The Insurance Authority has issued a raft of new regulations for Islamic and conventional insurers in the UAE, including limits on what types of investments can be made, to shore up their financial strength amid stock market volatility and falling oil prices.
The rules regulate the financial, technical, investment and accounting operations of “Traditional and Takaful insurers operating in the UAE”, said a statement from the authority on Monday.
Rima Mrad, a partner at the law firm Bin Shabib & Associates which helped to advise the regulator on the new rules, said on Monday that the Insurance Authority has over the past three years been reviewing the financial statements of insurance companies, the type of investments made, how they were exposed financially and the risks for operating in the UAE.
“After the 2008 crisis they noticed a lot of companies reporting losses for investing in real estate and equity and that rang the alarm for a huge need to strengthen the regulatory framework,” she said.
Insurance stocks are typically illiquid and held tightly by UAE nationals who often pass on their shares to the next generation. In Monday’s’s trade Methaq Insurance rose 1.3 per cent to 74 fils a share and Wataniya jumped 3.8 per cent to 82 fils on the Abu Dhabi Securities Exchange. Dar Takaful jumped 3.3 per cent to 40 fils a share on the Dubai Financial Market.
The new rules come amid volatility in local equity markets off the back of lower oil prices and an expected decline in local property values and rents this year.
UAE equities went into bear mode as a continuous drop in oil prices fed fears of contracting economic growth. The DFM General Index has declined almost 25 per cent since October, while the ADX General Index has shed more than 11 per cent in the same period. Brent crude prices have dropped from around US$80 in October, to hover around $52 a barrel on Monday.
Standard &Poor’s last week said that it expected a correction of as much as 20 per cent for Dubai’s home prices. The view echoed that of JLL, which had said it expected prices and rents to drop this year by an average of 10 per cent. According to the statement from the Insurance Authority on Monday, the regulator set a maximum parameter of 30 per cent of assets for investment by insurers in real estate.
For equity instruments in listed and not listed companies in the UAE, the maximum total investment is 30 per cent, and a maximum of 10 per cent per single stock, fund or instrument.
Insurance companies can now invest a maximum of 20 per cent of their funds in foreign equity investments and a maximum of 10 per cent exposure to a single counter party.
They can allocate up to 100 per cent of their funds in government securities or instruments issued by the UAE and by one of the emirates in the UAE, but a maximum of 25 per cent per security or instrument.
They must deposit a minimum of 5 per cent with banks in the UAE, whether current account, demand or term deposits, and can allocate up to 50 per cent of that amount in either product.
They can also invest in loans secured by life policies issued by the company to a maximum of 30 per cent, they can allocate up to 1 per cent in financial derivatives, up to 30 per cent in secured loans and deposits with non-lenders, and another 10 per cent in other invested assets.
The regulation further stipulates “the basis of investing the rights of policyholders, the solvency margin and minimum guarantee fund, basis of calculating the technical provisions, determining the company’s assets that meet the accrued insuring obligations, documents, data and records that should be made available to the regulator” and other accounting related rules.
Sultan Al Mansouri, the Minister of Economy and chairman of the Insurance Authority said in the statement that the new rules would ensure the “solvency of insurance companies and their ability to meet all liabilities”.
The impact of these regulations will be seen in full-year results from insurance companies for 2015, according to Ms Mrad.
halsayegh@thenational.ae
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