Updating the Regulatory Framework for Insurance in ADGM

Discussion Paper No. 1 of 2025
DISCUSSION PAPER
NO. 1 OF 2025
UPDATING THE REGULATORY
FRAMEWORK FOR INSURANCE
IN ADGM
05 December 2025

Discussion Paper No. 1 of 2025 i
Table of Contents
Introduction ............................................................................................................1
Background.............................................................................................................3
Section A. Enhancements - key features ...........................................................5
A.1 Capital requirements ..............................................................................5
A.2 Own funds .............................................................................................8
A.3 Additional areas of focus.........................................................................8
Section B. Further considerations.....................................................................9
B.1 Synthetic sidecars, Insurance-Linked Securities.......................................9
B.2 Asset liability matching, Duration gaps................................................... 11
B.3 Derivatives and liquidity risk .................................................................. 12
B.4 Additional areas of focus....................................................................... 13
Section C. Discussion points .......................................................................... 14
C.1 Composite reinsurers ........................................................................... 14
C.2 Sidecars for parametric coverage and asset-risk only reinsurance ........... 15
C.3 Assets.................................................................................................. 15
C.4 Private capital in insurance ................................................................... 17
C.5 Asset Intensive Reinsurance.................................................................. 17
C.6 Portfolio transfers................................................................................. 18
C.7 Additional discussion points ................................................................. 18
Conclusion and next steps ..................................................................................... 20

Discussion Paper No. 1 of 2025
Introduction

1. The Financial Services Regulatory Authority (“FSRA” or “we”) of Abu Dhabi Global Market
   (“ADGM”) is issuing this Discussion Paper (“DP”) to seek views on a significant update to its regulatory framework for insurance business.
2. The FSRA is taking a holistic and fundamental look at its current regulatory framework for
   this sector with a view to supporting further development and growth of the insurance industry in ADGM 1 . The initiative aims to strike a prudent balance between competitiveness, regulatory strength, and operational simplicity, ensuring that ADGM attracts leading market participants while maintaining robust standards.
3. The FSRA regularly reviews its regulatory framework and supervisory approach in order to
   ensure alignment with global standards and best practices. By taking a fresh approach to the regulation and supervision of insurance in that context, and in particular reinsurance, the FSRA is seeking to combine the most effective elements of global regulatory frameworks. This approach is unencumbered by legacy measures that are not suited to all segments of the market. This forward-thinking strategy is intended to foster innovation, efficiency and trust, positioning ADGM as an attractive destination for insurance activity. Why we are issuing this paper
4. The insurance and reinsurance landscape is evolving rapidly, with global trends moving
   towards more risk-sensitive, economic capital-based approaches for assessing capital requirements and determining the appropriate levels of own funds. While the current regulatory framework is robust, the FSRA acknowledges that there is room for refinements in certain areas, primarily in the determination of the capital required to support written business, also with respect to asset eligibility and the recognition of diversification, which if left unaddressed may lead to excess capital requirements and reduced competitiveness. The FSRA intends to address these challenges by drawing on global best practices and leveraging the FSRA’s robust and proportionate overall regulatory framework, whilst supporting innovation in the sector.
5. The FSRA is also aware that there are a number of challenges faced by the global
   community in the sector, including structural shifts and the use of derivatives. As part of updating its framework, the FSRA aims to consider how best to address these challenges.
6. References in this paper to “insurance/insurer” should be read to include
   “reinsurance/reinsurers” except where that distinction is made in order to refer explicitly solely to the latter. In the context of the stipulation in Federal Law No. 8 of 2004 Concerning Financial Free Zones that “[the] carrying out of insurance [by entities licensed in the Financial Free Zones] in the [UAE] shall be restricted to reinsurance”

Discussion Paper No. 1 of 2025
Who should read this paper
7. This paper should be of particular interest to:

• insurers and reinsurers operating in or considering entry into ADGM;
• insurance and reinsurance intermediaries and managers;
• investment managers and asset managers;
• actuarial and risk management professionals;
• policyholders and reinsureds;
• international regulatory authorities; and
• industry associations and think tanks.
  How to provide comments

8. All comments should be made in writing and sent to the address or email below. Please
   use the DP number in the subject line and identify your organisation where relevant. Comments supported by reasoning and evidence will be given more weight and, unless otherwise requested, they may be published. Closing date for comments
9. The closing date for providing comments is 16 February 2026.
   Comments to be addressed to:
   Discussion Paper No.1 of 2025
   Abu Dhabi Global Market
   ADGM Square
   Al Maryah Island
   PO Box 111999
   Abu Dhabi, UAE
   Email: fsra.consultation@adgm.com

Discussion Paper No. 1 of 2025
Background

1. While the existing regulatory framework for insurance business in ADGM (the “framework”)
   is recognised for its strength and prudence, the FSRA has identified opportunities for it to be updated and enhanced. Fundamental to that is a strategic assessment of the prudential aspects of the framework which is being informed by leading international standards.
2. The enhancements will aid in developing ADGM as a hub for reinsurance, including
   providing:
   (i) regional access to a broad and deep pool of capital; (ii) the ability to develop a framework unburdened by significant legacy regulation; and (iii) an optimal geographical location for a global hub.
3. By adopting a more risk-sensitive approach and expanding the range of permissible
   investments, our ambition is to bring forward proposals that are designed to optimise capital efficiency and support more sophisticated investment and capital management strategies for insurers. Supervisory approach, periodic review and innovation
4. The FSRA’s supervisory approach is committed to effective oversight of authorised entities,
   ensuring ongoing compliance by them and enabling iterative improvements to the supervisory approach based on market developments and evolving practices. This dynamic approach allows the FSRA’s supervisory approach to remain responsive and thereby effective.
5. In developing its specific proposals to appropriately update the framework, the FSRA will
   evaluate the impact of revising its requirements on market growth and policyholder protection, alongside enabling authorised insurers to operate safely and efficiently within the regulatory perimeter. The FSRA will also consider the impact of any regulatory updates on supervisory resources and potential adjustments to its supervisory approach. Practices in other jurisdictions
6. Leading international jurisdictions such as the European Union (“EU”) with its Solvency II
   Directive 2009 (“Solvency II”), Bermuda with its Bermuda Solvency Capital Requirement (“BSCR”), and Switzerland with its Swiss Solvency Test (“SST”) have adopted risk￾sensitive, economic capital frameworks and supporting measures. International developments
7. In terms of international developments, the Bank of International Settlements (“BIS”)
   issued a paper in October 20252 in respect of the transformation of the life insurance 2 BIS papers No 161: “The transformation of the life insurance industry: systemic risks and policy challenges”, https://www.bis.org/publ/bppdf/bispap161.pdf (October 2025)

Discussion Paper No. 1 of 2025 industry and its systemic risks and policy challenges. Some of these themes have been further addressed by the recent Issues Paper3 from the IAIS on structural shifts in the life insurance sector, which provides a framework to assist supervisors and insurers to understand, among other things, the potential financial stability implications of these changes. ADGM considerations
8. While certain considerations set out in the IAIS Issues Paper may be more directly relevant
to life reinsurance, the FSRA is of the view that if a regulatory framework aims to address the challenges outlined in this paper, the resultant principles and solutions will be broadly applicable across the entire spectrum of both life and non-life reinsurance.
9. Accordingly, the FSRA has considered the important themes in the IAIS Issues Paper and
the BIS paper to identify areas where there may be opportunities to enhance its regulatory framework. By focusing on these core challenges, a regulatory framework can ensure consistency, adaptability, and effectiveness for all market participants. The FSRA will enhance the framework by integrating the most effective elements of these global standards and best practices.
10. Prior to that and as part of a phased approach to further align the framework with the IAIS
Insurance Core Principles, the FSRA has recently published proposals4 to enhance the framework to increase alignment with the IAIS Insurance Core Principles (“ICPs”). The FSRA is also mindful that, in time, Internationally Active Insurance Groups (“IAIGs”) may be established and regulated in ADGM. Therefore, the FSRA will continue to assess and align our framework with the IAIS Common Framework for the Supervision of Internationally Active Insurance Groups5 (“ComFrame”). IAIS Issues Paper on structural shifts in the life insurance sector:
https://www.iais.org/uploads/2025/11/Issues-Paper-on-structural-shifts-in-the-life-insurance￾sector.pdf (November 2025) 4 Consultation Paper No. 13 of 2025 – IAIS Insurance Core Principles and Climate Risk Management:
https://en.adgm.thomsonreuters.com/rulebook/consultation-paper-no-13-2025-iais-insurance-core￾principles-and-climate-risk-management (November 2025) 5 https://www.iais.org/activities-topics/standard-setting/icps-and-comframe/ (December 2024)

Discussion Paper No. 1 of 2025
Section A. Enhancements - key features
Overview

1. This section of the DP sets out the key areas of enhancements to the framework that the
   FSRA intends to formally consult upon with stakeholders in the future, including elements that are familiar to global insurers. A.1 Capital requirements
2. The FSRA is aware that in setting appropriate capital requirements, it is important to
   address risk calibration of capital requirements including the treatment of diversification, alongside the tiering of own funds. It is believed that targeted changes in these areas could improve capital efficiency for insurers while still allowing for robust supervisory oversight, supported by risk reporting and appropriate intervention triggers. Appropriate risk calibration of capital requirements will require the use of advanced actuarial modelling, scenario analysis and internal models. These tools will help more appropriately determine capital requirements based on actual risks, including underwriting risk, market risk, counterparty default risk, operational risk and also addressing loss absorbency.
3. Given this, the FSRA intends to introduce a new, multi-tiered approach to calculating
   capital requirements. The default will be a “standard formula” using supervisory parameters but allowing insurers to use “internal models” developed by them, either alone or alongside the standard formula, if these models receive regulatory approval.
4. These approaches will be developed so as to align capital requirements with the underlying
   risks faced by insurers and in accordance with the International Association of Insurance Supervisors (“IAIS”) Insurance Capital Standard6 (“ICS”). Standard formula, target capital ratios, risk mitigation and intervention triggers
5. The FSRA intends to introduce a new basis on which capital requirements for insurers
   without regulatory approval for an internal model will be calculated, termed the ADGM Solvency Capital Requirement (“ASCR”). This standard formula approach would include the following features:
   (i) A Value-at-Risk (VaR) approach to calculate the ASCR: as a new capital standard, the ASCR will be calculated to meet the maximum loss a portfolio might be expected to experience over a one-year time horizon with an appropriate confidence level; and (ii) Explicit recognition of diversification benefits across geographic, sector and product dimensions: diversification is an important element to consider in the accurate calibration of capital requirements, consistent with the principle that diversifying their business can help insurers lower their overall, aggregate risk exposure. The FSRA is considering the introduction of diversification benefits in the 6 https://www.iais.org/activities-topics/standard-setting/insurance-capital-standard/ (December 2024)

Discussion Paper No. 1 of 2025 calculation of the ASCR including benefits for geographical, sectoral and product diversification.
6. Accompanying these capital requirements would be a target capital ratio of 120% of the
ASCR as the target capital ratio, with an enhanced ratio such as 150% of the ASCR applying for higher-risk profiles. This would mean that insurers in ADGM would be expected to hold 120% of their calculated ASCR as own funds in normal circumstances and up to 150% of the ASCR where insurers are deemed to be higher risk, e.g. where they lack a strong parent.
7. Alongside the introduction of the ASCR, the FSRA is considering a revision of its minimum
capital requirement (“MCR”) in order to supplement the ASCR in providing a suite of appropriate capital requirements, technical provisions and the utilisation of the “look￾through approach” to calculating the ASCR. This would mean that where an insurer has an indirect exposure to an asset, the expectation is that the ASCR should be calculated with reference to that asset.
8. The FSRA will be considering establishing general and specific eligibility criteria under the
standard formula, setting out expectations for collateral arrangements, and clarifying the impact of risk mitigation techniques on capital requirements. These measures are designed to ensure that risk transfer mechanisms are effective, reliable, and appropriately reflected in the capital framework.
9. The ASCR and MCR will be key features of the regime, and as such the FSRA intends to
establish a comprehensive ladder as part of an intervention framework with respect to breaches of those requirements. This framework will deploy different supervisory tools depending on the nature and severity of a breach, and the actions required to remedy that. In keeping with the IAIS ICPs, actions undertaken by the FSRA will be commensurate with the seriousness of an insurer’s non-compliance with regulatory requirements. The FSRA plans to provide further details about these interventions at a later date.
10. Furthermore, the development and calibration of the ASCR may be informed by the
requirements and standards of the rating agencies such that the ASCR is considered a meaningful input into the rating process. The intention is for the framework to operate alongside the standards of the credit rating agencies, where possible, rather than in opposition to them. Question 1: What are your views on the outline proposal for the ASCR as the basis for a standard formula? Question 2: What are your views on the proposed use of a Value-at-Risk (VaR) approach for calculating the ASCR, including an appropriate confidence level and one-year time horizon? Are there alternative risk measures or calibration approaches, such as using Tail Value-at-Risk (TVaR), which may be more suitable for the ADGM market?

Discussion Paper No. 1 of 2025
Question 3: What are your views on the proposed recognition of diversification benefits across geographic, sectoral and product dimensions in the calculation of the ASCR? Question 4: What are your views on the appropriateness of the proposed target capital ratio of 120% of the ASCR, with a higher threshold of 150% for insurers with higher risk profiles, and do you consider these ratios sufficient to ensure the financial resilience of insurers in ADGM? Would you recommend alternative thresholds or additional safeguards? Internal models
11. Alongside the development of a standard formula approach for setting capital
requirements, the FSRA recognises the importance of allowing insurers the opportunity to develop and use, subject to regulatory approval, an appropriate internal model for risk quantification and the assessment of regulatory capital requirements.
12. In developing its approach in this area, the FSRA is considering best practices from other
established regulatory frameworks. For example, in Bermuda the use of economic capital models is encouraged for larger insurers, and similarly for the Swiss SST, both permitting standard and internal models but imposing sophisticated validation and back-testing requirements to ensure reliability and accuracy.
13. Permitting internal models is intended to promote robust risk management practices and,
where it has regulatory approval for its model, allow an insurer to calculate its capital requirements and thereby ensure it maintains adequate own funds in line with its own, specific risk profile. The FSRA expects that insurers will seek to use internal, economic capital models for self-assessment purposes, whether as an approved model or as complementing the use of the standard formula.
14. The FSRA is considering including provisions for the following types of internal models for
risk quantification and the assessment of regulatory capital requirements:

• full internal models, subject to regulatory approval;
• partial internal models, approved by the regulator for particular risk categories,
  complemented by the standard formula for others, where appropriate; and
• "off-the-shelf”
  7 partial or full internal models for specific risk types.

15. The FSRA recognises that permitting internal models for the purpose of calculating
    regulatory capital requirements is at the centre of its proposed updating of the framework. 7 Off-the-shelf partial or full internal models could be utilized to address specific business units or risk types for insurers. As a long-term goal, the FSRA aims to provide the flexibility to allow for stakeholders to develop a small suite of internal models tailored for this purpose.

Discussion Paper No. 1 of 2025
Accordingly, the FSRA will be sharing its detailed proposals with stakeholders as they are further developed. Question 5: Are there any points you would like to raise for the FSRA to consider at this stage regarding the use of internal models within ADGM? A.2 Own funds
16. The FSRA aims to update the framework for the introduction of own funds and, for the
purposes of determining what will fall into this, there is also the opportunity to introduce concepts utilised in the Solvency II balance sheet into ADGM, as well as the ICS where that is relevant to capital requirements (section A.1).
17. In order to bring own funds requirements more into line with international standards and
best practices, the FSRA intends to introduce a three-tier capital structure as follows subject, however, to final confirmation of the components of each of the three tiers.

• Tier 1 – unlimited in meeting an insurer’s ASCR, including paid-in ordinary share
  capital, share premium accounts
• Tier 2 - ≤ 50% of an insurer’s ASCR, including instruments subordinated to the claims
  of all policyholders and non-subordinated creditors
• Tier 3 - ≤15% of an insurer’s ASCR, including preference shares, net deferred tax
  assets

18. Doing so would be in step with the requirements under established international standards
    and best practices.
19. In addition, as part of any enhancements the FSRA will consider innovative elements, such
    as “synthetic sidecars” and insurance linked securities (ILS), and their impact on the own funds that an insurer would need to hold, recognising the utility these transactions bring to the sector (see section B.1). Alongside more familiar concepts, such as traditional sidecars, this approach would also support increased market capacity in ancillary areas such as asset management. A.3 Additional areas of focus
20. The FSRA intends to implement several enhancements to other areas of its framework to
    further strengthen it.
    (i) Group supervision: the FSRA aims to make enhancements to its group supervision rules and its supervisory practices with a view to maintaining robust yet proportionate group supervision. We will especially focus in the areas of assessing that there is appropriate and effective groupwide governance, oversight and controls, including risk management. Our supervisory practices will put particular emphasis on monitoring and managing intragroup transactions and the robustness

Discussion Paper No. 1 of 2025 of the group from a prudential perspective yet allowing a greater degree of flexibility in what should constitute a group for that purpose. The approach to deciding what constitutes a group would be principles-based, rather than doing so formulaically on the basis of jurisdiction of incorporation of holding entities. Critical considerations arising from group supervision would include the own funds available throughout the group, their fungibility and transferability, the treatment of intragroup transactions, operational dependencies and the presence of unregulated entities and broader financing structures, and their flexibility, within the group. For the purposes of effective group-wide supervision and information-sharing, we intend to arrange appropriate bilateral or multilateral agreements with other regulators as necessary. (ii) Qualitative risk management and governance: proportionate governance requirements are being considered to support strong risk management practices. These requirements would be designed to be scalable, ensuring that insurers of varying sizes and complexities maintain effective oversight and control over their operations. (iii) Reporting and disclosure: the FSRA is looking to develop and implement regular prudential returns for insurers, appropriate and proportionate to the risks that they carry, with enhanced reporting obligations for those using internal models. This will improve transparency and provide supervisors with timely and relevant information to assess the financial health and risk profile of regulated insurers. Question 6: Are there any considerations in these areas that the FSRA should consider as part of the current and ongoing review of the framework?
Section B. Further considerations
Overview
21. This section sets out further areas being considered for development and inclusion in this
stage of the review of the framework.
B.1 Synthetic sidecars, Insurance-Linked Securities Synthetic sidecars
22. The FSRA is currently exploring the possibility of leveraging the benefits of a sidecar
transaction for insurers without the need to use and collateralise a separate entity, i.e. adopting a “synthetic sidecar”8 approach within the insurance entity. Unlike traditional sidecars, which typically involve the creation of a separate legal entity to assume specific 8 Please see the explanatory note in Annex 1 on synthetic sidecars.

Discussion Paper No. 1 of 2025 insurance risks, the synthetic sidecar structure is intended to operate within the existing insurer framework, using a fully funded approach.
23. The key features envisaged for a synthetic sidecar might include the following.
(i) Fully funded structure: all required capital is paid into the insurer at the outset, most likely into a charged account. This ensures that the obligations covered by the synthetic sidecar are entirely collateralised, providing certainty and security to counterparties and investors. (ii) Capital treatment: from a capital management perspective, the synthetic sidecar is treated similarly to other fully funded arrangements. The dedicated funds are actually or notionally ring-fenced and managed to support the specific risks being transferred, rather than being combined with the insurer’s general assets on a fungible basis. (iii) Covered bond analogy: the synthetic sidecar is designed to function to an extent in a manner akin to a covered bond. In a covered bond, investors’ repayment is secured by a specific pool of assets, not by the general credit of the issuer. Similarly, the synthetic sidecar guarantees repayment through a dedicated pool of assets, rather than relying on the overall financial strength of the reinsurer or a separate, traditional sidecar vehicle. (iv) Risk segregation: this structure ensures that at least the paid-in capital assets backing the synthetic sidecar are isolated and exclusively available to meet the obligations of the arrangement. This ring-fencing of assets provides an additional layer of protection for investors, similar to the asset pool in a covered bond.
24. Importantly, the underlying balance sheet of the insurer would remain unchanged or be
enhanced. Key features of these synthetic sidecars would include the issuance of a loss￾absorbent instrument, such as preference shares or subordinated debt, as a loss￾absorbent security. The valuation of these instruments would be written down if the reference portfolio of liabilities was loss making. Additionally, reference assets would back the claims concerned, i.e., funded by the relevant premiums received, the capital received on issue of the instrument and the investment return thereon.
25. This mechanism could prove more cost-effective than raising additional equity or
subordinated debt. There is a recognition that such innovative solutions could assist insurers as an alternative to raising capital through the traditional equity or debt markets and the potential may also exist for the use of synthetic sidecars, or traditional sidecars where appropriate, for more innovative types of insurance (see section C.2).
26. The synthetic sidecar is an innovation that combines the full collateralisation of traditional
sidecars with the structural protections of covered bonds. By guaranteeing obligations through a dedicated asset pool within the insurer, it offers enhanced security and transparency for risk transfer arrangements. This makes the synthetic sidecar an attractive, forward-looking option for both reinsurers and investors seeking robust risk mitigation solutions.

Discussion Paper No. 1 of 2025
27. As such, as part of its current review of the framework the FSRA is considering permitting
this risk mitigation technique, subject to further development and, as appropriate, consultation with stakeholders. Insurance-linked securities
28. The FSRA is also exploring the impact and role of Insurance-Linked Securities (“ILS”) as it
undertakes the update of the framework. ILS are financial instruments that allow insurers to transfer risk to the capital markets instead of relying solely on traditional insurance. Types of ILS include catastrophe bonds, embedded value securitisation, extreme mortality securitisation, life settlements securitisation, longevity swaps, reserve funding securitisation, and fully collateralised reinsurance.
29. Specifically for reinsurers, ILS can increase the overall capacity of the reinsurance market
and offer protection that is generally less vulnerable to counterparty default. For investors, ILS provide attractive returns and portfolio diversification, as their performance is typically uncorrelated with the broader economic cycle. The use of ILS has grown rapidly in recent years, becoming a well-established component of the global reinsurance market reaching capacity levels of USD 107 billion by the end of 2024 .
30. However, ILS can be exposed to a variety of risks, both from the underlying insurance
events, where claims are higher than expected, and financial and operational risks. For example, the value of collateral held to back ILS can fluctuate due to changes in market prices: where collateral must be liquidated early to pay claims, investors may face losses if market values have declined.
31. The FSRA is considering ways in which to develop its framework to support the growth of
an ILS market and would welcome views on this point.
Question 7: What are your views on the potential for the introduction of measures such as “synthetic sidecars” within ADGM? Question 8: What are your views on the potential to develop an insurance-linked securities framework and market within ADGM? B.2 Asset liability matching, Duration gaps Matching adjustment
32. The FSRA is considering employing an approach for a matching adjustment, including the
potential use of stress scenarios, for asset liability matching purposes. This would allow for a broad range of eligible assets to be employed, including private assets and real assets, provided these assets are appropriately matched or diversified within insurers’ portfolios (see section C.3). 9 AM Best and Guy Carpenter:
https://news.ambest.com/newscontent.aspx?refnum=264855&altsrc=23 (March 2025)

Discussion Paper No. 1 of 2025
Question 9: Are there any points you would like to raise regarding the considerations outlined for asset-liability matching? Duration gaps
33. Globally, the duration gaps of life insurers, i.e., the mismatch between the duration of their
liabilities and their assets, have narrowed somewhat in recent years, partly due to rising interest rates10 . However, there remains the concern that long-tail insurers, i.e. where settlement of a claim may occur after an extended period, are not properly covering liabilities with sufficiently long-term assets. This may further be exacerbated by the lack of suitable long-term assets. In the light of this, long-tail insurers often use derivatives to address mismatches between assets and liabilities, which can create other risks.
34. On the other hand, with non-life business there is concern that insurers may be holding
long-duration assets for short-tail non-life property and casualty risks.
35. Ideally, when matching assets to liabilities, an insurer should ensure that asset portfolios
remain liquid and marketable throughout the run-off period of the associated liabilities. Technical provisions should be matched by aligning the duration and liquidity profile of assets with those of the corresponding liabilities.
36. However, if liabilities can be settled in specie, i.e. through a direct transfer of assets to
settle the liabilities, it may be appropriate for an insurer to hold a wider portfolio of assets, including digital assets. Question 10: Do you agree with the proposal to allow insurers to hold a wider portfolio of assets, provided they can pay claims in a timely manner? B.3 Derivatives and liquidity risk
37. As indicated in the BIS paper11, life insurers use of derivatives has increased and while their
use may help mitigate solvency risks, it exposes insurers to greater liquidity risks from collateral and margin calls. Particularly in instances of rising interest rates, liquidity drains from interest rate swap positions may coincide with those from policy surrenders. Additionally, the use of certain types of derivatives increases counterparty credit risk.
38. The use of FX derivatives to hedge currency mismatches, while reducing solvency risk,
introduces new risks:
10 BIS October 2025 paper, see footnote 1, ibid.
11 BIS October 2025 paper, see footnote 1, ibid page 1.

Discussion Paper No. 1 of 2025

• foreign currency liquidity risk to fund margin calls or cover increased costs of rolling
  over short-term hedges when the foreign currency appreciates; and
• rollover risks during periods of dollar funding strains, due to the short maturities of
  FX swaps relative to the underlying exposures.

39. The FSRA is considering the use of probabilistic assessments and risk sensitivity analyses
    to manage the liquidity and credit risks noted above, with appropriate capital held as a safeguard. For dynamic hedging, the FSRA may set additional requirements including higher capital requirements for exposure to short-term hedges. Question 11: What do you think about the suggestions for addressing the use of derivatives? B.4 Additional areas of focus
40. The FSRA is considering the implementation of other enhancements to its regulatory
    framework for insurers.
    (i) Enhanced capital structuring: in addition, the FSRA is exploring enhanced capital structuring options to support inward investment and foster innovation. By expanding the degrees of asset eligibility and capital structuring, the FSRA aims to facilitate greater inward investment into real assets within the UAE. This approach will introduce and emphasise proportionate governance and smarter risk management practices in these areas. (ii) Valuation: including:

• valuation of capital invested in subsidiary entities and other economic
  participations, with careful consideration of how insurers should take credit for the value of their interests in other financial institutions;
• prudently ascribing an appropriate degree of value to goodwill, where goodwill
  is inherent in freely marketable assets which can realistically be realised to cover losses within an appropriate time frame; and
• means by which to encourage investment in technology, such as artificial
  intelligence, to have a positive impact on the balance sheet by recognising such investments’ value in a calibrated way that is reflective of their economic utility and ability to cover losses. (iii) Investment rules: the application of a “Prudent Person Principle” (or “PPP”) is being considered, alongside the introduction of enhanced investment rules. These measures are intended to promote sound investment practices. (iv) Insurers in difficulty: the FSRA is considering its framework for dealing with insurers experiencing financial distress. This will cover procedures for addressing breaches of the ASCR and the MCR, and the consequences of non-compliance, including the

Discussion Paper No. 1 of 2025 exercise of regulatory powers and the use of intervention ladders, as mentioned in
Section A paragraph 9 above. Additionally, the introduction of recovery and
resolution procedures will provide a structured approach to identifying, managing, and resolving situations where insurers face significant financial challenges. This will help protect policyholders and maintain market stability. (v) Consumer protection: the FSRA is considering developing a holistic consumer protection framework, across all sectors and including insurance, which will provide further protections to policyholders, noting that this would have limited direct application to reinsurers. Question 12: Are there any considerations in these areas that the FSRA should consider as part of the current and ongoing review of the framework?
Section C. Discussion points
Overview
41. This section sets out areas where the FSRA would appreciate views from stakeholders on
matters that may be included in this stage of the review of the framework or at some point in the future. C.1 Composite reinsurers
42. The FSRA recognises that reinsurers are subject to a distinct risk profile compared to
primary insurers, particularly with respect to conduct and policyholder-protection risks. Furthermore, liability classes within reinsurance are separately modelled, reserved, and capitalised, ensuring robust risk management and promoting financial soundness.
43. In light of these factors, the FSRA is considering the merits of permitting composite
structures for reinsurance entities in ADGM. This approach is consistent with leading international regulatory practices, where reinsurers are authorised to underwrite both life and non-life reinsurance business. In addition, many of the largest global reinsurers operate successfully as composites, demonstrating that portfolio diversification in reinsurers enhances solvency and does not compromise their ability to meet the relevant prudential standards. Question 13: What are the primary issues for the FSRA in considering whether to permit composite reinsurers to operate in and from ADGM?

Discussion Paper No. 1 of 2025
C.2 Sidecars for parametric coverage and asset-risk only reinsurance
44. The FSRA is currently exploring the use of sidecars, whether traditional or synthetic, as part
of this phase of updating the framework but also recognises that there is also the potential to use them, where appropriate, in the future for more innovative types of insurance, such as parametric coverage and asset-risk only reinsurance. Question 14: What additional considerations are there in using sidecars for parametric coverage and asset-risk only reinsurance? C.3 Assets Alternative and less liquid assets
45. In some jurisdictions, insurers have shifted their portfolios toward alternative and less
liquid assets, such as private credit and structured products. Some have also increased reliance on wholesale and short-term funding.
46. In May 202312, the FSRA introduced its Private Credit Fund Rules, allowing ADGM-based
funds and their managers to both originate and invest in private credit, acknowledging the significant role private credit plays within the wider market.
47. Regulators globally need to consider and develop the prudential treatment of private
credit, and the extent to which these should be allowed as an investment class in an insurer’s portfolio, taking into account the complexity and illiquidity premium they may exhibit. These perceived concerns may be counterbalanced, however, as an overly conservative portfolio ultimately may prejudice end-consumers due to its indirect effect on product pricing.
48. It is understood that both private credit and structured products have the potential to
provide attractive returns, but measured safeguards are necessary to ensure that insurers fully understand the nature of these assets and avoid acquiring unsuitable or poor-quality investments. Specialist assets
49. While it is beneficial and important for insurers to maintain a diversified mix of assets,
including alternative assets, to mitigate risk they may encounter difficulties with alternative assets where there is a concentration of such assets within their portfolios. Similarly, single asset risk is also a concern, as a large exposure to one asset can destabilise an entire portfolio.
50. Regulators and ceding insurers might be reassured by implementing a variant of the
"admissible assets" concept, whereby reinsurers would automatically be allowed to hold 12 https://www.adgm.com/media/announcements/adgms-fsra-enhances-its-regulatory￾framework-to-permit-private-credit-funds (May 2023)

Discussion Paper No. 1 of 2025 certain matched assets up to a certain level, in conjunction with the Prudent Person Principle, which could facilitate greater freedoms within that perimeter. Alongside that, notification requirements to the FSRA and/or the ceding insurer could be introduced for reinsurers holding a certain percentage of higher risk assets, using a sliding scale similar to change in control threshold bands. A further safeguard measure might also involve the FSRA being provided with a specialist assets notice, reserving the ability for it to object to the inclusion of an asset within a defined period following the filing. Question 15: Would the notification requirements in respect of specialist assets as set out above provide insurers with sufficient flexibility, whilst also allowing appropriate supervisory oversight? Related entity assets
51. The FSRA is considering the regulatory impact of insurers investing in assets from affiliated
entities beyond a de-minimis level. Among other considerations, the FSRA is considering how best to set the parameters for such “related entity assets”.
52. In that context, we are considering whether additional requirements, further to the
requirements in the Prudential – Insurance Business Rulebook (“PIN”) 8.4, should be set around the determination of the fair value of such assets to ensure accurate valuation. These might include an independent review to determine whether a transaction was conducted at arm's length, thereby confirming that it was made on terms comparable to those available in the open market.
53. The FSRA is considering appropriate limits for related entity assets, and other quality
assurance processes which might be implemented to ensure that the FSRA’s standards are being met consistently throughout the process for transactions with affiliated entities. Question 16: Would the overarching principles in respect of related entity assets as set out above provide sufficient safeguards to ensure that such transactions were made on an arm’s-length basis? Digital assets
54. The FSRA was a pioneer in launching the world's first comprehensive regulatory framework
for digital assets in 2018, aiming to foster new business models and investment opportunities while ensuring robust investor protection and transparent, efficient financial markets. It covers a wide range of digital asset activities, including Virtual Assets; regulated stablecoins, termed Fiat-Referenced Tokens ('FRTs'), which are subject to stringent conditions on the assets that back them; digital securities; and derivatives and funds of digital assets.

Discussion Paper No. 1 of 2025
55. The FSRA finalised further amendments to that regulatory framework in October 2025,
governing activities involving FRTs, following industry consultation. These amendments, effective from 1 January 2026, expand the scope of Regulated Activities related to FRTs, set out requirements for authorised entities handling FRTs, and clarify the FSRA’s approach to accepting FRTs for use in ADGM, with further guidance to be issued.
56. In the context of insurance, the FSRA is considering whether insurers might be allowed to
use Accepted FRTs or Approved Virtual Assets where they are matched to corresponding liabilities. Question 17: What are the relevant considerations for the use of Accepted FRTs and Approved Virtual Assets for asset-liability matching for insurers in ADGM? C.4 Private capital in insurance
57. Globally private capital providers such as private equity firms have increasingly partnered
with or acquired insurers. These private capital-linked insurers are more likely to rebalance portfolios toward alternative investments, e.g., structured products, related entity assets and riskier mortgages, and adopt more complex reinsurance structures.
58. When considering private capital involvement in insurance, it is important to identify the
specific risks or issues that regulators need to consider. However, regulators’ focus on the safety and security of financial markets has to be balanced with market evolution, while private capital investors prioritise optimisation and strategic objectives. Question 18: What are the primary considerations for regulators where private capital is involved in insurance? C.5 Asset Intensive Reinsurance
59. Asset-intensive reinsurance (“AIR”)13, particularly with offshore reinsurers, has become a
key capital management strategy. The growing influence of private capital providers has been cited as having also created governance challenges14 .
60. Reinsurers are using AIR primarily because it:
“AIR is a reinsurance risk-transfer arrangement between two entities and is characterised by a transfer of significant investment risks associated with some insurance liabilities. Some life risks (e.g., longevity or mortality) may also be transferred. AIR is typically associated with insurance products that expose the insurer to relatively more significant investment risk than biometric risk, and are accompanied by large, upfront premium payments.” IAIS Issues Paper, ibid. 14 BIS October 2025 paper, footnote 1 ibid, page 2

Discussion Paper No. 1 of 2025

• results in capital efficiency;
• frees up or reduces cost of capital; and
• offers yield enhancements.

61. The FSRA wishes to explore how the framework might in future accommodate alternative
    structures that could achieve similar economic outcomes to AIR. These structures might include:

• where the underlying assets remain with the ceding insurers, potentially subject to
  ring-fencing, instead of a direct quota share transaction with a third-party reinsurer for the underlying liabilities, the use of excess of loss or net reinsurance arrangements; and/or
• a synthetic sidecar approach (section C.2).

62. While there may be challenges associated with implementing these alternative structures,
    the FSRA wants to explore whether or how they could be achieved. This would be with a view to accommodating global capital mobility and access to the strong balance sheets of well-diversified international reinsurers. The aim would be to do so in a manner that enables safe growth and enhances and strengthens ceding insurers. Question 19: What do you think about the alternatives to AIR suggested? C.6 Portfolio transfers
63. The FSRA is evaluating the introduction of a portfolio transfer process specifically tailored
    to the unique risk profile of reinsurers. This regulatory process could prioritise obtaining consent from ceding insurers, reflecting the nature of reinsurance relationships, rather than requiring court approval or a public process involving individual policyholders.
64. By aligning the regulatory framework with the specific risks and operational realities of
    reinsurance, the FSRA aims to facilitate efficient portfolio transfers while upholding robust prudential standards. C.7 Additional discussion points Appropriate expertise
65. In all cases where an insurer is seeking to invest in alternative, more esoteric assets they
    must have the appropriate expertise to assess the risks inherent in those assets in order to be able to invest safely in them, for example where assets are unrated or have been assigned private ratings. In this case, it is important to assess whether insurers possess the necessary expertise and relevant skills to evaluate the accuracy and reliability of such ratings. For such assets, the FSRA would need to give due consideration to the deployment of appropriate validation processes where private ratings are used.

Discussion Paper No. 1 of 2025
66. One possible approach to address this concern would be to require insurers to partner with
an investment manager authorised by the FSRA to oversee the investment and rating process. Alternatively, or additionally, independent validation could be mandated to ensure that insurers are correctly and competently rating assets internally. Other topics
67. There are several further areas where the FSRA is exploring new opportunities to enhance
the effectiveness and efficiency of the regulation and supervision of the sector. These include modularising the regulatory framework to ensure a flexible design that can accommodate the continuing development of different business segments of insurers, especially insurers, established in ADGM, going forward. Question 20: Are there any additional considerations that the FSRA should consider as
part of the current and ongoing review of the framework?

Discussion Paper No. 1 of 2025
Conclusion and next steps
Policy development
68. The topics of consideration identified in this DP are part of a strategic initiative to combine
global best practices with local innovation to establish and grow ADGM as a globally attractive jurisdiction for insurers, with a focus on reinsurers, whilst maintaining robust supervisory oversight.
69. The FSRA anticipates that future enhancements to its regulatory framework for insurance
business will have numerous benefits.

• For reinsurers, the enhancements are expected to result in improved capital
  efficiency, greater flexibility, and enhanced competitiveness.
• For ceding insurers and policyholders, the changes will provide stronger protection
  through more accurate risk calibration, complemented by robust supervision.
• For ADGM and the UAE, these measures aim to establish the jurisdiction as a premier
  reinsurance centre, promote increased market growth, and enhance international credibility.

70. Stakeholder feedback is essential to ensure the framework is fit for purpose and positions
    ADGM as a global leader in reinsurance. We encourage stakeholders to submit their comments on the questions asked in this DP along with any other, relevant observations they might have. Next steps
71. The FSRA anticipates that it will release a series of detailed consultation papers to gather
    feedback from stakeholders over the course of 2026 with specific, detailed proposals on the topics outlined in this DP.