Anand Singh
The disruption caused by COVID-19 has had a wide-ranging effect on the world economy and the overall economic slowdown and disruption in the market has impacted the insurance sector as well, but the UAE insurance market seems to have emerged resilient and is continuing to grow year on year. Market reports state that Loss Ratios continue to present a positive outlook and the total comprehensive income for the first quarter of 2021 shows an increase of 200 per cent for the corresponding period from the year 2020.
Insurance in the UAE is primarily regulated under Federal Law no. 6 of 2007 concerning the Establishment of the Insurance Authority and Regulation of Insurance Operations (the Insurance Law). The Insurance Law sets out the requirement for an entity to be able to carry out insurance business in UAE and sets out that such entity must be either a UAE public stock company, with at least 51 per cent of capital held by UAE or GCC Nationals, or legal entities fully controlled by UAE or GCC Nationals; or a branch of a foreign insurer. While no official announcements have been made, there has been a moratorium on the issuance of new licenses, whether for a locally incorporated company or a branch for the last few years.
The Insurance Law established the UAE Insurance Authority which was the Federal regulator for insurance across the different Emirates in the UAE. This has recently changed, with the insurance regulator merging with the UAE Central Bank (the Authority), creating a unified regulator for entities across the financial sector, banks, financial institutions, and the insurance sector. There are currently 62 registered and regulated insurance companies, of which 35 are national and 27 are branches of foreign insurance companies. Within the 62 companies, 17 companies (15 national and 2 foreign companies) are licensed to carry out all insurance activities (including life, property, and liability insurance); 32 companies (15 national and 17 foreign) are licensed for property and liability only; and 12 companies (3 national and 9 foreign) are licensed to provide life insurance only. With the population of the country at around 9 to 10 million, there are way too many insurance companies and the Authority has now and again stated the need for consolidation in the market.
Within UAE there are also financial freezones, Dubai International Financial Centre (DIFC) and the Abu Dhabi Global Market (ADGM), which allow insurance/reinsurance intermediaries and companies to be set up, but these freezones are considered as foreign jurisdiction and as such, entities based in DIFC and ADGM are not allowed to carry out any direct insurance business in the UAE. DIFC and ADGM have their own Insurance framework and regulator – the Dubai Financial Services Authority (DFSA) and Financial Services Regulatory Authority (FSRA). The regulations in these jurisdictions are modelled on the previous United Kingdom Financial regulator, the Financial Services Authority, and the insurers and reinsurers operating in these financial freezones must be authorised by the home regulator. Such insurers can only write (directly) insurance for entities situated or risks arising within the financial freezone and/or outside the UAE. The reinsurers based in these freezones are allowed to provide reinsurance capacity for UAE onshore risk as is the case for the overseas reinsurance market.