See all chapters of Encyclopaedia of Prudential Solvency.
Introduction
This chapter discusses the prudential solvency regimes in the Middle East, a crucial topic for anyone involved in the insurance industry. The Middle East is an exciting place to be in today’s insurance market. It is expected that the Gulf Cooperation Council (GCC) insurance market will grow significantly over the coming years. One estimate suggests that the market will reach US$44.4 billion in 2028, up by about 29% compared with the size of the market in 2023.1
The jurisdictions that we review in this chapter are primarily civil jurisdictions, of which the official language is Arabic. That said, English is commonly used in a business context and local regulators often, but not always, have up-to-date English versions of laws and regulations.
A notable feature of some jurisdictions in this region is the establishment of financial free zones, such as the Abu Dhabi Global Market (ADGM), the Dubai International Financial Centre (DIFC) and the Qatar Financial Centre (QFC), amongst others. These financial free zones operate with a significant degree of regulatory and legal independence from the local state-level authorities. This autonomy allows them to create and enforce their own set of regulations and legal standards, which can differ substantially from those of surrounding “mainland” jurisdictions.
Many financial free zones have gone a step further by establishing their own judicial systems. The courts often apply common law as a framework, which is a departure from the civil law and Sharia-based systems prevalent across the mainland legal systems in the region. The adoption of a common-law framework in free zone courts (and sometimes English law as a law of last resort) aims to provide an environment that can be particularly attractive to international investors and businesses.
1. The United Arab Emirates
Background
The United Arab Emirates (UAE) is a federation of seven emirates: Abu Dhabi, Dubai, Ras Al Khaimah, Sharjah, Ajman, Umm al Quwain and Fujairah.
In 2021, the UAE Insurance Authority and the UAE Central Bank merged. This new consolidated authority, the Central Bank, has regulatory oversight over banking, insurance and other financial services.2 The UAE Central Bank is a member of the International Association of Insurance Supervisors (IAIS).
There are more than 50 free zones in the UAE, which have been designed to attract investment into the country into their designated sectors by, for example, permitting 100% foreign ownership. The ADGM and the DIFC are the two financial free zones that have been established for the financial services sector.
The key statutory instrument covering the insurance regime in the UAE (other than in the DIFC and the ADGM) is Federal Law No. 48 of 2023 on Regulating Insurance Activities (the Insurance Law). It is worth noting that Article 2(2) of the Insurance Law excludes application of the Insurance Law in respect of companies operating within the financial free zones.
An insurance company in the UAE (other than in the financial free zones) must either be established as a public joint-stock company in the state, or a branch of a foreign insurance company.3 They must be authorised by the UAE Central Bank.
UAE insurance risks (outside of the financial free zones) must be insured by locally licensed insurers (subject to limited exceptions in certain circumstances). However, Article 12(2) of the Insurance Law provides that UAE insurers may reinsure their business with reinsurers located in the UAE or outside of the state.
The prudential requirements for insurance companies are primarily set out in the Financial Regulations.4 These provide for a minimum subscribed and paid-up capital of not less than 100 million UAE dirhams (US$27 million) or 250 million UAE dirhams (US$68 million) for a reinsurance company) (the Minimum Capital Requirement, or MCR).5
Foreign insurers are allowed to set up local branches in the UAE, provided that the local branch is managed by an authorised manager and the branch itself is licensed by the Central Bank.6 Foreign companies setting up local branches must also submit a guarantee from a locally licensed bank in the UAE in favour of the Central Bank. The guarantee amount is equivalent to the MCR applicable to a locally incorporated insurance company and therefore should be at least 100 million UAE dirhams (US$22 million) if the branch is engaged in insurance activities, and at least 250 million UAE dirhams ( US$68 million) if it is engaged in reinsurance activities.7
Solvency Capital Requirement and the Minimum Guarantee Fund
Both foreign and domestic insurers operating in the UAE must comply with the Solvency Capital Requirement and maintain the Minimum Guarantee Fund.8 The Solvency Capital Requirement comprises the funds that an insurer must maintain to cover its projected operations in the forthcoming 12-month period, taking into account the quantifiable risks to which the insurer is exposed.9 The Minimum Guarantee Fund is equal to one-third of the Solvency Capital Requirement or the amount determined by the Insurance Authority Board of Directors, whichever is greater.10
For branches of foreign insurers, the Solvency Capital Requirement is calculated at the UAE level (i.e., with regard to the business underwritten by the branch). For local insurance companies with foreign branches and/or subsidiaries, this is calculated on a group-wide basis11.
Insurers are required to maintain the Solvency Margin, which comprises the largest of: (i) the MCR; (ii) the Solvency Capital Requirement; and (iii) the Minimum Guarantee.12
The Solvency Margin must be maintained in Own Funds, which, in essence, refers to the surplus in the value of a company’s existing assets over its liabilities, ensuring that the company can meet all its obligations and pay the required insurance claims as they become due without hindering its operations or weakening its financial position.13
Own Funds
Own Funds consist of the sum of Basic Own Funds and Ancillary Own Funds.
Basic Own Funds are defined as:
- The excess of Admissible Assets over liabilities (surplus), which shall be reduced by the amount of Treasury shares held by the insurer.
- Subordinated liabilities (group level debt in a holding company with the prior approval of the regulator).
Ancillary Own Funds shall consist of items other than Basic Own Funds that can be called up to absorb losses, with the prior approval of the regulator.
Ancillary Own Funds may comprise the following items to the extent that they are not Basic Own Funds items:
- Unpaid share capital or initial fund that has not been called up.
- Letters of credit and guarantees.
- Any other legally binding commitments receivable by the insurer.
In the case of a company with variable contributions, Ancillary Own Funds may also comprise any future claims which that insurer may have against its members by way of a right to call for supplementary contribution, within the following 12 months.
Proportion of Own Funds
There are also any requirements on the proportions of Own Funds.
At least 100% of the MCR should be met by the Basic Own Funds.
At least 100% of the Solvency Capital Requirement and Minimum Guarantee Fund should be met by the Own Funds, which is calculated as the Basic Own Funds plus only 50% of the Ancillary Own Funds.
Further Requirements
The Insurance Law recognises two types of insurance businesses: life insurance businesses, and property and liability insurance businesses.14 Whilst some existing insurance companies continue to operate on a composite basis, new insurance companies cannot operate across both categories.15
Each of these categories have fixed statutory deposit requirements. Life insurers must deposit 4 million UAE dirhams (the equivalent of roughly US$1.1 million), whereas property and liability insurers must deposit 6 million UAE dirhams (the equivalent of roughly US$1.6 million).16
The Central Bank may periodically check in on insurance companies operating in the UAE to check whether their financial condition is compliant with the provisions of the Insurance Law. Some of the things that the Central Bank will look to verify include compliance with any licence conditions and ensuring that any total losses do no exceed 50% of the company’s paid-up capital.17
Where the Central Bank finds that a particular insurer has not fulfilled its obligations under the Insurance Law, the Central Bank may impose penalties or sanctions.18
The Abu Dhabi Global Market
Background
The ADGM and the DIFC have their own regulators. The court systems in the ADGM and the DIFC operate on a common-law framework, whereas mainland courts operate on the basis of civil law. As discussed earlier, the Insurance Law does not apply in respect of companies inside these financial free zones.
Article 121 of the UAE Constitution was amended to permit the establishment of financial free zones and, in doing so, permitted the exemption of such zones from federal legislation. Federal Law No. 8 of 2004 then exempted the financial free zones from all federal civil and commercial laws. However, the criminal law still applies, as do other federal laws which are specifically expressed to apply to financial free zones (for example, tax legislation).
The ADGM was established in 2013 by Abu Dhabi Law No. 4 of 2013. The ADGM has its own legal system, enforced by its own judicial system. The insurance regulator in the ADGM is the Financial Services Regulatory Authority (FSRA). The FSRA is a member of the IAIS.
The key regulatory rulebook in respect of insurance undertakings operating from within the ADGM is the Prudential — Insurance Business Rulebook (PIN). The PIN rules are applicable to all insurers (there are separate rules for captive insurers), with specific provisions for insurers that are cell companies, distinguishing between insurers that undertake long-term insurance business and those that undertake other classes of insurance business. Furthermore, these rules are underpinned by guidance that provides contextual detail as to how the rules are enforced or applied in practice.
Capital Resources
All insurers must have capital resources that are adequate for the conduct of their business, considering the size of the insurer and the nature, mix and complexity of the risks it underwrites. This requirement is fundamental to the financial health of any insurer and the protection of its policyholders. Insurers are expected to develop internal capital models to support the self-assessment of capital adequacy and to withstand external and internal shocks.19
Insurers that are not cell companies must always have Adjusted Capital Resources (ACR) equal to, or higher than, the amount of their MCR. This is calculated by determining individual components in respect of various specific risks to which the insurer is exposed, and adding those components together.20
Insurers that are not incorporated within the ADGM must always have assets available to meet their insurance liabilities. The assets non-ADGM insurers must maintain may comprise any of the following asset classes:
- Cash at bank or in hand.
- Bonds rated BBB or better.
- Any equities listed on an approved exchange.
- Reinsurance recoverables where the reinsurer is rated BBB or better.21
The insurer must immediately notify the FSRA in writing if it becomes aware that it does not comply with the capital requirements. This notification must include the reasons for noncompliance and any remedial actions being taken to address the issue. Until the FSRA provides written permission to recommence business, the insurer is prohibited from:
- Effecting any new Contracts of Insurance.
- Making any distribution of profits of surplus.
- Returning capital.22
The FSRA may require insurers in run-off to post assets or equivalent arrangements, such as letters of credit, to cover insurance liabilities.23 The term “insurer in run-off” refers to an insurer that has stopped issuing new contracts of insurance for the entire scope of its insurance business or for a specific cell or long-term insurance fund.24
Calculation of the MCR
The MCR is a regulatory standard that ensures insurers maintain sufficient capital to cover their risks and obligations. The MCR is calculated by determining individual components in respect of 10 different specific risks that the insurer is exposed to, and adding those components together to arrive at the MCR. These components include, amongst other things:
- The Investment Volatility Risk Component.
- The Concentration Risk Component.
- The Underwriting Risk Component.25
Cell companies must ensure that they have noncellular capital resources equal to, or higher than, the minimum noncellular capital requirement. Additionally, each cell within the cell company must have adjusted cellular capital resources equal to, or higher than, the minimum cellular capital requirement.26
The ACR – How Insurers’ Capital Resources Are Calculated to Meet the MCR
The ACR is the value of the insurer’s adjusted equity less its hybrid capital adjustment (HCA). The starting point for calculating an insurer’s adjusted equity is the insurer’s base capital. This includes paid-up ordinary shares, general reserves, retained earnings, current year’s after-tax earnings and hybrid capital, amongst others.27
Adjusted equity is calculated by adding and deducting specific items from the base capital. Additions may include minority interests in subsidiaries and amounts in respect of dividends to be paid in the form of shares. Deductions include, amongst other things, appropriations from profit, investments in the insurer’s own shares, tax liabilities on unrealised gains, deferred acquisition costs, deferred tax assets, goodwill and other intangible items.28
The HCA limits the extent to which an insurer can rely on hybrid capital, such as subordinated debt and preference shares, for its ACR. The HCA is calculated as the amount by which the total hybrid capital exceeds 15% of adjusted equity, although this limit can be increased to a maximum of 30% with the FSRA’s approval.29
Dubai International Financial Centre
The DIFC was established in 2004 by Federal Decree No. 35 of 2004.30 Like the ADGM, the DIFC has its own legal and court system. In defining the common law applicable within the DIFC, the DIFC Courts may consider the common law of England and Wales, along with common law from other jurisdictions.31
The regulator in the DIFC is the Dubai Financial Services Authority (DFSA). Like its counterpart in the ADGM, the DFSA is a member of the IAIS.
The capital requirements in the DIFC are largely similar to those in the ADGM. That said, a DIFC insurer’s MCR is subject to certain de minimis requirements depending on the insurer’s classification. Most insurers (other than captives) have a minimum requirement of US$10 million.32.
2. The Kingdom of Saudi Arabia
Background
The Saudi Arabian insurance market is recognised as one of the strongest globally, and plays a crucial role in the Kingdom’s strategy to diversify its revenue sources away from oil. As part of its Vision 2030 initiative, the Saudi government aims to raise the amount of gross written premiums as a percentage of the non-oil GDP to 2.4% by 2025, and further to 4.3% by 2030.
The Saudi Arabian insurance market has a substantial emphasis on health and motor insurance. In recent years, the market has witnessed the introduction of several compulsory insurance types, aimed at enhancing coverage and mitigating risks across various sectors. These mandatory insurances include: third-party motor insurance, health insurance, medical malpractice insurance, oil pollution insurance and professional indemnity for various insurance service providers. The insurance marketplace has shown strong growth over the last year, with a recent report indicating earnings increasing by 25% over the first six months of 2024, bringing it to 2.2 billion Saudi riyals (US$587 million).
Up until 2023, the insurance and reinsurance market in Saudi Arabia was primarily regulated by the Saudi Arabian Monetary Agency (SAMA) and the Council of Health Insurance. As part of wider regulatory reforms, the Kingdom introduced a new unified insurance regulator, the Insurance Authority (IA). The establishment of the IA represents a significant shift in the regulatory landscape, centralizing the oversight of all insurance-related activities under a single authority. The IA is a member of the IAIS.
As is the case under other regimes in the region, Saudi-incorporated insurers must currently be publicly listed joint-stock companies and be licensed by the IA (although foreign branches are permitted). Any insurer with foreign shareholders must obtain a licence for foreign investment from the Ministry of Investment. As part of its application for a licence, an insurer must (amongst other things) provide the IA with a five-year business plan, the organisational structure of the insurer and an irrecoverable bank guarantee covering the insurer’s capital obligation. The IA will respond to the application within 90 business days. Insurers must also submit a renewal application every year, though reinsurers are able to obtain a five-year licence. Saudi insurers are not allowed to undertake any non-insurance business activities, “unless they are complementary and necessary.”33
In general, Saudi risks must be insured domestically. However, Saudi insurers34 and insurance intermediaries are able to place and insure a Saudi risk outside the Kingdom if they previously sought and obtained permission to do so from the IA.35
In November 2022, SAMA issued a circular entitled “Reinsurance Cession to the Local Reinsurance Market” (the Circular). The Circular stipulated that insurance companies must, during the negotiation of any reinsurance treaty across all types of insurance business, provide a designated portion of these agreements to local reinsurers. As of 1 January 2025, the percentage of reinsurance treaties that insurance companies are obligated to cede to the local market is set at 30%.
Types of Insurance
Saudi insurance law categorises insurance into distinct types: general, health and protection. The IA oversees and regulates all types. As part of their broader requirement to remain compliant with Sharia law, insurers must operate using the “co-operative” model and are required to distribute a share of the surplus every year to policyholders. This can be implemented by reducing the premiums for the subsequent year.
Capital Requirements
The Saudi prudential regime had a fixed MCR in legislation which was 100 million Saudi riyals (US$27 million) for insurers and 200 million Saudi riyals (US$53 million) where a company is engaged in both insurance and reinsurance activities.36 These minimum requirements are reported to have risen in 2024 to 300 million Saudi riyals (US$80 million) for insurers.
Solvency Margin Requirements
In addition to the above, there are the following solvency margin requirements.
For general and health insurers, they shall maintain a margin of solvency equivalent to the highest of the following three amounts:
- Minimum Capital Requirement.
- Premium Solvency Margin.
- Claims Solvency Margin.
The Premium Solvency Margin will be used to calculate the solvency margin for the first three years of the company’s registration.
The Premium Solvency Margin is calculated by:
- Dividing gross premiums written into the different classes of insurance set out in the regulations (which includes health, motor, fire, marine, aviation, energy and reinsurance).
- Deducting the outwards reinsurance relating to the gross premiums determined in (1) above, provided that in all cases the net premiums written is not less than 50% of gross premiums written.
- Multiplying the net premiums written for each category by relevant factors set out in the regulations and aggregating the result for each category to come out with the appropriate solvency margin.
The Claims Solvency Margin is calculated by:
- Dividing average gross claims incurred over the three most recent financial claims into different classes of insurance as set out in the regulation.
- Deducting the outwards reinsurance relating to the gross claims determined in (1) above, provided that in all cases the net claims amount is not less than 50% of gross claims amount.
- Multiplying the net claims in (2) above for each category by the relevant factors set out in the regulations and aggregating the result for each category to come out with the appropriate solvency margin.
For protection and savings insurance business insurers, the solvency margin is determined by taking the aggregate of the results arrived through the calculation described below:
- Four percent (4%) of the technical provisions for the protection and saving direct insurance.
- Three per thousand (3/1000) of the Capital at Risk for individual policies after the deduction of reinsurance cessions, provided that the reinsurance amount does not exceed 50% of the total Capital at Risk.
- One per thousand (1/1000) of the Capital at Risk for group policies after the deduction of reinsurance cessions, provided that the reinsurance amounts do not exceed 50% of the total Capital at Risk.
Technical Provisions are defined in the regulations as insurance liabilities, i.e., the value set aside to cover expected losses arising on a book of insurance policies and its financial obligations.
Meeting the Solvency Margin Requirements
Insurers should value their assets for the purpose of calculating the solvency margin according to the regulations which provides the percentage of those assets that are permissible provided that the following are observed:
- The market value shall not be exceeded in the valuation process and all assets linked to the investment part of the protection and savings insurance policy shall be excluded.
- There is a maximum limit of 20% of the total assets value in any one asset category.
- To give an idea, Saudi Government Development Bonds and government bonds held by A-rated countries can be held at 100%, whereas cash in hand can be held at 1% and treasury stocks and personal loads are inadmissible.
Further, insurers that conduct general insurance business and protection and saving insurance business, should consider the assets for each class of insurance separately. Assets obtained from the issuance of bonds or from obtaining loans cannot be included in the solvency margin calculations without the regulator’s written approval.
3. The State of Qatar
Background
As highlighted in the introduction, the insurance sector in Qatar operates under two distinct jurisdictions: the laws of the State of Qatar (the State) and the regulations of Qatar’s free zone, called the Qatar Financial Centre (QFC).
The two jurisdictions are subject to oversight by two different supervisory authorities. The insurance market operating under the laws of the State is overseen by the Qatar Central Bank (QCB).
On the other hand, the QFC operates as a separate jurisdiction with its own set of regulations and is subject to oversight by the QFC Regulatory Authority (QFCRA). The QFC was established to attract international business and investment by providing a business-friendly environment with a distinct legal and regulatory framework. Both the QCB and the QFCRA are members of the IAIS.
The Law of the Qatar Central Bank — Law No. 13 of 2012 (the 2012 Rules) introduced new regulations relevant to the State’s financial services regulatory regime. In addition the QCB introduced Executive Instructions to Insurers in 2017 (the Executive Instructions).
One significant change brought in by the 2012 Rules is that the QCB is now responsible for the licensing and supervision of domestic insurance companies and branches of foreign insurers, reinsurance companies and insurance intermediaries outside of the QFC.37
As is the case in other countries in the region, Qatari insurance companies must be joint stock companies and insurance agents must be Qatari nationals or wholly Qatari-owned entities.
Additionally, only Qatari national insurers are permitted to insure assets within Qatar, and new licences for foreign insurers have been prohibited since 1971. The Foreign Investment Law further restricts foreign investors’ operations in the insurance sector, requiring approval from the Council of Ministers.
Prudential Requirements for Insurers
The Executive Instructions set out a detailed set of prudential requirements for insurers, as well as governance and risk management regulation, and the requirement to conduct an own risk and solvency assessment.
The Executive Instructions provide that insurers shall consider the prudential (preventive) requirements in the Executive Instructions, namely:
- They shall at all times have adequate financial resources to support the nature and scale of complexity of their business and risk profile to secure its ability to fulfil its obligations and further ensure absence of any major risk where its liabilities are timely paid.
- They shall comply with the general framework for calculation of financial solvency requirements and capital requirements of insurers.
- The definition of the eligible capital for the purpose of implementation of such requirements. 4. Some investment-related requirements.
- The manner by which the insurer’s assets and liabilities are assessed.
Capital Requirements
The eligible capital of a listed insurer (other than a captive insurer) incorporated in Qatar shall be higher than:
- Risk-based capital requirements; and
- The amount that the QCB may decide from time to time.
- The insurer’s capital shall under no circumstances fall below 100 million Qatari riyals (US$27.5 million).
Risk-based capital requirements of an insurer constitute the total amounts of its insurance risk requirements, investment risk requirements and operational risk requirements (with each limb having detailed provisions on how these are calculated).
Insurance risk requirements are comprised of the total of four components: insurance premium risk, outstanding claims risks, long-term insurance risks and final insurance concentration risks.
Insurers registered as branches shall hold a minimum capital requirement in the amount that QCB may decide from time to time, which shall under no circumstances fall below 35 million Qatari riyals (US$9.6 million).
Qatari insurers must also comply with a solvency ratio requirement (SRR). The SRR is an amount of capital no less than 150% of the minimum capital requirement.
The Executive Instructions contain detailed provision on eligible capital with tiering requirements, split into Tier 1 and 2 capital, with the insurer ensuring that its Tier 1 capital exceeds 75% of the minimum capital requirement.
The Qatar Financial Centre
As dealing in insurance and reinsurance is a regulated activity, insurers looking to operate within the QFC must first be authorised by the QFCRA, and have a licence from the QFC Authority (who assist with the corporate registration, through their Companies Registration Office). Any business looking to operate in a regulated industry from within the QFC must, after having obtained permission from the QFCRA, also establish a legal presence either by establishing a QFC entity (that is, either an LLC or an LLP) or register as a branch of a non-QFC entity.38
The QFC insurance rules can be found in the Insurance Business Rules (PINS).
The PINS rules group general insurance businesses into four main categories:
- PINS category 1: Contracts of insurance for accidents or sickness;
- PINS category 2: Contracts of insurance for loss or damage against vehicles, or contracts for assistance for those traveling;
- PINS category 3: Contracts of insurance for, amongst other things, aircraft, ships, fire, or legal expenses;
- PINS category 4: Contracts of insurance for, amongst other things, liabilities arising from the use of aircrafts or ships.39
The QFCRA prohibits insurers from carrying out both long-term insurance business (for example, life and annuity contracts) and general insurance business, unless the scope of the general business is limited to categories 1 (accident) or 2 (sickness).40 QFC insurers are also prohibited from carrying out any other non-insurance business, unless those activities are directly connected with their primary insurance business.41
Regardless of an insurer’s PINS designation, each insurer must prepare and submit annual, bi-annual, and quarterly prudential returns which must be approved by the QFCRA.42
QFC insurers are also under an obligation to maintain a risk management policy, and to conduct an own risk and solvency assessment.43
Capital Requirements
QFC insurers must maintain eligible capital that is at least equal to, but ideally higher than, the MCR.44 The MCR is the higher of (i) 36 million Qatari riyals (roughly equal to US$9.9 million) and (ii) an insurer’s risk-based capital requirement.45
If an insurer’s eligible capital falls below its MCR, it must immediately inform the QFCRA and stop writing any new business.46
QFC insurers must also comply with an SRR. Similar to mainland Qatar, the SRR is an amount of capital no less than 150% of the risk-based capital requirement.47 The risk-based capital requirement is either calculated on the basis of an approved internal model, or is the aggregate of the insurers investment, insurance and operational risk requirements.48
Eligible Capital
A key component of the capital requirements in the QFC is determining what capital an insurer has that qualifies as “eligible capital,” and goes towards establishing an insurer’s compliance with their capital requirements.
The QFC rules provide for two different tiers of capital that in aggregate, become the insurer’s eligible capital.49 The rules set out a number of characteristics of Tier 1 capital, two notable ones being that Tier 1 capital is fully paid up, and is available to absorb losses.50 In order to be included in an insurer’s eligible capital, the amount of Tier 2 capital cannot exceed the amount of Tier 1 capital.51
Tier 2 capital is instruments that fall short of the characteristics required of Tier 1. Tier 2 is itself divided into “upper Tier 2” and “lower Tier 2.” The key difference between upper and lower Tier 2 is that only perpetual instruments can be included in upper Tier 2, whereas dated instruments are relegated to lower Tier 2.52 In order to be counted in an insurer’s eligible capital, the amount of lower Tier 2 capital cannot exceed 50% of the amount of Tier 1 capital.53
Where an insurer intends to rely on Tier 2 instruments in its matrix of eligible capital, it must obtain an external legal opinion concluding that the rules in the Insurance Business Rules, as they relate to Tier 2 instruments, have been met.54
4. The Kingdom of Bahrain
Bahrain is an island nation whose name translates to “two seas.” The Kingdom’s non-oil sectors grew by nearly 4% over the third quarter of 2024, with the financial and insurance sectors performing especially well, growing by nearly 6% over the same period.55
Bahrain’s insurance sector is subject to the regulatory oversight of the Central Bank of Bahrain (CBB) and the Ministry of Commerce and Agriculture. The CBB is a member of IAIS.56
Insurance firms in Bahrain must ensure that their available capital does not fall below the minimum fund. The minimum fund requirement is fixed by the CBB, but certain de minimis standards are set depending on the particular classification of an insurer. For example, category 1 must maintain 300,000 Bahraini dinars (US$800,000), whereas category 2 insurers must maintain 500,000 Bahraini dinars (US$1.3 million). If an insurer’s capital falls below this amount, it must inform the CBB and stop writing or renewing any contracts of insurance.57
With respect to capital requirements, Bahrain recognises two tiers of capital, 1 and 2.
Features of Tier 1 capital include:
- Paid-up ordinary shares.
- Perpetual and noncumulative preference shares.
- The Share Premium Reserve.58
In general, Tier 1 capital has the following characteristics:
- It is able to absorb losses.
- It is permanent.
- It ranks for repayment upon winding up after all other debts and liabilities.
- It has no fixed costs, that is, there is no inescapable obligation to pay dividends or interest.59
Features of Tier 2 capital include:
- Perpetual cumulative preference shares.
- Perpetual subordinated debt.
- Any other similar limited life capital instruments with an original term of at least five years.60
When assessing the amount of capital an insurer has available, the CBB will aggregate the capital available from both tiers. However, any Tier 2 capital exceeding Tier 1 will not be counted.61
The minimum Tier 1 requirement for Bahraini insurers is 5 million Bahraini dinars (equivalent to about US$13.2 million). Bahraini reinsurers are under a heavier obligation to maintain an MCR of 10 million Bahraini dinars (equivalent to about US$26.5 million).62
Where an insurance undertaking fails to maintain its capital and solvency margin requirements, it must immediately inform the CBB, and within 25 business days provide a business plan showing how it will be compliant with its overall capital requirements.63 The CBB may impose certain financial penalties, or may even cancel an insurer’s licence or registration,64 if an insurer’s capital falls below the MCR.
5. The Sultanate of Oman
The Omani insurance market is rapidly growing. The domestic insurance market grew by about 12% over the first half of 2023, to US$866 million in premiums. The market is largely dominated by local insurers, with about 86% of the market covered by locally incorporated insurers.65
The Capital Market Authority (CMA) was the Omani regulatory authority tasked with regulating and supervising insurance undertakings in Oman. The CMA was established by Royal Decree 80 of 1998.
The CMA was replaced by the Financial Services Authority (FSA) by Royal Decree 20 of 2024. The FSA is a member of the IAIS. Like a number of its regional counterparts, the FSA has adopted a risk-based approach for calculating an insurer’s capital requirements.
Insurers in Oman are required to maintain their solvency margin in order to distribute any dividends to their shareholders.66 The solvency margin is the percentage difference between an insurer’s total available capital (TAC) and its total required capital. The TAC is the greater of the statutory minimum amount and the cumulative total of the primary capital and the complementary capital, less any goodwill or formation expenses.67
Primary capital includes such assets as:
- Paid-up capital.
- Accumulated profits or losses.
- Any other sources FSA deems appropriate to include as primary capital.
Complementary capital includes such assets as:
- Foreign exchange reserves.
- Revaluation reserves.
- Any other sources the FSA deems appropriate to include as complementary capital.
The difference between primary and complementary capital is that only 80% of the value of any complementary capital is included in calculating an insurer’s total available capital. The only exceptions to this are situations where, on including 80% of the complementary capital, the TAC is a negative figure. In such circumstances, an insurer is allowed to include 100% of their complementary capital in determining their TAC.
The total required capital is the higher of the minimum solvency capital (MSC) or the risk-based solvency capital. The MSC varies depending on the type of insurer. The MSC is:
- For general insurers, 4 million Omani riyals (US$10.4 million).
- For life insurers, 1 million Omani riyals (US$2.6 million.
- For health insurers, 2 million Omani riyals (US$5.2 million).
The IAIS recently announced their assessment of the Sultanate through their Member Assessment Programme (MAP). Their MAP report68 provides a detailed assessment of regulation and supervision of the insurance sector in Oman, which is assessed as having a good level of observance of the Insurance Core Principles (or ICPs). The IAIS note that the FSA has been developing its regulation and supervision in recent years, introducing new risk-based capital requirements and enhancing its supervision of insurers, including the input of actuarial review.
With special thanks to our friends at Clyde & Co. in Dubai for their assistance with research for this publication.
The authors of this article are not licensed to practice law in the UAE, Saudi Arabia, Bahrain, Qatar or Oman, or to provide legal advice on local laws. This article is for informational purposes only; it is not intended to be legal advice. Local counsel should be consulted on legal questions under laws of the respective jurisdictions. Skadden’s Abu Dhabi office coordinates with leading Middle East law firms that offer local law knowledge in the various jurisdictions.
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2 International Insurance Law and Regulation, pg 759.
3 Article 10, Insurance Law.
4 Insurance Authority Board of Directors’ Decision No. (25) of 2014.
5 Article 1, Section 2, Financial Regulations.
6 Article 49(1)-(2), Insurance Law.
7 Article 50, Insurance Law.
8 Article 23, Insurance Law and Articles 2 and 4 of section 2, Financial Regulations.
9 See the definition of “Solvency Capital Requirement” in the Glossary to the Financial Regulations.
10 Article 4 of section 2, Financial Regulations.
11 Article 4(3) of section 2, Financial Regulations.
12 Article 8, Financial Regulations.
13 Article 8(1), Financial Regulations.
14 Article 4, Insurance Law.
15 Article 11(1), Insurance Law.
16 Article 38, Insurance Law.
17 Article 33(1), Insurance Law.
18 Article 33(2), Insurance Law.
19 PIN 4.2.2. (ADGM).
20 PIN 4.3.2 (ADGM).
21 PIN 4.6.3 (ADGM).
22 PIN 4.7.1 (ADGM).
23 PIN 9.4.7 (ADGM).
24 PIN 9.1.4(a) (ADGM).
25 PIN A.4.2.1 (ADGM).
26 PIN 4.4.2 (ADGM).
27 PIN A3.3 (ADGM).
28 PIN A3.4 (ADGM).
29 PIN A3.5 (ADGM).
30 DIFC Courts, Legal Framework.
32 PIN A4.1 (DFSA).
33 Article 3(2), Law on Supervision of Cooperative Insurance Companies.
34 Article 14, Implementing Regulations 2004.
35 Article 34, Insurance Intermediaries Regulation 2011.
36 Article 3(3), Law on Supervision of Cooperative Insurance Companies.
38 QFCRA, Introducing the Qatar Financial Centre Regulatory Authority.
39 Section 1.2.8, Insurance Business Rules 2006.
40 Section 1.5.1, ibid.
41 Section 1.5.2, ibid.
42 Section 1.4.1, Insurance Business Rules 2006.
43 Section 2.1.2, ibid.
44 Section 3.2.1, ibid.
45 Section 3.3.1, ibid.
46 Section 3.3.2, ibid.
47 Section 3.3.2A, ibid.
48 Section 3.4.1, ibid.
49 Section 4.2.2, ibid.
50 Section 4.3.1, ibid.
51 Section 4.7.1, ibid.
52 Part 4.4 Guidance, ibid.
53 Section 4.7.2, ibid.
54 Section 4.5.1, ibid.
55 Arab News, Bahrain’s non-oil sector fuels 2.1% economic growth.
56 Central Bank of Bahrain, Insurance.
57 CA – 1.2.3 (CBB Rulebook).
58 CA – 1.2.8 (CBB Rulebook).
59 CA – 1.2.10 (CBB Rulebook).
60 CA – 1.2.12 (CBB Rulebook).
61 CA – 1.2.7 (CBB Rulebook).
62 CA – 1.2.1 (CBB Rulebook).
63 CA – 1.1.2 (CBB Rulebook).
64 CA – 1.1.3 (CBB Rulebook).
65 Oman Insurance Regulation, Middle East Insurance Review (1 February 2024).
66 Article 24, Executive Regulations for Implementation of the Insurance Companies Law.
67 Annexure No.18, Executive Regulations for Implementation of the Insurance Companies Law.
68 IAIS, Detailed Assessment of Observance IAIS Insurance Core Principles (ICPs) Sultanate of Oman.
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