US embassy cable - 04ABUDHABI2203

UNCLAS ABU DHABI 002203 
 
SIPDIS 
 
DEPT FOR NEA/RA, NEA/ARP 
SECSTATE PASS TO USTR 
USTR FOR BUNTIN AND BELL 
 
E.O. 12958; DECL N/A 
TAGS: ECON, EFIN, EINV, ECIN, TC 
 
SUBJECT: PRIMER ON UAE INSURANCE MARKET 
 
1.  The UAE insurance sector is a small contributor to the 
federation's economy, but enjoys significant levels of 
protection from foreign competition.  Most recent data 
available shows that the insurance sector contributed $630 
million to the UAE economy in 2002 -- less than 1 percent of 
the UAE's GDP.  There are 49 insurance companies registered 
in the UAE, and an additional 225 companies operate branches 
or insurance brokerage offices here.  Although both national 
and foreign insurance companies are licensed to operate in 
the UAE, national insurance companies comprise about 55 
percent of the total. 
 
2.  The national insurance companies receive significant 
support from the government in the form of preferential 
bidding for government contracts.  In the emirate of Abu 
Dhabi, for example, all government-funded infrastructure 
projects (including oil, construction, utilities, etc.) are 
insured only by national insurance companies based in Abu 
Dhabi: Abu Dhabi National Insurance Company (ADNIC), 
Emirates Insurance Company, Al-Dhafra Insurance Company, Al- 
Ain Al-Ahlia Insurance Company, and Al-Khazna Insurance 
Company.  (Note: This practice is unique to Abu Dhabi.  The 
other emirates occasionally contract with foreign insurance 
firms insure their investments.  End note.) 
 
3.  The Abu Dhabi-based national insurance companies 
operated as a cartel until 1996, and agreed to work together 
to co-insure major government funded projects.  In addition, 
the cartel stipulated that the member companies would not 
compete with each other for clients and carefully parceled 
out business.  The cartel members would quote unfavorable 
premiums and stipulate outrageous conditions to discourage 
potential clients from changing insurance coverage between 
these insurance companies.  The cartel dissolved in 1996 by 
order of Abu Dhabi emirate. 
 
4.  Foreign insurance companies in the UAE mainly insure 
private business.  UAE Ministry of Economy Director of the 
Companies Department Ahmed Ali Al-Hosani told Econ Assistant 
on June 19 that the UAE Government stopped licensing foreign 
insurance companies in 1989 because of a perception that the 
local insurance market is "saturated."  Al-Hosani said that 
the UAEG intended to liberalize this sector in the line with 
the UAE's WTO obligations, but the UAEG will require new 
insurance companies to employ Emirati nationals (perhaps up 
to 50 percent of the company's staff) and levy taxes of 20 
percent or more on the companies' profits.  (Note: There are 
similar requirements for foreign banks operating in the UAE. 
End note.) 
 
5.  Al-Hosani said that many government officials and owners 
of existing insurance companies are reluctant to support the 
liberalization of the insurance sector.  He said that the 
Ministry of Economy recognizes that it eventually must 
liberalize the financial services sector in line with the 
UAE's WTO obligations, and the Ministry has encouraged 
existing insurance companies to consider consolidation and 
diversify their products to compete with foreign insurance 
companies and new entrants to the market.  UAE Minister of 
Economy and Commerce Fahim bin Sultan Al-Qassimi announced 
at the GCC Insurance Forum in January that UAE would not 
push liberalization of the insurance sector because the 
local insurance market is not ready to face stiff, foreign 
competition.  Al-Qassimi said that a careful and thorough 
study would be necessary to lay down rules for liberalizing 
the insurance sector gradually. 
 
6.  Other challenges that face the insurance market in the 
UAE are the lack of national reinsurance companies -- the 
local insurance companies depend on Europe-based companies 
to reinsure various risks.  The UAE, in concert with the 
GCC, has made some effort to establish a GCC-based joint 
reinsurance company to cover the rising insurance costs for 
commercial cargoes coming to the Gulf region during times of 
regional unrest. 
 
Albright