The Financial Services Regulatory Authority (FSRA), the regulator responsible for overseeing financial services within the Abu Dhabi Global Market (ADGM), has released a discussion paper outlining a series of strategic enhancements to its insurance regulatory framework.
FSRA’s discussion paper identifies areas where it plans to undertake significant updates to its regulatory approach, with a focus on introducing a more risk-sensitive regulatory framework and embedding innovative measures consistent with global developments in the insurance industry.
At the heart of the FSRA proposals are revisions to capital requirements designed to more closely align with the actual risks faced by insurers, including underwriting, market, counterparty and operational risks.
FSRA intends to calibrate these requirements through advanced actuarial modeling, scenario analysis and internal modeling to address loss absorption and diversification across geographic, sectoral and product dimensions.
FSRA proposes a multi-tiered approach to capital, including a standard formula and the option for insurers to develop in-house models subject to FSRA approval.
This is aligned with the International Association of Insurance Regulators’ Insurance Capital Standards, ensuring global consistency. FSRA’s proposed ADGM Solvency Capital Requirements (ASCR) adopt a value-at-risk approach and explicitly recognize the benefits of diversification. The FSRA expects insurers to maintain capital at 120% of the ASCR under normal circumstances, with a higher threshold of 150% for higher risk profiles.
Measures accompanying the FSRA review include revisions to minimum capital requirements and the creation of a structured intervention framework to ensure appropriate regulatory action.
The FSRA also emphasizes the role of internal models in supporting robust risk management, allowing insurers to calculate regulatory capital requirements based on their own risk profiles. The FSRA is considering full and partial in-house models, including “off-the-shelf” solutions for specific risk types.
In updating its framework, the FSRA plans to revise its own funding requirements and introduce a three-tier capital structure in line with international best practice, while also evaluating innovative instruments such as synthetic sidecars and insurance-linked securities (ILS) to increase market capacity and efficiency.
Further improvements led by the FSRA include updated group governance rules, proportional governance and risk management requirements and improved reporting and disclosure standards.
The FSRA is exploring synthetic sidecar and ILS structures that would allow insurers to transfer risk without a separate legal entity, ensuring fully funded arrangements and dedicated collateral.
Asset-liability matching considerations, including managing duration gaps and prudent use of derivatives, are also part of the FSRA’s review to address liquidity and risk sensitivity. Additionally, the FSRA is considering strengthening the capital structure to encourage outside investment, improving valuation practices (including recognizing the economic contribution of technology and goodwill), updating investment rules in line with prudential principles, and structuring procedures for insurers in financial distress. The FSRA is reviewing the overall consumer protection framework to protect policyholders while supporting industry growth.
FSRA is evaluating the introduction of general reinsurance companies, alternative and less liquid assets, related entity investments, digital assets, private capital participation and asset-intensive reinsurance alternatives.
The FSRA proposals also include streamlining the portfolio transfer process for reinsurance entities to ensure efficiency while maintaining prudential standards. Insurers investing in complex or alternative assets are required to demonstrate appropriate expertise and may require supervision from an FSRA authorized investment manager or an FSRA approved independent verification process.
Through this discussion paper, FSRA seeks input from stakeholders to refine its proposals, which aim to ensure that ADGM’s insurance regulatory environment remains able to support international reinsurance activity while maintaining financial stability and consumer protection.
