Arab Finance: The Financial Regulatory Authority (FRA) has issued new regulatory standards governing reinsurance activities for insurance companies as part of efforts to strengthen risk management and support the implementation of the Unified Insurance Law No. 155 of 2024, as per a statement.
The new regulations establish a framework for managing reinsurance operations, which play a central role in transferring and distributing risks. The measures are intended to support insurers’ financial solvency, reduce the likelihood of financial distress, enhance protection for policyholders and beneficiaries, and support the long-term sustainability of the sector.
Commenting on the decision, FRA Chairman Islam Azzam said the move reflects the authority’s focus on developing the insurance sector in line with international developments, best practices, and recommendations issued by the International Association of Insurance Supervisors (IAIS). Improving reinsurance efficiency is expected to help enhance the sector’s overall investment appeal.
Azzam explained that the standards require insurance companies to establish comprehensive reinsurance policies that define the rationale for using reinsurance as a risk-transfer mechanism and assess its economic value.
These policies must also address companies’ risk appetite, portfolio diversification across different risk categories, their ability to absorb credit risks arising from dealings with reinsurers, target reinsurance markets, criteria for selecting reinsurers, and the circumstances under which external parties, such as reinsurance brokers or general management agents, may be engaged. They must additionally outline procedures for managing liquidity risks associated with reinsurance contracts.
Under the decision, insurance companies are required to submit their reinsurance policies, any subsequent amendments, and details of their reinsurance programs to the FRA within two months of preparation or renewal. Companies must also periodically review the policies and assess the effectiveness of their implementation.
The regulations further require insurers to design reinsurance programs that reflect their business volume and capital base, while clearly defining risk-retention limits and maximum financial obligations. The framework aims to balance business growth with the preservation of financial stability.
To strengthen resilience against crises and exceptional events, the decision mandates the establishment of comprehensive reinsurance risk-management procedures. These include conducting periodic risk assessments, preparing contingency plans to address potential reinsurer defaults or bankruptcies, and carrying out stress tests and scenario analyses to evaluate the impact of potential risks on financial positions and capital requirements. Companies are also required to identify, monitor, evaluate, and control risks while maintaining appropriate contingency measures.
The decision also introduces governance and transparency requirements, including clear contractual provisions for reinsurance agreements and mechanisms to be followed in the event of bankruptcy involving any contracting party.
Insurance companies must provide the FRA with reinsurance agreements, as well as related data and statistics, enabling the regulator to monitor concentration and credit risks linked to reinsurers and take supervisory action when necessary.
In addition, the regulations reinforce the oversight role of insurance company boards by requiring them to periodically review reinsurance policies and programs. Companies must also notify the FRA of any significant amendments or implementation deviations, supporting governance, internal control, and risk-management practices.
Insurance companies have been granted a three-month grace period, ending on September 18th, 2026, to comply with the new requirements and submit their approved reinsurance policies to the FRA.
