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The DDG of the UAE IA to Economic Vision Newspaper: AED 27 billion Insurance Companies’ Investments in 2010

: 7/2/2011
The investments of the Insurance companies operating in the State increased by 14.0% to amount to AED 27 billion in 2010 while the size of the insurance market increased by 10% to amount to AED 22 billion. 70% of these attributed to the national companies share and 30% to the foreign companies share. 

H.E. FMIA, DDG of the IA in special interview with “Economic Vision” said that the insurance companies are heading for insurance of persons due to recession. This led to health insurance to grow by 18% and life insurance surged by 25%. 

She indicated that the gross profit of the insurance companies in UAE decreased by 9.1% during 2010 due to investment returns and increase in loss rate in health and motor insurance and strong competitions among the companies operating in the State. .

She considered competition healthy phenomenon and incentive for development, but she referred to practices of certain companies that go beyond the technical rules of the insurance operations assuring that the IA is monitoring these harmful practices and interfering to protect the policy holder, the shareholders interests and the insurance market as a whole.  In respect of granting licenses to new companies despite the IA’s Board Resolution to stop it, Al Awadi said “The licenses given by the IA are the falling within the exceptions” affirming the IA’s organization of a Takaful market in the State by issuing special regulation on this sector which is requiring 14% of the total size of UAE insurance.  She believes that the acts of the banks in the field of insurance is a matter of marketing the products and does not reach the level of carrying out insurance operations. She indicated, “A Supreme Committee & Fatwa and Sharia supervision in the framework of the IA will be formed’, indicating that the IA’s Board will issue a draft on measures of marketing insurance policies by banks as discussed with UAE Central Bank and the insurance companies. 

She established existence of anti-money laundering regulation on the IA hand, indicating “The IA are clearly instructed to supervise certain insurance classes which are possible to be used as channels for suspicious operations and combat them according to the prevailing rules and laws in this respect. 
In respect of evaluating the real estates of the insurance companies and the comments raised concerning this evaluation she said, “Evaluation of the real estates of the insurance companies is subject currently to a study we hope we will finish it soon.” Here is the speech: 

How do you evaluate insurance sector performance in 2010? What’s your expectation for 2011 as to size of the market, growth rate, investments, companies’ profit allocation and other indicators of performance? 
The initial figures of the annual report which will be issued soon by the IA concerning UAE insurance operations in 2010 indicate that size of the insurance market measured by size of premium written by all the insurance companies operating in the State amounted about AED 22 billion against AED 20 billion realized in 2009 i.e. an increase of 10%. It is noted that high rates of increase are attained in life assurance 25% and health insurance 18%. This is natural result due to the local insurance market circumstances as the companies due to recession gone towards to insurance of persons.  Also, making health insurance obligatory locally contributed clearly in raising the rates to higher levels. As for the remaining classes of insurance, some never realized any increase such as accident and liability insurance including motor insurance and others realized fair increase ranging between 6%-10% such as fire and transport insurance and others. The national insurance companies share out of the market AED 3.7 billion (80%). 

As regards to the insurance companies investments they amounted in 2010 around AED 27 billion against AED 23.7 billion in 2009 i.e. an increase of 14%. As for the gross profits realized by all the insurance companies it seem dropping by 9.1% amounting AED 1.7 billion in 2010 against AED 1.87 billion in 2009 presumely two factors have led to such drop: (1) investment returns and (2) two main classes insurance are not realizing the profits - (health & motor) - realized by the other classes due to higher rates of losses in these two classes and the fierce competition between the companies. As for the profits alloted to the shareholders are definitely affected by these two factors. 


Do you believe that AED 100 million capital determined as minimum required capital of the insurance companies qualify these companies to compete in both the local and foreign market or the IA is having new plans and directives in this respect? 

The AED 100 million minimum required capital of the insurance companies is enough in the existing circumstance particularly, no longer period lapsed since the minimum required capital was raised. As it is known, capital is one of the factors have to be taken into consideration in addition to the other factors on top of the general provision accumulated by the company from one side and the nature of the company's portfolio from the other side. Also, the procedures taken in respect of the insurance market have to be kept for certain period in order their positive and negative aspect could be soon and thereafter change will be introduced in light of the real state of affairs. 

How do you look at the competition existing in the market and the number of the companies the experts believe they are bigger than the size of the market? 

Competition is a healthy sign. Rather, if not existing it became a must to create it as it works for the benefit of the consumer from one side and stand as incentive from the other side. However, the shortcoming of the practices in this field is that they depart from the technical rules on which on their basis the insurance operations conducted. 

Therefore, the IA encourages the companies to compete and request them at the same time to eliminate the malpractices of these companies and the IA will interfere at suitable time to protect interests of the policyholders and shareholders and to protect the market in whole. 

What about the national insurance companies opening branches in GCC according to the decision of the GCC leaders and treat the companies and the investors same as the national companies in their countries? 
The boards of the national insurance companies are the ones who take the decision to open branches in the GCC insurance market and the other Arab countries according to each company capabilities. However, we encourage the national companies to proceed in this respect provided satisfying certain requisites and top of them availability of the technical and financial capabilities and full knowledge of the market circumstances. 

How do you see the insurance companies application of financial solvency standards and investment ratios? What are the challenges facing these companies in this respect? 

For some time the IA is preparing the necessary studies to arrive at the best rule that govern the insurance companies financial solvency standards and investment policies particularly these policies related to the funds of the policies. It is no secret that some of the insurance companies rushed at earlier times towards investing in securities market and real estates. Accordingly, the rules will be adopted will take into consideration the main rules and the actual reality of the insurance companies’ investment. The insurance companies will be given sufficient grace period to correct their investment policies. 

Earlier in 2010 you stopped granting licenses to new insurance companies to restructure the insurance market in light of the international money crisis and its implications…. But beginning of 2011 licenses has been granted to establish new insurance companies. What’s the justification? Does the market able to accommodate new companies? 

I would like to affirm on this occasion that the IA’s policy in the technical and financial fields including granting or stoppage granting new licenses to the insurance companies or the professions related to insurance is drawn down by the IA’s Board presided by H.E. Eng. Sultan bin Saeed Al Mansouri. The Board took earlier a decision to stop granting new licenses except for those companies established by the local authorities of an Emirate or the other or holding stakes in their capital. Therefore, these companies which given licenses since beginning of the year are those ones falling within the scope of the exception. 
What about UAE Takaful insurance, its growth horizon, size and the number of the companies in UAE?
The number of the Takaful insurance companies at the end of 2010 is 9 companies against 23 insurance companies. In fact, the IA organized Takaful insurance operations by virtue of Takaful Insurance Regulation of 2010 which is deemed the first of its kind in the Arab world and the most comprehensive one in the Islamic world. 

The written premiums of Takaful insurance companies in 2010 amounted AED 3.1 billion. This was Takaful insurance represent 14% of UAE insurance market size in whole. The IA is going Takaful insurance activity special importance because it’s a newly established activity. Further, it is supposed to go in line with certain rules that take into consideration its solvency and compliance by the noble Sharia teachings. Accordingly, a supreme committee of Fatwa and Sharia monitoring will be formed in the framework of the IA to take up the tasks provided for in Takaful Insurance Regulations. 

How the IA treated the matter of banks carrying out certain insurance activities? Did you receive any objections from the insurance companies to these insurance activities by the banks? 

The IA prepared draft regulation on measure of marketing the insurance policies by banks and sent it to the insurance companies and UAE Central Bank. We received important and valuable suggestions we already taken them into consideration. The draft will referred to the IA’s Board and thereafter issued. Therefore, the action of the banks in this field is no more than marketing of insurance products and does not meant to level of banks carrying out insurance operations as it's necessary and rather a duty to maintain separation of bank business and insurance operations and not to be all interference between them. 

Money laundering: 

Insurance sector is one of the channels possibly to pass through it suspicious financial operations (money laundering)…. What's procedures made in this respect? 
The IA happened to issue regulations on money laundering and combating terrorism financing in insurance operations i.e. regulation No 1 of 2009. Here, I would like to assure that some and not all classes of insurance are possible to be used as channels for suspicious operations and thus the IA is carefully implementing the said regulations and that the IA’s inspectors who are conducting inspections in the insurance companies’ operations received clear instructions to monitor these operations. 

Which insurance sectors achieved highest performance and the insurance companies are concentrating on them? Which sectors the insurance companies are taking their burden? 

It’s well known that UAE insurance market is one of the markets achieving excellent results in certain insurance classes and fair results in others and another one needed to be supervised. The classes achieving excellent results are marine cargo insurance, life insurance and personal accidents and theft insurance. The classes achieving fair results are fire, motor and engineering insurance while the classes needed to be supervised are health insurance and liability insurance resulting from motor accidents. 
What about the standards of evaluating the insurance companies' assets especially real estate where some see the evaluating polluted with flaws and malpractices? Do you have standards for such operations of evaluation?

The subject matter is currently under study. The study is about the finish as far as investment policy and evaluation of real estate are concerned. We hope to finish it soon. 

Risk coverage of the insurance companies is low still and is ranging between 25%-35%. In the opposite, these companies are depending upon re-insurance companies mostly foreign ones to cover the risks. When our national companies will be ready to raise the said percentage to reach 50% as the national economy will benefit therefrom? 

I believe you mean the retention ratio. Therefore, I would like to indicate that determination of the retention rate depends upon several technical and financial elements. Its worth mentioning here the general ratio might not be the ideal indicator to judge in this issue. Rather, it's necessary to study the retention ratio of each class of insurance as it is well known that the retention ratio is affected by the high retention ratio of motor and health insurance operations due to special nature of re-insurance operations in these classes of insurance. Thus, it is necessary to create a portfolio for each company alone from one side and to study the financial capacities of each company from the other side.

Health Insurance:

Is it possible to know the rate of affairs and horizons of health insurance market in UAE? What is new about the obligatory health insurance?

Health and motor insurance are the two insurance sectors most related to the people in all insurance markets. Accordingly, they are subjected to supervision and follow-up at the company level each separately and at the market as whole. Further, any deviations in each of them results will lead to affects the results of the insurance company. Some of UAE Emirates opted to include health insurance among the obligatory insurances. As for making such insurance obligatory in the rest of UAE Emirates, the matter concerns the social and financial policy at the federal and local levels and this is a matter falling under jurisdictions of other official bodies.



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