Insurance Group Supervision Regulation

CBUAE Classification: Public Insurance Group Supervision Regulation

CONTENTS Page Subject Introduction 3 Objective 4 Scope of Application 5 Article (1) Definitions 5 Article (2) Application and Scope of the Insurance Group Supervision 9 Article (3) Responsibilities and Actions of the Parent Company 10 Article (4) Reporting of Concentration Risk 10 Article (5) Reporting of Intragroup Transactions 12 Article (6) Identification of the Holding Company 13 Article (7) Special Considerations for Holding Companies 15 Article (8) Coordination Arrangements for the Insurance Group Supervision 17 Article (9) Central Bank as a Host Supervisor 18 Article (10) Enforcement and Sanctions 18 Article (11) Interpretation of Regulation 19 Article (12) Publication and Effective Date 19

CBUAE Classification: Public Circular No: 2025/4 Date: 01/05/2025 To: All Insurance Companies and Holding Companies Subject: Insurance Group Supervision

Introduction The Central Bank seeks to promote the effective and efficient development and functioning of the insurance sector. To this end, the Central Bank recognizes the importance of effective insurance Group supervision.

Through the issuance of this Regulation, the Central Bank intends to ensure a comprehensive approach to the supervision of Companies, not only on an individual basis, but also at the Group level.

The Regulation must be read in conjunction with the following laws and regulations, at a minimum:

• Decretal Federal Law No. (14) of 2018 Regarding the Central Bank and Organization of Financial Institutions and Activities, as amended; • Decretal Federal Law No. (48) of 2023 Regulating Insurance Activities; • Decretal Federal Law No. (32) of 2021 on Commercial Companies; • Federal Law No (12) of 2014 on the Regulation of the Auditing Profession, as amended; • Cabinet Decision No. (48/2022) On the Implementing Regulation of Federal Law No. (12/2014) on the Regulation of the Auditing Profession; • Insurance Authority Board of Directors’ Decision No. (25) of 2014 Pertinent to Financial Regulations for Insurance Companies and Insurance Authority Board of Directors’ Decision No. (26) of 2014 Pertinent to Financial Regulations for Takaful Insurance Companies; • Central Bank Circular No. 24/2022 – Corporate Governance Regulation for Insurance Companies and accompanying Standards; • Central Bank Circular No. 25/2022 – Risk Management and Internal Controls Regulation for Insurance Companies and accompanying Standards; and • Central Bank Circular No. 5/2023 – Financial Reporting and External Audit Regulation for Insurance Companies.

This Regulation is issued pursuant to the powers vested in the Central Bank under Decretal Federal Law No. (14) of 2018 Regarding the Central Bank and Organization of Financial Institutions and Activities, as amended, and Decretal Federal Law No. (48) of 2023 Regulating Insurance Activities.

Where the Regulation includes a requirement to provide information or to take certain measures, or to address certain items listed, the Central Bank may impose requirements, which are additional to those provided for in the relevant Article.

Objective The objective of this Regulation is to enhance the regulatory framework for insurance Group supervision by strengthening and supplementing the existing requirements in this area. In order to achieve the objective, this Regulation, among others, determines the level of application and the scope of insurance Group supervision, formalises the regulatory framework applicable to Holding Companies as required by the Decretal Federal Law No. (48) of 2023 Regulating Insurance Activities and facilitates engagement of the Central Bank in supervisory cooperation.

Scope of Application This Regulation applies to:

a. Companies incorporated as a public joint-stock company in the State that are Parents of at least one Company, or a foreign insurance or reinsurance company;

b. Holding Companies identified by the Central Bank in accordance with Article (6) of this Regulation; and

c. Companies incorporated in the State that are part of a Group led by an entity referred in point a. or b.

The insurance Group supervision does not apply to Companies that are branches of foreign insurance and reinsurance companies. The Central Bank, as a host supervisor, will cooperate with relevant home supervisors as stipulated in Article (9) of this Regulation.

Article (1): Definitions The following terms shall have the meaning assigned to them below for the purposes of this Regulation:

1.1 Affiliate: An entity that, directly or indirectly, controls, is controlled by, or is under common control with another entity. The term control as used herein shall mean the holding, directly or indirectly, of voting rights in another entity, or of the power to direct or cause the direction of the management of another entity.

1.2 Beneficiary: A Person who initially acquired the Insurance Policy rights or to whom such rights are legally transferred.

1.3 Central Bank: The Central Bank of the United Arab Emirates.

1.4 Central Bank Law: Decretal Federal Law No. (14) of 2018 Regarding the Central Bank & Organization of Financial Institutions and Activities and its amendments.

1.5 Central Bank Laws: Central Bank Law and Insurance Law.

1.6 Company: An Insurance Company or a Reinsurance Company.

1.7 External Auditor: The audit firm and the individual audit engagement team members conducting the audit.

1.8 Group: A group of entities which includes an entity (the ‘first entity’) and:

a. any Parent of the first entity;

b. any Subsidiary of the first entity or of any Parent of the first entity; and

c. any Affiliate.

1.9 Holding Company: A juridical Person incorporated in the State, other than a Company, identified by the Central Bank pursuant to the Insurance Law and Article (6) of this Regulation.

1.10 Insurance Company: The insurance company incorporated in the State, and the branch of a foreign insurance company, that is licensed to underwrite primary insurance and reinsurance, including Takaful Insurance companies.

1.11 Insurance Law: Federal Decree Law No. (48) of 2023 Regulating Insurance Activities.

1.12 Insurance Policy: A contract between the Insurer and the Insured setting out the insurance terms, rights and obligations of both parties or the rights of the insurance Beneficiary, and the annexes attached to the policy constitute an integral part thereof.

1.13 Insured: A Person that enters into an Insurance Policy with the Insurance Company for their benefit or the benefit of the named Insured or the Beneficiary.

1.14 Intragroup Transaction: Any transaction by which a Company relies, either directly or indirectly, on another entity within the same Group for the fulfilment of an obligation, whether or not contractual, and whether or not for payment.

1.15 Parent: An entity (the ‘first entity’) which:

a. holds a majority of the voting rights in another entity (the ‘second entity’);

b. is a shareholder of the second entity and has the right to appoint or remove a majority of the board of directors or managers of the second entity; or

c. is a shareholder of the second entity and controls alone, pursuant to an agreement with other shareholders, a majority of the voting rights in the second entity;

Or

d. if the second entity is a subsidiary of another entity which is itself a subsidiary of the first entity.

When “Parent” is referred to in this Regulation, it applies to the Company or the Holding Company that is the Parent, unless specified otherwise.

1.16 Person: A natural or juridical Person, as the case may be.

1.17 Regulations: Any resolution, regulation, circular, rule, standard or notice issued by the Central Bank.

1.18 Reinsurance Company: A reinsurance company licensed to engage in reinsurance business, either in the State or abroad.

1.19 State: The United Arab Emirates.

1.20 Subsidiary: An entity (the ‘first entity’) is a subsidiary of another entity (the ‘second entity’) if the second entity:

a. holds a majority of the voting rights in the first entity;

b. is a shareholder of the first entity and has the right to appoint or remove a majority of the board of directors or managers of the first entity; or

c. is a shareholder of the first entity and controls alone, pursuant to an agreement with other shareholders, a majority of the voting rights in the first entity;

Or

d. if the first entity is a subsidiary of another entity which is itself a subsidiary of the second entity.

1.21 Supervisory College: A type of coordination arrangement to foster cooperation and coordination between supervisors involved in the insurance Group supervision, as well as to promote common understanding, communication and information exchange.

1.22 Takaful Insurance: A collective contractual arrangement aiming at achieving cooperation among a group of participants against certain risks whereby each participant pays certain contribution to form an account called the participants' account through which entitled compensations are paid to the member in respect of whom the risk has realized. The Takaful Insurance Company shall manage this account and invest the funds collected therein against certain compensation.

Article (2): Application and Scope of the Insurance Group Supervision

2.1 The Central Bank applies the insurance Group supervision, in accordance with relevant provisions of Central Bank Laws and Regulations, at the level of:

a. A Company incorporated in the State that is a Parent of at least one Company, or a foreign insurance or reinsurance company; and

b. a Holding Company.

2.2 Where a Company or a Holding Company referred to in Article (2.1) above is itself a Subsidiary of another Company or Holding Company incorporated in the State, the Central Bank may decide to apply the insurance Group supervision only at the level of the Company or Holding Company that is the ultimate Parent in the State. In such cases, when “Parent” is referred to hereinafter in this Regulation, it applies to the ultimate Parent.

2.3 The Central Bank includes all Companies and foreign insurance and reinsurance companies in a Group, as well as their branches, in the scope of the insurance Group supervision.

2.4 The Central Bank may decide on a case-by-case basis to exclude an entity that is part of the Group from the scope of the insurance Group supervision where the risks of this entity are negligible from the perspective of the insurance Group supervision or where the inclusion of such an entity would be inappropriate or misleading with respect to the objectives of the insurance Group supervision.

2.5 Companies and other entities incorporated in the State that are part of a Group must provide the Parent with all data and information necessary to fulfil the obligations towards the Central Bank in relation to the insurance Group supervision.

Article (3): Responsibilities and Actions of the Parent Company

3.1 The Parent must ensure adherence to the requirements of Central Bank Laws and Regulations applicable on a Group-wide basis, including those related to corporate governance and risk management.

3.2 The Central Bank may request the Parent to take any action in relation to the affairs or business of the Group as the Central Bank considers appropriate, in particular where necessary to ensure the soundness of the financial position of Companies in a Group or their compliance with the provisions of the Central Bank Laws and Regulations. In this regard, the Central Bank may require the Parent to:

a. take certain actions or refrain from taking certain actions; and

b. ensure that another entity or entities that belong to the Group take certain actions or refrain from taking certain actions.

3.3 The Central Bank may request the Parent to take necessary actions to rectify the situation, within the timeframe specified by the Central Bank, in addition to measures imposed on individual Companies in the Group.

Article (4): Reporting of Concentration Risk

4.1 The Parent must report to the Central Bank any significant risk concentration at the level of the Group, at the frequency and within deadlines determined by the Central Bank.

4.2 For the purposes of identifying significant risk concentrations, the Parent must consider, at least, direct and indirect exposures of Companies in the Group to all of the following:

a. individual counterparties;

b. groups of individual but interconnected counterparties, for example entities within the same Group;

c. specific geographical areas or industrial sectors;