US embassy cable - 05ABUDHABI327

C O N F I D E N T I A L ABU DHABI 000327 
 
SIPDIS 
 
STATE PASS USTR 
 
E.O. 12958: DECL: 01/23/2015 
TAGS: ECON, EFIN, ETRD, TC 
SUBJECT: EFFECT ON INSURANCE SECTOR OPENING LIMITED IN NEAR 
TERM 
 
REF: 04 ABU DHABI 2203 
 
(U) Classified by Ambassador Michele J. Sison, reasons 1.4 
(b) and (d). 
 
1. (C) Summary:  The UAE has announced that it will open its 
insurance sector to new foreign insurance companies.  The 
impact of this move, meant to fulfill WTO obligations, is 
likely to be limited in the near term, as locally-owned 
companies are likely to continue to have preferential access 
to the major government and consumer insurance business 
(reftel).  Ongoing friction between public and private sector 
insurance officials is also likely to continue in the near 
future.  End summary. 
 
2. (U) On November 1, 2004, the Ministry of Economy and 
Planning announced its intent to open up the insurance sector 
to new foreign insurance companies.  It announced that any 
new companies entering the UAE market would be required to 
meet high-level international rating criteria and to offer 
new products to the market.  The UAEG is only interested in 
seeing large, international companies entering the market, 
and anticipates possible mergers among companies currently in 
the UAE.  Any company interested in entering the market will 
be required to complete a viability study to prove that it 
will be offering new products to the market.  (Note:  About 
half of the current 47 insurance companies in the UAE are 
foreign, but the UAEG froze new entries in 1989 due to a 
perception that the market was saturated.  End note). 
 
3. (C) Although private industry officials indicated 
acceptance of the announcement, the Director of the Companies 
Department at the Ministry of Economy and Planning, Ahmed Ali 
Al Hosani, told Econoff that existing companies strongly 
protested the opening of the market.  Al Hosani also stated 
if there was an oversaturation of the market, Minister Lubna 
al-Qasimi could revoke the decree. 
 
4. (C) Most observers do not expect to see any substantial 
changes to the current industry structure in the near future. 
 They state that locally owned companies will continue to get 
the most lucrative large contracts, while foreign insurance 
companies will mostly be limited to the smaller-value 
personal auto and life insurance policies.  Ministry of 
Economy and Planning rules require primary insurance for 
major construction and infrastructure projects to be from a 
list of registered companies within the UAE. In the emirate 
of Abu Dhabi, these regulations are even more detailed, with 
the list of registered companies limited to those companies 
based within Abu Dhabi.  Dubai and the Northern Emirates 
permit registered insurance companies from the greater UAE. 
(Note:  There are two types of companies registered: locally 
incorporated companies that have 100% Emirati ownership and 
foreign insurance companies which are subject to the 
Companies Law provisions which require a UAE national sponsor 
who controls 51% of the local branch of the company.  End 
note.).  Although there is nothing preventing foreign 
companies from applying for the contracts, the perception, 
especially in Abu Dhabi, is that they are unlikely to win. 
Most of the foreign insurance companies are primarily 
involved in reinsurance, since the primary insurance 
companies need to diversify the risk.  There is currently one 
American company in the UAE (American Life Insurance Co.), 
and it only offers reinsurance and personal insurance options. 
 
5. (C) Comment:  The board of the Emirates Insurance 
Association resigned shortly before the November 1st 
announcement.  EIA General Manager Dr. Mohsen Naser Khamis 
and press reports indicate the resignation was due to 
&continuous intervention8 by ministry officials in private 
sector decisions.  Although Ministry officials tell us that 
there is no real problem between the Ministry and the board, 
but it appears that there is significant friction between the 
public and private sector officials. 
 
6. (C) Comment continued:  Ministry officials readily admit 
the UAE is opening the insurance market to additional foreign 
insurance companies in order to fulfill WTO commitments.  For 
now, locally-owned companies are likely to continue to 
receive the bulk of government and consumer infrastructure 
insurance projects under current Ministry rules, limiting any 
near term impact of the decision.  End comment. 
SISON