Throughout 2024 the region has experienced several challenges and opportunities across an increasingly broad range of interrelated subjects. From an Appointed Actuary’s perspective, capital adequacy has emerged as the most frequently discussed topic. 

Capital Adequacy and Solvency Concerns

As of the half-year mark, there are at least eight insolvent insurers in the UAE, which together account for approximately 13% of the listed insurance industry’s revenue. Meanwhile, branch operations of foreign insurers are under mounting pressure to improve their capital positions through holding local cash reserves, marking a policy shift from an area previously granted relief due to their licensing status. Solvency recovery plans are under increased scrutiny from the CBUAE and control functions, as business plans, now grounded in IFRS17, shift from balancing strategy and adaptability to a more rigorous, data-driven approach. The benefits, while tangible, are most visible to the larger players with sufficient scale to optimize capital deployment; smaller players face growing pressure on their operations. 

CBUAE Reporting and ORSA Implementation

CBUAE reporting requirements for 2024 introduced Own Risk and Solvency Assessments (ORSA) highlighting an intensified focus on understanding risk exposures and the corresponding level of risk tolerance that companies are willing to bear. These couldn't have come at a more fitting time given the April floods in Dubai, which underscored the cost of suboptimal reinsurance treaties. In response, the reinsurance market has hardened, making capital relief more costly. Where structures are expected to lead to further losses, the loss components booked under IFRS 17 are now a clear indicator of the cost to shareholders.[LL1]  This shift enables Boards to make more strategic decisions, whether through capital increases, writing off accumulated losses or exploring mergers and acquisitions as tools for effective capital management. 

Interest Rates and Underwriting Challenges

With falling interest rates expected to continue into 2025, making the implied cost of capital cheaper (at the same time dampening expected investment returns), however shareholder demand for capital remains high. With underwriting profits contributing only 12% of half-year profits for UAE-listed insurers, the industry’s fragility in achieving underwriting soundness is evident. 

Innovation and Strategic Investment

Opportunities emerge in product innovation and improved inflation management, particularly in compulsory products that traditionally drive growth. These opportunities are most notable in investment in technology and digital channels, with potential to  augment existing IT platforms and support more sophisticated data analytics led by cross-functional Data Analytics and Actuarial teams. Boards that commit to these investments, though still uncommon, position themselves for sustainable growth by carefully balancing return on capital with its associated costs.

Forward-Looking Outlook

Navigating these challenges and opportunities through the remainder of 2024 and into 2025 will require insurers to balance compliance with strategic growth, positioning themselves for a sustainable future in an increasingly complex environment.