Insurance Post

Lines in the sand


Across the Gulf states, regulators are redefining the boundaries between takaful and western models of insurance, and a new supervisory regime is starting to emerge. Wayne Jones explains

The countries of the Gulf Co-operation Council represent the world's 15th largest economy, and boast the fastest-growing tourism destination and site of retail expansion in the world today. The estimated value of major projects in the region is astronomical, with ground-breaking ventures being announced on a weekly basis.

Similarly, the rate of change in some of the local insurance markets continues apace, with several GCC countries reviewing, and in many cases fundamentally restructuring, their insurance regulatory frameworks. The face of the GCC insurance market is changing, and a comparison with the shifting sands of the desert would not be amiss as the reforms aim to breathe life into a previously arid area.


The Bahrain Monetary Agency is now established as an 'onshore' centre for the regulation and supervision of all financial institutions in Bahrain. It is intent on establishing a centre of Islamic finance operations and a key market for takaful and retakaful (Islam-compliant insurance and reinsurance). Its insurance licensee regime covers insurers, intermediaries, captives and takaful and retakaful companies. To enter the market, foreign insurers need to either register a branch or establish a Bahrain joint stock company under local ownership with local capital of 5m dinars (£7.5m). Further solvency requirements are based on premium income.

Under Bahrain's regulatory framework, insurers must practice either as wholly conventional or wholly takaful companies; conventional firms will not be permitted to operate a takaful 'window'. The rationale of this is to avoid confusion among consumers as to whether they are purchasing conventional or takaful products.

Dubai International Financial Centre

The Dubai International Financial Centre has been in existence for just over 18 months and has already made great strides. Established as a Financial Free Zone, the DIFC is an 'offshore' centre providing wholesale - that is, reinsurance - services to the United Arab Emirates and the region.

Some of the attractions the centre has to offer foreign insurance interests include the advantages of exemption from onshore licensing requirements; a bespoke legal and regulatory framework; proximity to the Middle East and North Africa markets; and the guarantee of 100% foreign ownership. The DIFC has its own governing authority, laws, regulator and court - the latter headed by a former UK judge - and is positioning itself as a major arbitration centre in the financial services field.

The centre's primary focus will be on reinsurance and related services, while also developing a centre for captive insurers and having bespoke rules for retakaful business. Companies will also be permitted to operate a retakaful 'window'. The first retakaful company in the region, Takaful Re, was recently issued a licence and is backed by Bahrain-based Arig.

The DIFC has already attracted a range of large international insurers - for example, AIG and Zurich International - with many more likely to follow. In addition, a number of international brokers including Jardine Lloyd Thompson and Robert Fleming have also established a regional presence. Officials indicate that around 20 insurance applications have been granted or are currently being processed by the centre.

Saudi Arabia

Insurance was an unregulated sector in the Saudi economy until the introduction of the Control of Co-operative Insurance Companies Regulations in August 2003, and the publication of Implementing Rules in April 2004. The Saudi insurance industry now falls under the jurisdiction of the Saudi Arabian Monetary Authority with the market in the process of licensing around 30 insurers, including new entrants, some of which are foreign-owned. This process is evolving and requires careful monitoring to keep track of developments in the new regime. Furthermore, to allow the local industry to get its house in order, the process is also subject to a three-year delay in imposition.

Insurers will be required to follow a co-operative model and will need to incorporate, either as public joint stock companies with capital requirements of $26.67m (£15.2m) for insurers and $53.3m for reinsurers, or (pursuant to a current SAMA consultation paper) as a branch of a foreign company. Branches are likely to be subject to the same capital requirements, which will need to be evidenced by "net assets in Saudi Arabia".

Although there is no restriction on foreign participation in the market, transfer of shares in public joint stock companies will be restricted by current Saudi rules that allow only Saudi nationals to hold such shares. The current understanding is that 25% of shares will need to be floated. A number of interesting reinsurance restrictions are also contained in the new rules, which are likely to affect the local market.

Qatar Financial Centre

The Qatar Financial Centre is a recently established financial and business centre with a similar profile to the DIFC. Although still in its infancy, the QFC already boasts bespoke legislation and regulatory provisions, so the centre's development will be interesting to monitor. Initial indications are that the lure for companies setting up in the QFC will be the ability to conduct retail business 'onshore' in Qatar. It also appears that QFC entities will be subject to a local tax regime.

Initiatives in the GCC area are not restricted to those set out above: practically every GCC country has announced intentions to revise its insurance regulatory provisions. For example, a new insurance law in the UAE establishing an independent regulatory authority is expected shortly and it will be interesting to see whether the UAE follows any other regional models. Furthermore, Oman's Capital Market Authority has recently issued a code of governance for insurance companies, and other states, such as Kuwait, have also announced an intention to revamp existing insurance legislation.

There is every expectation that the Middle Eastern insurance industry will continue to adapt to cater for developments in the region generally. Increasing liberalisation of the market is also expected, with more opportunity for foreign investment. The importance of these developments cannot be stressed enough, as they will enable the GCC market to provide the required security in an ever-developing region - interesting times lie ahead.


Compulsory health insurance for expatriates is a hot topic at present. Following the example of Saudi Arabia, Abu Dhabi has pressed ahead with legislation that requires all expatriate workers and their families who reside in Abu Dhabi to hold private health insurance coverage. The scheme will be enforced as part of the issuance and renewal of visas, making it compulsory for employers and sponsors to provide protection. The law has yet to be applied to United Arab Emirates nationals; expatriates presently comprise around 80% of the population.

The law will overhaul the present system, which requires expatriates to obtain a health card at an annual cost of 300 dirhams (£46) that entitles the holder to medical services at all government health facilities for minimal fees.

As a further innovation, Abu Dhabi has established a national health insurance company - called Daman and set for launch on 1 May - to facilitate the scheme. Daman will be managed by Munich Re's health arm, Mednet, and will have a monopoly on selling cover to government-employed ex-pat workers for 10 years. It will also offer a basic product at subsidised rates for low-income workers.

Detailed regulations for the scheme are in the final stage of preparation but it is widely expected that they will pave the way for a basic policy costing between 600 and 1000 dirhams, providing cover for expatriates (mainly labourers) whose monthly salary is less than 4000 dirhams. Implementation will be in two phases; the first is to begin on 7 July and covers the government and semi-government sector (which is yet to be defined), with the second commencing on 1 January 2007, when it is expected to apply to the rest of the emirate's expatriate population.

Although this scheme will only apply to Abu Dhabi, it is likely that other emirates will follow suit. With Saudi Arabia's health insurance scheme already in operation for employers with large workforces, the introduction of compulsory health insurance will likely spread to the rest of the Gulf.

- Mareejoseph Gittany is a lawyer in Clyde and Co's Middle East regional office


One widely held perception in the international insurance industry is that disputes in Gulf Co-operation Council territories should be avoided at all costs, as most GCC countries' legal systems and dispute resolution mechanisms lag some way behind international norms. It is, however, encouraging to see that some change is under way.

In Saudi Arabia, the recently introduced Control of Co-operative Insurance Companies Regulations provide for the establishment of a dedicated Insurance Disputes Committee. This will operate as an alternative to the commercial section of the Board of Grievances, which until now had jurisdiction over all commercial disputes (except banking) in the kingdom.

The IDC was established in April last year and has jurisdiction to hear disputes arising after November 2003 that involve coverage disputes, claims for premium, subrogated claims and insurance industry violations. It will not, however, have jurisdiction over reinsurance disputes or disputes between insurers per se; these will still need to be referred to the Board of Grievances. Members of the IDC typically have academic backgrounds without necessarily having had judicial experience but they have the power to co-opt experts to deal with technical and financial matters. There is also a right of appeal from the IDC to the Board of Grievances.

Despite the committee's introduction, there remain several key areas that are not properly addressed by Saudi law at present, including the concept of materiality and remedies available in the context of non-disclosure and misrepresentation; breach of warranty; sue and labour provisions; non-payment of premium; liability for premium; the role of the broker and other intermediaries; and subrogation claims.

Saudi law also still fails to recognise foreign law and jurisdiction clauses. However, foreign arbitration clauses will be upheld and local proceedings stayed in favour of the foreign arbitration.

While the introduction of the IDC is a step in the right direction, more work is required before the international insurance market is confident of the Saudi system's ability to deal properly with complicated insurance-related disputes.


One of the prime objectives behind the DIFC was the establishment of an independent court and judicial authority that would have jurisdiction in respect of disputes arising from the centre's activities or involving registered entities within it. A law was passed in 2004 by the Emirate of Dubai (the 'Dubai Law') granting judicial authority to the courts to be established at the DIFC in the form of a court of first instance and appeal court. These courts have exclusive jurisdiction over:

- civil and commercial cases and disputes involving DIFC bodies or entities established in the DIFC;

- civil or commercial cases and disputes arising from or related to contracts or transactions that have been executed or concluded, in whole or in part, at the DIFC or from an incident that has occurred in the DIFC;

- objections against any DIFC decisions or rulings filed in accordance with its laws and regulations; and

- any application over which the DIFC courts are granted jurisdiction in accordance with the centre's laws and regulations.

The Dubai Law also requires the Dubai courts to enforce any judgement, award or order issued by the DIFC courts, including any arbitration award ratified by them - subject to such judgement, award or order being final and appropriate for enforcement, and being accompanied by an Arabic translation. The Dubai Law specifically provides that the Dubai courts have no jurisdiction to review the merits of the judgement, award or order of the DIFC courts.

The DIFC court is headed by Sir Anthony Evans, a former UK Court of Appeal judge. Its rules are presently being drafted and practitioners being registered but it is expected that the court rules and procedures will be in line with internationally accepted standards.

Clearly, the DIFC is placing great emphasis on the establishment of an independent judicial authority that will have jurisdiction over disputes involving the centre, along with powers of enforcement to bolster its standing as an international financial centre. One of the key areas to monitor will be the extent to which this independence is capable of being put in place, particularly where disputes are between one party registered in the DIFC and another registered outside it.

- Wayne Jones is a partner in Clyde and Co's Middle East regional office.

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