Dubai: Insurance regulators in the Gulf have introduced or are introducing a number of new regulations expected to boost the financial soundness of the industry in the long run, according to Standard & Poor’s.
The UAE and Qatar are introducing more comprehensive regulations, while Bahrain, Kuwait, and Oman are currently focusing on specific aspects, such as an increase in capital requirements, as well as improvements in asset quality and reporting requirements for both conventional and Islamic (takaful) insurers.
“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,” according to Standard & Poor’s credit analyst Emir Mujkic.
However, in the short term, S&P analysts anticipate that the cost of regulatory compliance will rise as insurers are faced with the need to boost expertise levels and improve their systems to meet the new regulatory demands.
“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,” Mujkic said.
Local regulators in the GCC, which have a mixed track record in enforcing regulations, will need to step up their game in order to take on the additional and more sophisticated supervisory requirements.
Gulf insurance regulators are following international best practice by moving toward risk-based solvency capital regimes. Long overdue, changes such as the calculation of solvency and minimum capital requirements, the compulsory independent review of solvency and technical reserves, more focus on active risk management, as well as the introduction of more structured investment portfolios with maximum asset exposure limits are finally happening.
These developments are viewed by both the industry and analysts as positive for the credit characteristics of the market and for policyholder protection. However, despite increasing economic collaboration and policy coordination within the GCC, insurance regulations and supervisors are still at different stages of maturity within the region.
“We see little evidence of regional collaboration, and thus a lack of standardisation and ambition in the approach to regulation of the insurance industry. We believe the effectiveness of the new regulations will be determined primarily by the determination of regulators to ensure adoption by the market and consequently enforcement by supervisors,” Mujkic said.
Most regulatory changes are in early stages and the full effect of the new regulations will take some time to play out, given the grace periods for insurers to implement the new regulations. These can be up to three years for certain rules, such as the implementation of more structured investment portfolios.
