New insurance regulations in the United Arab Emirates (UAE) are creating enormous pressure on insurance companies to achieve far greater transparency and corporate governance. In a region that previously had little to no formal risk management frameworks, regulations or guidelines in the past, the effects have been dramatic. These new regulations are putting pressure on actuaries and executive teams to ensure they have measures in place to keep their data accurate and transparent. As a result, many insurance companies are already experiencing a drastic decline in operating performance and risk-adjusted capitalization – on top of the additional strain of lower oil prices and the challenging economic environment.
Inevitably, these regulations will result in winners and losers. Companies that are larger, more sophisticated and therefore better capitalized will remain relatively strong and continue to gain market share. This will further widen the gap between large and small carriers, and that’s why the top imperative for any insurance company in the UAE is survival.
Deadlines quickly approaching
The new UAE insurance regulations will include the implementation of proper reserving, actuarial certifications, introduction of better governance and controls, and re-alignment of investment portfolios – and the deadlines are approaching quickly. The first round of compliance deadlines passed by on Jan. 29, 2016, with record keeping, financial reporting and audit function mandates.
Next, UAE insurance companies will need to comply with regulations for corporate governance, technical provisions, and section-one investment of policyholder rights and insurer assets/asset valuation by Jan. 29, 2017. Then. the final set of regulations to be completed by Jan. 29, 2018, will include solvency and minimum guarantee fund, and investment of policyholder rights and insurer assets/asset valuation for real estate and insurance.
Are you at risk?
First, insurers need to understand the regulations and reporting obligations, as well as ensure they are meeting their own corporate governance guidelines. Here are key questions to help you gauge your readiness and level of risk:
If you have not asked yourself or your executive team these questions, then your company is already at risk. But, you are not alone. A UAE insurance market risk management survey jointly conducted by EY and Munich Re showed a considerable amount of work remains to be done. In fact, 40 percent of the responding insurance companies in the UAE said they do not have a dedicated risk management department.1
Charting the course
Many insurers will need assistance to assess their risk management frameworks, as well as their ability to meet these obligations in a structured and time-mapped approach. Insurers will be best served by providers that have helped local and global organizations navigate the rough regulation waters around the world, that are both connected with the regulatory world and have the domain and technology expertise to meet a variety of regulatory mandates.
The development of more quantitative management of capital and solvency no longer applies to just the largest insurers; all companies now have an obligation to consistently report the ongoing status of their organizations. However, it should not be seen as simply a compliance obligation, but rather an opportunity to test their business models and empower them to position themselves for the near- and long-term viability of their companies.
1 “UAE Insurers Face Challenging Year Ahead,” Gulf News, January 10, 2016 – http://gulfnews.com/business/sectors/insurance/uae-insurers-face-challenging-year-ahead-1.1651145
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