Economic Substance Regulations for Insurance Business

Understanding ESR for the insurance business is important for people who operate this business in the UAE because it is one of the relevant activities as described by the Economic Substance Regulations in UAE. The insurance business is the one that includes non-life and life insurance, captive insurance agreements, contracts of reinsurances, etc. This does not include the insurance brokerage firms as these are only agents and not actual licensees.

Regulatory Authorities for Insurance Business

The Cabinet Resolution no. 57 of 2020 has clearly described different regulatory authorities that regulate different relevant activities according to the ESR in UAE. ESR for insurance business is managed by the following relevant authorities;

  • The insurance business is usually licensed under the Insurance Authority.
  • If the insurance business is being executed in a free zone then it is licensed under the Free Zone Authority.
  • If the insurance business is being executed in a financial free zone then it is licensed under the Financial Free Zone Authority.

Core Income Generating Activities of Insurance Business

The ESR regulations have clearly defined the Core Income Generating Activities or CIGAs of every business that falls under its scope and insurance business is not an exception. The CIGAs of an insurance business mainly includes the following as per the Cabinet’s decision;

  • There is an adequate and efficient calculation and prediction of risks in the insurance company. The company determines the costs and related risks of several insured events. With every insurance premium that is charged, there should be a calculation and acceptance of related risks in advance.
  • The company provides adequate insurance services to its customers and makes sure to insure or re-insure against risk. It makes certain policies against certain risks when it comes to providing insurance.
  • The insurance business underwrites every single insuring or re-insuring activity in order to deal with risky situations that can cause losses. 

Read also : Why should a Business Comply with ESR

Requirements of ESR for Insurance Business

Economic substance regulations in the UAE apply some requirements on the companies that perform the relevant activities e.g, insurance business. Following is what regulatory authorities will require from an insurance business.

  • The authorities will check whether the insurance business is actively executing the relevant activity in the UAE.
  • The authorities will check how much the insurance business participates in the overall economy of the UAE.
  • The authorities will determine whether or not the insurance business has earned a relevant income from the activity in every relevant financial year.
  • The authorities will regulate legal activities like taxes, penalties, fines, etc.

Following are the three general steps in the ESR that every insurance business in the UAE has to follow;

  • ESR Notification

Every insurance business is required to submit a notification within six months from its financial year-end date. In this notification, the authority will require several pieces of information from the business. It mainly asks whether or not the business has been active during the relevant year. The status of being a licensee or an exempted licensee also needs to be confirmed with evidence in this notification before moving on to the next procedures.

  •  ESR Report

Every insurance business in the UAE is required to submit an ESR report within 12 months from its financial year-end date. If an insurance business is exempted then it will not be required to submit a report to the regulatory authority. The report mainly asks for information such as income, employees, assets, etc.

  •  ESR Test

Every insurance business in the UAE needs to meet this ESR test. It is aimed to confirm that the business is performing its core income generating activities in the UAE with great management. The business should have a sufficient number of assets and a sufficient number of employees in those assets in order to meet this test. Information will also be analyzed in case of outsourcing any activities. Compliance with this test is mandatory to keep executing the insurance business in the UAE.

You Should Know : Relevant activities under Economic Substance Regulations

What if an insurance business has not earned in a financial year?

In case an insurance business has been inactive during a financial year or it has not earned anything from the business in that relevant period then it can fall under the exempted licensee status. In this case, certain requirements still imply i.e, the insurance business still has to submit the notification with evidence to support its exempted status in order to avoid other requirements. The business has to perform these functions carefully otherwise it can face certain penalties and fines in the UAE as per the ESR regulations. 

Choose the Best Services

If you have any more queries about ESR for insurance business, consult Economic Substance Regulations  for expert answers. Understanding the ESR and fulfilling its requirements can be a difficult task and even a minor mistake can attract penalties. Choose our expert service providers to help you throughout these procedures. Let us make it easy for you.