Middle East and South Africa based Clyde & Co lawyers answer important questions on the Reinsurance industry.

South Africa

(1) What are the rules and procedures for setting up a new reinsurance company in your country?

In order to conduct reinsurance business in South Africa all reinsurers must be registered either as a long-term insurer for purposes of reinsuring life insurance policies or as a short-term insurer for purposes of reinsuring non-life insurance policies. In order to obtain a licence, a reinsurer must be incorporated as a public company in South Africa and must meet local insurance legislative requirements including local capitalisation. Applicants must provide a five-year projection to the relevant registrar. Branches of foreign reinsurers are not allowed, although there are draft legislation in the process of being promulgated which will allow reinsurers to obtain a licence to operate a branch in South Africa. Currently, foreign reinsurers that do not carry on insurance business in South Africa is not required to be licensed as an insurer in South Africa, although the aforesaid draft legislation seeks to prevent solicitation of reinsurance business in South Africa without being licenced in South Africa.

(2) What are the capital and surplus requirements for a reinsurance company?

The current minimum capital requirements are ZAR10 million for a long-term insurer/reinsurer and ZAR5 million for short-term insurer/reinsurer. The capital requirements may increase depending on the five year projections of the insurer. South Africa is in the process of implementing the Solvency Assessment and Management Project (SAM) which introduces a risk-based solvency regime for insurers based on Solvency II. Foreign reinsurers are currently not required to hold capital, However in order for the ceding local insurer to reduce its statutory liabilities (and consequently their capital requirements) by appropriately allowing for the risk transfer provided by the reinsurance arrangement to the foreign reinsurer, the foreign reinsurer must post collateral in the form of deposits with the cedant or an irrevocable guarantee or letter of credit with a South African bank

(3) Are there any restrictions on foreign ownership of a reinsurance company?

No, but in order to conduct reinsurance business in South Africa, the reinsurance company must currently be incorporated in South Africa and duly licensed.

UAE

This overview covers the position in the six Gulf Co-Operation Council (GCC) states (Bahrain, Qatar, Oman, United Arab Emirates, Saudi Arabia and Kuwait)

(1) What are the rules and procedures for setting up a new reinsurance company in GCC states?

New re/insurance companies may be established in the various GCC jurisdictions as joint stock companies or shareholding companies, some of which require listing on the local stock exchanges, or as a branch of a foreign insurer; public joint stock companies are the only permitted form of entity in the Kingdom of Saudi Arabia (KSA).

However, it is worth noting that since late 2008 there has been a moratorium imposed by the United Arab Emirates (UAE) insurance regulator on the issuance of new licences to re/insurance companies in the UAE, for both locally listed companies and branches of foreign re/insurers, and we are not aware of any indications that this will be removed any time soon. Similarly, following the initial licensing process that took place in KSA to establish around 30 registered companies, it is unlikely that any new reinsurance companies will be permitted to establish in KSA.

The Dubai International Financial Centre (DIFC) and Qatar Financial Centre (QFC), which are specialised financial centres, have emerged as the most flexible and viable jurisdictions for establishing reinsurance ventures in the region. Reinsurers are able to establish a presence in these financial centres, registering as branches of foreign companies, or as fully capitalised new companies, or as underwriting agents on behalf of other foreign reinsurers. From a base in these financial centres, reinsurers are currently able to access all GCC markets without setting up a physical presence in any of the GCC states themselves.

The DIFC, in particular, has emerged as the regional reinsurance hub, with over 40 reinsurance entities, including Lloyd's of London, having established a presence in the centre.

(2) What are the capital and surplus requirements for a reinsurance company?

There are varying requirements across the region, with some jurisdictions prescribing set amounts that must be set aside and others (e.g. the UAE, Bahrain and Qatar) requiring reinsurers to adopt a risk-based approach to the maintenance of capital and reserves.

All of the jurisdictions prescribe absolute minimum requirements in respect of capital for reinsurance companies, which range from US$10m in the DIFC to AED 250m (approximately US$68m) in the UAE and KSA. Additional risk-based solvency requirements apply requiring additional capital to be maintained.

Most jurisdictions require capital to be held locally, and restrict the level of offshore capital permitted.

In the DIFC and QFC, a waiver from the requirement to hold local capital can be obtained from the regulator, and the capital requirements for underwriting agents are much reduced, starting at US$10,000 in the DIFC.

(3) Are there any restrictions on foreign ownership of a reinsurance company?

Yes. There are strict restrictions on foreign ownership of reinsurance companies in most of the GCC states, with the notable exception of Bahrain and the DIFC and QFC, where 100% foreign ownership is permitted. In Kuwait, the majority of the capital of reinsurance companies established in Kuwait must be held permanently by Kuwaiti nationals. In the UAE, 25% foreign ownership is permitted, and similar restrictions apply in Oman and Qatar.

On the basis of the above, and given its growing role as a reinsurance hub for the region, a foreign reinsurer seeking to establish itself in the GCC would be best served to set up its operations in the DIFC, given its regulatory framework, its favourable capital regime, and the absence of any restrictions on foreign ownership within the jurisdiction.