UAE. Insurers in the UAE have been prompted by KPMG to prepare for the effects of VAT and changes to international financial reporting standards (IFRS) will have on their industry as well as assessing the impact of new insurance regulations that came into effect earlier this year.
To help highlight the implications of recent and upcoming changes, KPMG hosted a seminar for UAE insurance companies to reflect on leading practice, particularly in relation to the new regulatory system introduced by the UAE Insurance Authority.
His Excellency Engineer Sultan bin Saeed Al Mansouri, the UAE’s Minister of Economy and Chairman of the Insurance Authority, recently suggested that the new financial regulations, aligned with the European Solvency II model, help establish prudential risk requirements and put the UAE at the forefront of the Middle East in efficiently regulating the insurance sector.
Guest speaker Hatim Maskawala, managing director at Badri Consultancy, which specializes in insurance, provided a perspective on the revised regulations and the implications for companies concerned.
Emilio Pera, a Partner and the head of KPMG’s Financial Services practice, said: “We believe that the new regulations are a positive step forward and provide a platform for further growth in the insurance sector. However, insurers may need to introduce or modify policies, systems, governance and controls to comply with new financial reporting requirements that will become effective in the short term.
“For smaller insurance companies, these requirements may be demanding and costly, requiring the diversification of risks and the creation of systems and controls adapted to manage more complex organizations. As a result, it may trigger mergers in the UAE’s insurance market.
“Overall, the financial regulations – which provide an effective framework for insurers to drive profitability across their operations and risk profiles while also safeguarding and protecting the rights of policyholders and shareholders - are likely to significantly impact the business models of UAE insurers, as well as the sector as a whole.”
According to industry estimates, the UAE insurance sector has boomed over the last five years, reporting higher profits in the first six months of 2016 than in the same period last year.
During the seminar, KPMG’s advised that early and effective VAT management was essential, calling on insurance companies to evaluate their services to determine the correct VAT code, as well as calculating the effect on working capital, costs, liabilities, compliance and their competition. Treatment of premiums was spotlighted, with Clare McColl, KPMG’s VAT leader, explaining that VAT rates -may vary according to a number of different factors.
“Premiums – whether for healthcare, life or general – could be exempt, zero-rated or taxable – it varies from country to country. Insurers are required to keep a close eye on the final legislation to understand what approach the country adopts.”
Yusuf Hassan, the Head of KPMG’s Accounting Advisory practice, discussed expected timelines for a range of upcoming changes to international standards, including IFRS 4 and 9. Amendments to IFRS4 are of utmost significance, according to most industry observers, as they have a direct and immediate impact on insurers’ profits. He also discussed forthcoming insurance contracts standards and recent key decisions made by the International Accounting Standards Board (IASB).
Adil Abid, who heads KPMG’s insurance practice, concluded the seminar by stressing that the insurance industry is at a turning point. “Insurers who begin adapting early and effectively to a rapidly changing regulatory and business landscape are most likely to be able to set their sights on growth.”
Photo Caption: Emilio Pera, a Partner and the head of KPMG’s Financial Services practice