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 Deals of the day-Mergers and acquisitions 15 April 2017

Insurance watchdog pushes for mergers and acquisitions
March, 09th 2015

The Insurance Authority, which regulates the business, is encouraging mergers and acquisitions in the country, informed its director general.

Speaking to Khaleej Times on the sidelines of a two-day conference on the theme of ‘Present and future prospects in Islamic insurance’, Ibrahim Al Zaabi, director-general of the Insurance Authority, agreed that the new rules introduced recently will allow strong companies in the business and eliminate the firms with smaller capitals. Asked what challenges these regulations would pose to the insurance industry, he said that “the most critical challenge is to implement them”.

An insurance industry executive added that these rules would be challenging for the insurance industry.

In February, the Insurance Authority introduced several new rules which will work as early warning systems in the companies allowing regulators to have a close eye on how they are run and especially on how they make investments. The rules have put limits on the investments an insurance company can make in different asset classes in order to spread the risks.

There are rules on the solvency margin that include provisions related to the solvency margin, minimum capital requirements, minimum guarantee fund, solvency capital requirements, and assessment of solvency in key risk areas allowing the regulator to identify the ability of companies to provide the funds needed to meet their obligations as per the solvency model, which is based on predefined factors. The Minimum Guarantee Fund is set at no less than one third of the solvency capital requirement.

The insurance industry welcomed the regulations, calling it long overdue, after the financial crisis of 2008 when many companies saw their profits nose-diving due to the massive plunge in property and equities values. Mohammed Hussain El Dishish, chief executive officer of EmiratesRE, an insurance company, said that the Insurance Authority should have introduced an assessment based mechanism to monitor the implementation of new rules. The insurance watchdog has given a three years grace period to implement the new rules.

El Dishish said that if you look at the investment portfolios of the insurance companies, they have made heavy investments in equities and that it would take some time to divest them so that they are not hit hard at the expiry of the three year grace period.

Asked how the insurance industry will raise revenues after the strict regulations on spreading investment risks, he said that there was enough business to be had in the marketplace for the domestic insurance providers. The chief executive said that the insurance premium to GDP ratio is very low, in the country which can be boosted if the government makes it mandatory on the businesses to get insurance coverage. El Dishish said that the boost to insurance came in the west after compulsory insurance schemes there. The chief executive said that smaller insurance companies would find it difficult to survive in the new regulatory environment and would have to be merged with bigger companies. “At the end of 2017, we will definitely see some mergers and acquisitions,” El Dishish said.He expected fresh investments coming into the insurance companies in order to meet the new capital requirements, saying at least Dh5-7 billion would be invested to shore-up the capital, in the short-term, as it would be doubled, according to new rules. The requirements of minimum subscribed and paid-up capital is at Dh100 million for insurance companies and Dh250 million for reinsurance companies, according to the new rules.

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