The IA Board of Directors discusses insurance issues and decisions to enhance the regulation of the local market

: 4/30/2016

The IA Board of Directors discusses insurance issues and decisions to enhance the regulation of the local market

Three regulatory decisions were issued to concerning the separation between of insurance of persons and property operations, the pricing policy and the penalties.

Al-Mansouri: The new decisions aim at developing the competitiveness of the UAE insurance sector and enhancing its position at the regional and international levels.

 

Abu Dhabi, April 30, 2016

The Board of Directors of the Insurance Authority (IA), chaired by H.E. Eng. Sultan bin Saeed Al-Mansouri, Minister of Economy and Chairman of the IA, discussed several issues relating to the IA, the UAE insurance sector and draft laws and regulations currently considered by the IA to support the process of regulating and developing the local insurance market.

The meeting was attended by H.E. Ibrahim Obaid Al Zaabi, Director General of the IA, and the Board members:  H.E. Maryam Buti Al Suwaidi, H.E. Maryam Mohammed Amiri, Mr. Hamad Harith Al-Medfaa, Mr. Hamad Saif Al-Mansouri, and Mr. Ajlan Ahmed Al-Qubaisi.

During the meeting, the Board discussed the efforts of the IA to regulate the activities of the existing companies that combine the insurance of persons and fund accumulation operations and the property and liability insurance in accordance with the Federal Law No. 6 of 2007 concerning the Establishment of the Insurance Authority and Organization of its Operations.  It also discussed the aspects related to the pricing policies adopted by the insurance companies in the classes of property and liability insurance and the penalties imposed on the insurance-related professions.

The Board took the appropriate decisions concerning these issues, matters and others topics of interest to the local insurance market.

In this context, H.E. Eng. Sultan bin Saeed Al-Mansouri, Minister of Economy and Chairman of the IA, issued three regulatory decisions relating to the insurance sector. The first addresses the instructions regulating the activities of the existing companies, which combine insurance of persons and fund accumulation operations and property and liability insurance. The second decision relates to reviewing the pricing policy adopted by the insurance companies in the classes of property and liability insurance. The third decision is concerned with the elapse of penalties imposed on insurance-related professions.

He said that the new regulatory decisions aim at enhancing the competitive environment of the UAE insurance sector and developing its position at regional and international levels, as well as to facilitate the application of the legal actions that serve economic development in the UAE, and contribute to developing the performance of the insurance sector towards more developed and advanced levels.

He Confirmed that the IA is keen to enhance the performance of the insurance sector and develop its activities in line with the quantum developments seen in the national economy in all sectors.

He pointed out that the IA works hard to facilitate the practices and business for the national companies in a manner that creates a healthy atmosphere and a positive and competitive climate in the insurance market in the UAE which pushes the wheel of construction and development in the UAE and emphasizes the economic achievements attained in reality.

He emphasized the vital role of the insurance sector in the economic and financial structure in the UAE and in community development as well as provision of economic protection for individuals of various levels and activities. He noted the importance of the insurance of persons and fund accumulation and property and liability insurance in the business of the insurance companies and the premiums underwritten therein as well as the activity of the insurance sector in the UAE in general.

 

Separation between insurance of persons and property insurance

Article 1 of decision No. 10 concerning the instructions related to the regulation of the business of existing companies, which combine the insurance of persons and fund accumulation operations and property and liability insurance, states that the existing companies licensed to practice the insurance of persons and fund accumulation operations on the one hand and property and liability insurance operations on the other hand shall fully separate between the insurance of persons and fund accumulation and the insurance of property and liability in terms of the technical, financial, technological, administrative, and legal procedures and the related regulations, operations, and technical, administrative, and financial cadres, except the General Manager of the company.

Further, Article 1 states that such companies shall prepare all the reports and financial statement required by the law, regulations, instructions, and decisions issued pursuant to the law on a unified basis and on a separate basis for the insurance of persons and fund accumulation operations and the insurance of property and liability operations.

Article 2 of the instructions points out that the insurance of persons and fund accumulation operations includes the insurance classes listed in Article 4 of the implementing regulations, while the property and liability insurance includes the insurance classes listed in Article 5 of the implementing regulations.

Article 3 of the instructions states that the existing companies licensed to practice the insurance of persons and fund accumulation operation on the one hand, and the insurance of property and liability insurance on the other hand shall adopt a separate investment strategy for the insurance operations for each insurance type, and maintain separate entries and records for each insurance type, in addition to other records as required in order to determine all the assets and liabilities related to each type. They also should maintain separate books for each insurance type and maintain the transactions related to each type separately as well as the accounting and technical books required to determine all the assets and liabilities related to each type.

 Article 4 states that for the purposes of adopting the provisions of Article 1 of such instructions, the existing companies licensed to practice the insurance of persons and fund accumulation operations on the one hand, and the insurance of property and liability insurance on the other hand shall prepare unified financial statements and separate financial statements for each insurance type. Clause 1 of the unified financial statements of the company that practice the insurance of persons and fund accumulation operations on the one hand, and the insurance of property and liability insurance on the other hand shall minimally present the financial statements related to the unified financial position, unified income, unified comprehensive income, unified cash flows, and a statement of changes to the unified shareholders’ rights.

Clause 2 states that such statements shall include separate financial statements of the company that practice the insurance of persons and fund accumulation operations on the one hand, and the insurance of property and liability insurance on the other hand, and minimally the statement of the financial position of the insurance type and the income statement of the insurance type.

Pursuant to this article, the companies shall prepare the separate financial statements and the unified financial statements listed in these instructions according to Table 1 of the financial statements and the financial forms issued by the Insurance Authority. Further, the companies shall abide by other provisions and requirements related to the unified and separate annual and interim financial statements as stated in the financial instructions of the insurance companies and the financial instructions of the Takaful insurance companies.

According to Article 5 of the instructions, the existing companies licensed to practice the insurance of persons and fund accumulation operations on the one hand, and the insurance of property and liability insurance on the other hand shall provide the technical and administrative cadres for each type continuously and separately. They also shall prepare lists of the names of all key personnel of each insurance type with a detailed list including the qualifications and experiences of the key personnel, which shall include full separation between their activities, duties, responsibilities, and references.

Further, the companies shall present separate financial statements that indicate the existence of separate bank accounts for each types and they shall present statements that show the classes of each insurance type separately, in addition to any statements, requirements, proofs, or information required by the Director General of the IA who will issue the decisions and circulars needed to apply the provisions of such instructions.

It is worth mentioning that Clause 1 of Article 25 of the Federal Law No. 6 of 2007 concerning the Establishment of the Insurance Authority and Organization of its Operations states that it is not permissible to combine the insurance of persons and fund accumulation operations and property and liability insurance. Clause 2 of the same article requires the existing companies, which practice both insurance types stated in Clause 1 of this article, to regularize the status within five years from the date this law enters into effect, while this term may be renewed by a decision from the Cabinet. Clause 3 of the same article enforces the existing companies that practice the insurance types stated in Clause 1 of this article to abide by the instructions issued by the Cabinet in relation to regulating the activities of each insurance type, upon the effectiveness of the provisions of this law.

The IA proposed to the national companies establishing a leading national company specialized in life insurance where all the national companies licensed to practice life insurance contribute in line with the IA’s efforts to regularize the status of the national companies that combine the insurance of persons and fund accumulation operations and the insurance of property and liability operations.

According to Article 4 of the implementing regulations No. 2 of 2009 of the Federal Law No. 6 of 2007 concerning the Establishment of the Insurance Authority and Organization of its Operations, the insurance of persons and fund accumulation operations include the classes of life insurance of all types, health insurance of all types, insurance of personal accidents related to life insurance, and fund accumulation operations. According to Article 5 of the same implementing regulations, the property and liabili8ty insurance shall include the classes of insurance against fire risks and the related insurances, insurance against the risks of land, maritime, and air transport, insurance of marine hulls, machines, and supplies thereof, insurance of satellites, balloons, and space ships, insurance on the railway trains and buses, insurance on land vehicles, engineering insurance, petrol insurance, health insurance of all types, and insurance against the risks of diversified accidents.

Volume of the life insurance premiums amounts to approximately AED8 billion, of which the share of the national companies amounts to 19% while the share of foreign companies amounts to 81%.

The companies licensed to practice life insurance (family Takaful insurance) amount to 27 companies; including 17 national companies and 10 foreign companies. From the 17 companies, 15 national companies combine the insurance of persons and fund accumulation operations and the insurance of property and liability operations which are subject to Article 25 of the law on the establishment of the IA.

 

Review of the pricing policy by the companies

Article 1 of decision No. 10 of 2016 concerning review of the pricing policy adopted by the insurance company in the property and liability insurance classes states that the insurance companies practicing the property and liability insurance, as stated in details in Article 5 of the implementing regulations No. 2 of 2009 of the Federal Law No. 6 of 2007 concerning the Establishment of the Insurance Authority and Organization of its Operations, shall review the pricing policy adopted by the company in the insurance classes listed in Article 5 of the implementing regulations and state the principles and rules adopted in determining the prices and evaluate such policy as well as present suggestions on amendments thereof if necessary through a licensed actuary who is registered with the IA.

Moreover, the decision required the company to review and evaluate the pricing policy adopted by the company two times during the fiscal year of the company. First review shall be conducted upon the expiry of the first half of the year and the second review shall be conducted end of December.

Article 2 states the requirements of the actuary report related to the review and evaluation of the pricing policy of the company which shall minimally include determining the adequacy of risk factors that must be taken into account when setting the prices, determining and studying the adequacy of the rate of administrative and general expenses, rates of reinsurance expenses and expenses of service management, and other expenses charged within the prices. The actuary report should also disclose the profit margin determined in the prices and evaluation of the mechanism adopted in considering the historical claims when setting the prices and disclose the expected inflation rates while determining the mechanisms of forming the unreported claims provision, evaluate the existence of controls required in the used pricing tools, study the adequacy of prices of each insurance product, evaluate the impact of the pricing policy adopted by the company on the financial position of the company, evaluate the adequacy of the pricing policy adopted by the company to maintain the rights of policyholders and pay the due compensations, and any other items found necessary by the actuary to perform his duties.

Article 3 states that the actuary shall present his report to the IA, and Board and Management of the company within 15 days from the date of drafting thereof. The Management of the company shall present to the IA and Board of the company its input regarding the notes and suggestions stated in the actuary report within 20 business days from the date of report submission.

 The Management of the company shall also present a copy of the Board decision concerning the actuary report to the IA within 5 business days from the date of issuance of Board decision.

Article 4 states that the companies shall abide by the other provisions and requirements stated in the financial instructions of the insurance companies in relation to the actuary report, if required.

Article 5 states that the IA Director General may require the company to take corrective actions which ensure adequacy and fairness of prices and appropriateness with the risks covered and in a manner that protects the integrity of the financial position of the company and the rights of policyholders from exposure to risk. It indicated that the IA Director General shall issue the decisions and circulars required to adopt the provisions of this decision.

 

Elapse of the Impact of Penalties

Article 1 of the decision concerning the elapse of the penalties imposed on insurance-related professions states that the impact of the penalty imposed on any individual practicing any of the insurance-related professions or any employee thereof shall elapse after the lapse of 60 days from the date of status regularization as for the notice (notification) and after the lapse of 180 days from the date of issuing a decision removing suspension as for the suspension, without prejudice to any penalty decided by the applicable legislations.

Article 2 states that any provisions that are in conflict with the provisions of the decision shall be invalid. Article 3 states that the IA Director General shall issue the decisions and circulars required to implement the provisions of this decision.

 

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