The United Arab Emirates’ (UAE) Federal Insurance Authority (IA) has published draft regulations for a new reinsurance regime that revises requirements for local insurers’ management of reinsurance.
Tom Bicknell, a Dubai-based specialist in insurance regulation at Pinsent Masons, said the recognition of reinsurance as a distinct category of risk carriers is an important step in the evolution of the UAE’s insurance regime – which had previously treated insurance and reinsurance markets as largely interchangeable in its regulatory oversight.
The proposed changes include reinsurance licensing for new companies, branches of foreign re/insurers and IA-licensed insurers.
Local insures can now only cede their risks to reinsurers that meet minimum classifications as issued by accredited bodies (S&P, Moody’s etc).
In addition, local insurers are required to outline a comprehensive, three-year plans detailing their retention and reinsurance projections across each product line and report to the IA on the same.
A number of important ongoing requirements will also apply that may require insurers to review and amend existing treaty arrangements.
Takaful insurers can obtain reinsurance from reinsurers that also carry on Takaful and non-Takaful, as long as their reinsurance is only funded from the Takaful operations of the reinsurer.
Bicknell commented that “the commercial drivers for an international reinsurer to establish a new licensed reinsurance entity in the UAE are not altogether clear.
“Finally, consideration should be had as to what, if any, further aims the IA has towards its domestic (re)insurance market.
“The fundamental lack of capacity in the local market means that, at least for the near future, insurers need to be unfettered in securing capital outside of the UAE.
“However, if the IA has a long term goal of stemming this outflow of capital, a first step would surely be to develop and bed down a robust reinsurance framework like the one it has just introduced,” Bicknell said.
