Regulatory reforms could lead to higher compliance costs for insurers, says S&P
Insurers could be hit by rising compliance costs as a raft of regulatory reforms sweeps through the sector, Standard & Poor’s warns.
Regulators across the region have announced a number of reforms amid stiff competition in the insurance sector.
But the costs of overhauling internal systems could deal some insurers a hard blow, S&P said yesterday. “In the short term, we anticipate that the cost of regulatory compliance to rise, as insurers will need to add expertise and improve their systems to meet the new regulatory demands,” said the credit ratings agency. “We believe that smaller and less well-capitalised insurers will find the new regulations particularly challenging, while larger companies should be able to cope with the additional demands.”
Conversely, regulators in the Middle East will also need to show determination to ensure that new regulations are properly adopted and enforced.
The UAE’s Insurance Authority issued new regulations in February that place restrictions on how insurers can invest their money and their exposure to an asset class.
The new rules also require companies to have an independent investment committee and include measures aimed at strengthening corporate governance, compliance and risk management.
“These changes are likely to provide more cushion to the financial soundness of the industry in the long run, leading to better protection for policyholders and improved credit profiles for insurers, resulting from better capital management and optimised operational controls,” said Emir Mujkic, an S&P credit analyst.
The Insurance Authority said in July that it was working on further regulations to streamline the insurance sector, including a study on a new system for actuaries.
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Updated: October 8, 2015 04:00 AM