The Dubai Financial Services Authority’s (DFSA) board has approved the revised solvency regime for captive insurers after positive feedback from the industry, effective 1 April 2021. In order to support the growth of the industry, the DFSA sought to make the solvency regime for captives more proportionate to their business model and risk profile. The DFSA launched a consultation paper in November 2020 in order to collect industry feedback on proposed changes to the regulatory regime for captive insurance firms operating in the Dubai International Financial Centre (DIFC). The key aspects of the proposals include amending the definition of class 2 captive insurers simplifying the minimum capital requirement calculation for class 1 captive insurer; and simplifying the minimum capital requirement calculation for class 2 and class 3 captive insurers. In addition, the proposals looked to revise the underwriting risk component calculation methodology; revisions to the RRC calculation methodology; clarifications to the regulatory treatment of intra-group loans; clarifications to default risk component and investment volatility risk component treatment of money market funds; and amendments to submission rules for actuarial reports. A spokesperson from the DFSA notes that with the hardening of the (re)insurance markets in recent years, the captive insurance model has become more relevant for insuring a number of risks associated with the business of the captive owner. Under the solvency regime, captive insurance firms will no longer be required to produce actuarial reports for regulatory purposes, unless specifically required to do so by the DFSA in the course of risk-based supervision or when undertaking life insurance business. The DFSA says that the revision of the solvency regime will bring the regime in line with international best practices and support the captive insurance industry with a proportionate set of rules. Dubai currently has three active captive insurance companies.
