The insurance industry in the UAE is at a crucial juncture where the impact of new regulations – from VAT to IFRS – could significantly impact the business landscape in the coming months. Understanding and being able to navigate these new regulations will be key for insurers, and was the focus of a KPMG LG Insurance seminar.
According to His Excellency Sultan Bin Saeed Al Mansouri, Minister of Economy in the UAE, the insurance market in the UAE is expected to see substantial growth in the upcoming years and the sector has the potential to effectively contribute to the country’s economic development.
Alongside this strong growth potential, has been the ever-evolving regulatory environment that aims to promote transparency, financial strength and stability across the insurance industry.
IFRS and VAT are likely to be one of the biggest regulatory changes that could impact the insurance sector in the near future. When implemented in Jan 2019, IFRS 16 may have a significant impact on insurer’s balance sheets who would have to potentially recognise liabilities and right of use assets directly affecting operating cash flows, balance sheets and income statements. Therefore, insurers need to be prepared for the accounting consequences and careful planning is required to consider the impact on their business.
As the implementation date for VAT draws near, a key consideration is whether it will have a significant impact on the premium charged to customers. Additionally, the commission on insurance brokerage services is also expected to be subject to VAT. Although the participants acknowledged that VAT will have significant impact on their operations, a clear majority admitted that they are not ready for the VAT implementation. With less than nine months to go till implementation, KPMG LG is urging insurance firms to plan, analyze and perform impact assessments, which could take between 8-12 weeks.
Similarly, discussions also took place on the impact of the new Insurance Authority regulations now applicable on UAE companies. Adil Abid, a partner and head of KPMG LG’s insurance practice, said: “We believe that the new regulations can be considered as a positive step forward and will help to align the technical reserves currently recorded within the financial statements of companies. However it looks like companies have had a challenging year in respect of aligning their investment positions and this may continue for the short term as the industry looks towards strengthening their asset quality.
“Insurers will also need to continue to adapt and enhance their existing policies, systems and corporate governance to comply with the new financial reporting requirements that are already effective with more changes expected in the near future. As a result this may trigger consolidation across UAE’s insurance market as we begin to see more M&A opportunities coming up in the region.”
Emilio Pera, partner and head of KPMG LG’s financial services practice, said: “Apart from regulatory changes, developments in technology, digitalization and data analytics seems to be creating great opportunities for insurers to provide their customers with the right services and products at the right time”.
“To meet both regulatory and technological developments - insurers must make sure that their products reflect the changing needs and demands of customers” Emilio added.
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Source: BPG Cohn & Wolfe