New regulations close one in five insurers

The insurance brokers in the UAE shut down last year after falling foul of new regulations requiring bigger cash cushions.

One in five insurance brokers in the UAE shut down last year after falling foul of new regulations requiring bigger cash cushions. Insurance brokers, which sell insurance policies but do not underwrite them, were required from the end of last year to hold at least Dh1 million (US$272,161) in capital. They also had to take out insurance to protect clients and maintain their standing with the Insurance Authority, the industry's regulator. Firms were given three years to comply with the threshold introduced in 2006.

"The number of brokers has decreased by 20 per cent compared with 2008," the authority said yesterday. "The reason for the decrease is the deletion from the register of those who have not complied [with the new rules]." Almost 170 brokers remain after the introduction of the higher capital standards, the authority said. Only 120 satisfied the new requirements at the initial deadline last December but about 50 were put back on the list.

The reduction comes as regulators push for stricter rules and put pressure on companies across the industry to show stronger financial backing. A law covering Islamic insurance, or takaful, went into effect in June and the Insurance Authority issued its first code of conduct this year. More regulations covering the sale of insurance through banks as well as rules for third-party administrators - companies that handle the interaction between policyholders and insurers - may also be on the way, said Wayne Jones, a solicitor at Clyde & Company in Dubai.

"We understand there is a raft of further legislation expected," Mr Jones said. With the passage of a Federal Cabinet resolution late last year, insurance companies that underwrite policies must now have a minimum of Dh100m in paid-up capital. Reinsurers, or companies that assume the risk of insurers' policies for a fee, have a Dh250m capital minimum. They have been given until the end of 2012 to comply with the rules.

With about 170 brokers and 58 fully fledged insurance companies, the UAE's insurance sector is widely considered to be overcrowded, so many observers see the authority's recent pressure on smaller operators with thin capital cushions as healthy. Higher amounts of capital allow companies to absorb losses more comfortably and protect customers and business partners. But despite the number of insurers and brokers, , the prevalence of insurance in the UAE is low compared with Europe, the US and the rest of the developed world.

Kevin Willis, an analyst at Standard & Poor's, said in April the industry was growing quickly, especially in health, life and property insurance. "While the geographical distribution of premiums and assets has changed little over the past year, premium growth has shifted to the personal/retail sectors - that is, health, life and property - from the commercial sectors - marine and construction/engineering," Mr Willis said.

"This reflects the growing penetration of insurance into UAE society and the slowdown in the shipping and construction industries." The Insurance Authority said yesterday in its annual review investment in insurance companies amounted to Dh23.7 billion last year, mostly in the form of purchases of shares and bonds. Premiums collected for property and liability insurance totalled Dh16.8bn last year, up 7.7 per cent from 2008, the authority said.