protection framework to safeguard policyholders while supporting sector growth.
The FSRA is assessing the introduction of composite reinsurers, alternative and less liquid assets, related entity investments, digital assets, private capital involvement, and asset-intensive reinsurance alternatives.
FSRA proposals also include streamlined portfolio transfer processes for reinsurance entities, ensuring efficiency while maintaining prudential standards. Insurers investing in complex or alternative assets would need to demonstrate appropriate expertise, potentially with oversight from FSRA-authorised investment managers or independent validation processes approved by the FSRA.
Through this Discussion Paper, the FSRA seeks input from stakeholders to refine its proposals, aiming to ensure that ADGM’s insurance regulatory environment remains capable of supporting international reinsurance activity while maintaining financial stability and consumer protection.
