IA powers widen
A number of provisions of the Federal Law No. (6) of 2007, or the Insurance Law in the UAE were recently amended. Among the significant developments is an expansion of the powers of the Insurance Authority (IA). Peter Hodgins, partner at Clyde and Co. analysed the new law.
Pursuant to Article 41(2), the IA is granted the power to:
- Require an Insurer, of the head office of a foreign insurer, to take any actions deemed necessary including the removal of directors and senior officers of the insurer.
- Dissolve the board of directors of an insurer and appoint in its place an administrative committee for a period of 6 months (renewable for up to a year) following which a new board of directors is to be appoint.
- Require the merger of the insurer with another insurer.
- Suspend or revoke the insurer’s licence to conduct business.
- Restructure the insurer.
- Prevent an insurer from writing new business or transacting in certain types of insurance.
- Impose limits on the maximum premium which may be written by an insurer.
- Require an insurer to retain assets in the UAE equivalent to the total value of its obligations or specified percentage thereof.
- Restricting the insurer’s investment activities and/or require it to liquidate its investments.
- Appoint an independent observer to attend the board meetings of an insurer.
- Require the liquidation of an insurer.
These powers are exercisable in circumstances where the IA concludes that:
- An insurer has not fulfilled or is likely to fail to perform it obligations or is unable to continue as a going concern.
- An insurer has violated the Insurance Law or any regulations, rules, directives or decisions issued by the IA.
- An insurer’s reinsurance arrangements are inadequate.
- An insurer has ceased to satisfy the requirements to be licensed.
- An insurer’s total losses exceed 50% of its paid up capital.
- An insurer ceased to carry out its operations for more than one year without a legitimate reason.
The above powers are extended by Article 41(3) to other insurance sector entities to the extent that specific power is applicable, he stated in a written response.
In other amendments to Article 41, the IA is also granted wider powers of inspection and the power to issue administrative fines on insurers. However, further Federal legislation is to be issued setting out the circumstances in which such fines may be issued.
“The extension of the IA’s powers is a material indication that we are entering into a new era of regulatory oversight for the sector. These powers will enable the IA to take a much more proactive role in the supervision of insurance industry players and the enforcement of the Insurance Law and regulations. It remains to be seen how these powers will be exercised. However, it is of note that they include the power to require the merger or liquidation of an insurer or other insurance sector entity. This is materially given the previous comments of the IA to the effect that there are potentially too many insurers and brokers in the UAE. The other amendments to the Insurance Law include a clarification of Article 95 regarding the priority for distribution of an insurer’s assets in the event of its insolvency. This now clearly provides for policyholders and beneficiaries to have priority to the ordinary creditors and shareholders of an insurer in the event of liquidation,” Hodgins stated.
“A new provision has also been inserted at Article 23(2) which provides the IA with power to establish funds ‘with an independent legal personality for the purpose of protecting and compensating persons’. The precise role of such funds is not yet clear pending the issuance of regulations by the IA. However, it appears possible that such funds could be used to establish a policyholder protection scheme applicable in the event of the insolvency of an insurer, a criminal injuries compensation scheme or, possibly, the scheme for the insurance a specialist risks for which coverage is not otherwise available in the market at competitive rates,” he added.
