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Building A Stronger Reinsurance Industry

Current practices in the reinsurance industry of the UAE impede its growth and development. BSA Ahmad Bin Hezeem & Associates LLP (Former Bin Shabib & Associates) recommends measures that need to be implemented to tackle the challenges.

The dynamic nature of the insurance industry in the GCC, particularly in the UAE market, is heavily dependent on reinsurance. In a typical reinsurance arrangement, you will find that a cedent company places the business using its treaty capacity and once exhausted, turns to a facultative placement. It is interesting to note that more than 90 per cent of insurance businesses are reinsured either via a treaty or facultative capacity. Therefore, it is not surprising that reinsurers have strategically committed to the UAE market by opening regional offices.

Globally, reinsurance is highly dependent on fostering relationships and the UAE market is no exception. In fact, the insurance sector in the UAE market relies on reinsurance to increase profits without affecting financial standing and stability.

The overall development of the insurance market in the UAE needs to be looked at in conjunction with reinsurance dependency and overall correlation. It is also important to take into account regulatory requirements in respect of reinsurance practices.

The challenges If we were to compare the practices of the reinsurance industry within the global market, with the current practices of the UAE insurance market, we can clearly see that application of reinsurance practices in the region continues to face challenges which impede its development.

As current regulations are yet to reach a level on par with international standards, the shortcomings and limitations of the regulations governing the reinsurance industry create obstacles in the development and monitoring of the industry.

On the other hand, lack of understanding of the risk and price modelling has lead insurance companies to rely on reinsurance entities in the region.
(A) To develop and implement a framework, setting out a clear foundation and providing instructions to regulate the reinsurance industry in the UAE. It is important to emphasise the verification of the financial capacity and the reinsurer rating as well as the company that bears the risk, to ensure financial compensation, risk assessment and pricing.

(B) GCC and UAE reinsurance companies should be granted the opportunity to increase their market share of the local business being reinsured. There are several capable local entities with adequate potential to underwrite, along with strong technical and administrative capabilities.

(C) Reduce the high capacity available in the Arab and Gulf insurance markets. Therefore enabling companies that have proven capability to increase their working capital in order to develop their financial resources, technical know-how, and human resources and potentially become world leading providers.

(D) Encourage reinsurance companies to establish Takaful Windows and provide technical training for staff to support their operation.

(E) Encourage collaboration between local insurance companies with limited financial capacity in the local market to provide joint coverage.

(F) Implement strong technical foundations for effective underwriting processes and risk assessment.
In spite of the current challenges posed on the insurance industry in the UAE, the rules and regulations along with reinsurance operations are in constant and continuous development.

The UAE insurance market continues to command the interest of Gulf reinsurance companies, due to the fact that the UAE market provides unique demographics and investment opportunities.

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Published: March 2014
Publication: The Oath
Title: Building a Stronger Reinsurance Industry
Practice: Insurance and Reinsurance
Authors: Michael Kortbawi, Raghad Hammad
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