A shake-up of the insurance industry risks forcing closures of some firms.
Insurance companies brace for stricter regulations
Local insurance firms are bracing themselves for a shake-up of the sector in the face of regulations designed to boost their financial strength.
Some insurers are likely to struggle to comply with proposed rules that would raise the amount of cash they hold in reserve and limit their investments in the property market, said Fareed Lutfi, the secretary general of the Emirates Insurance Association, which represents local insurers.
"There may have to be consolidation as solvency has to improve," he said. "There have been huge impairments as a lot of investment was in property and shares."
The changes being considered by the Emirates Insurance Authority aim to boost the resilience of the sector and refocus companies on insurance, their core business.
This follows hefty write-downs by some insurers because of property and stock market investments that soured during the global downturn.
Local insurers have also struggled to handle increased competition from leading international insurance companies moving into the local market.
Firms would face limits on investment in property, stocks, bonds and other debt instruments under the wide-ranging proposals.
The insurance authority is also considering specifying how much money insurers have to set aside to protect their balance sheets in the event of financial losses.
Consultations with insurers about the changes are expected to last a further eight months, according to a recent circular from the authority.
About 64 insurers are operating in the country, 21 foreign companies among them.
Many local firms sought to benefit from the boom in property and equities, which offered high returns before the financial crisis set in. Some are still feeling the effect of exposure to the weak property market, with impaired assets weighing on their balance sheets, said Mr Lutfi.
Meanwhile, Sheikh Khalifa, President of the UAE and Ruler of Abu Dhabi, issued a decree on the reorganisation of the Audit Bureau, the official news agency, WAM, reported.
The decree tasks the Audit Bureau with fighting corruption to ensure the proper management and use of public funds. A chairman will be appointed shortly, WAM said.