A defined control mechanism is needed for insurers in the UAE to calculate the permissible distributable profit to shareholders (dividend), subject to their solvency and liquidity positions, according to the FY2017 Performance Periodical published by Insurance Monitor.
The report found the proposed dividend payout ratios for the financial year ended 31 December 2017 (FY2017) to be relatively high among several insurers, including two insurers that have declared solvency deficits for the year and two others that have incurred technical losses in FY2017.
The report pointed out that, while a higher dividend payout ratio may appeal to shareholders in the short term, excessive payouts impact capital adequacy, constrain further investment for growth and in turn prolong the potential to generate increased future earnings. As such, free cash and capital adequacy are important factors that should be considered when computing proposed dividends to minimise volatility across the business.
The performance periodical, that examined key metrics of 30 listed national insurance companies in the UAE as at 31 December 2017, also found that at least three insurers have declared a solvency deficit and at least 14 insurers have not rotated nor changed external auditors in the last five years.
Solvency requirements at end-2017
Most UAE insurers have confirmed that they met solvency requirements at the end of last year, but left their solvency margins undisclosed, while at least one UAE insurer has declared that it failed to meet solvency requirements, according to another report by Insurance Monitor.
It said 2017 marked the first year of the application of regulations on solvency margins and the minimum guarantee fund, under the 2014 Financial Regulations for Insurance Companies in the UAE.
The solvency regulations that involve populating complex financial templates serves as a useful indicator that enables a like-for-like comparison of the financial condition of insurers.
While the regulations prescribe the disclosure requirements under the Capital Risk Management section of the annual financial statements (a) confirming compliance to the subject solvency regulations during the period, and (b) disclosing a schedule on the Solvency Capital Requirement and the total capital held to meet these required solvency margins, disclosure by local insurers is inconsistent and remains limited, said the report.
Most insurers confirm compliance with solvency regulations without disclosing their solvency margin.
The report, which covers ERM in Insurance, also noted that much of the risk governance and culture developments among insurers in the UAE are a direct response to the recent rules-based financial regulations and provide guidance on the day-to-day application of risk management in insurance. M