Insurance firms authorised by the DFSA are permitted to conduct only regional and global (re)insurance business in or from the DIFC. The DFSA regulatory framework permits firms to carry out life and non-life insurance / reinsurance business as a risk carrier or as an intermediary. It also allows for captive insurance and special purpose vehicles to be established through a protective cell company structure, which offers lower formation costs and capital requirements. Both insurers and intermediaries can be set up as either subsidiaries or branches and the DFSA also permits start-ups in the DIFC.
Firms intending to undertake insurance business must obtain an appropriate DFSA Financial Services Licence.
Given the UAE Federal Law No. 8 of 2004 requires insurers in the DIFC to conduct reinsurance only for risks situated in the UAE, the insurance market in the DIFC has evolved to become primarily a reinsurance market. However, the insurers operating in or from the DIFC may provide direct insurance covers for risks that are situated in the DIFC and risks situated offshore of the UAE.
The DFSA’s Insurance Supervisory activities apply to the following types of insurance businesses which comprise the DIFC insurance market:
(Re)insurers authorised by the DFSA will need to be authorised under their financial services licence for each type of insurance class they intended to transact in and from the DIFC. These classes of insurance products are divided into non-life and life.
There are 8 classes of non-life insurance:
There are 7 classes of life insurance:
The Lloyd’s of London entity situated in the DIFC is not regulated by the DFSA. Instead, the managing agents and coverholders which are on the Lloyd’s platform are authorised and regulated by the DFSA. The DFSA and Lloyd’s have an agreement in place establishing a framework for the sharing of information between the two organisations to achieve effective supervision of the DFSA Authorised Firms on the Lloyd’s platform.
Service providers in the insurance industry, such as actuarial consultants and loss adjusters are not authorised and regulated by the DFSA.
Insurance intermediaries and managers are classified as prudential category 4 firms, and are subject to prudential rules which are set out in Prudential — Investment, Insurance Intermediation and Banking Module (or PIB Module). Whereas, the (re)insurers, (re)takaful operators and captives (collectively insurers) are subject to separate prudential rules called Prudential — Insurance Business Module (or PIN Module).
Authorised Firms which are DIFC incorporated companies are required to meet the regulatory capital requirements in PIB or PIN (as applicable) at all times. As prudential Category 4 Authorised Firms, insurance intermediaries and managers will be subject to the expenditure-based capital minimum in the PIB Module; whereas insurers are subject to the risk based regulatory capital requirement as set out in the PIN Module.
An Insurance intermediary which holds insurance premiums and claims payments on behalf of clients will also need to have an ‘Insurance Monies’ endorsement on its licence. The systems and controls requirements, audit requirements and the definition of Insurance Monies are detailed in the Conduct of Business (COB) Module.
Long Term Insurance (LTI) contracts are defined in the Glossary Module and are considered as investment products in the DFSA regulatory regime. An Insurance intermediary selling LTI contracts in addition to general insurance must also have an LTI endorsement on its licence.
Takaful undertakings and insurers which operate takaful windows must have an appropriate Islamic endorsement, and comply with the Rules in the Islamic Finance Rules Module (IFR).
The DFSA is a not a products regulator. If a (re)insurer wishes to develop or introduce a new product, it is not required to seek any specific approval from the DFSA, as long as the proposed product is within the class(es) of insurance for which the Firm is authorised under its DFSA licence. However, the Firm must be able to demonstrate that it has appropriate resources, systems and controls and the necessary governance arrangements in place to undertake such business.
An Insurance Intermediary which holds any Insurance Monies must ensure that it has the necessary systems and controls in place to segregate and safeguard Insurance Monies, including via the Insurance Monies bank account. The Insurance Intermediary must ensure that all premiums are passed on to the relevant insurer in a timely manner without delay so that the binding of the insurance contract is not compromised; and must also ensure that claims payment is passed on in the best interest of the client.
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