With more and more high value risks being written and reinsured with security in the MENA region, earlier this year Lloyd’s of London announced plans to establish an office in the Dubai International Financial Centre (DIFC), subject to regulatory approval. The decision by Lloyd's to explore a more permanent presence in the DIFC is an interesting one given the presence, in one form or another, of an increasing number of Lloyd’s insurers in the DIFC, with others set to follow.
A number of Lloyd’s insurers provide reinsurance cover for the risks written in the MENA region. Some have established DIFC companies that act as coverholders underwriting business for their respective Lloyd's syndicates. The MENA region predominantly provides for admitted insurers in large markets such as the UAE, and a moratorium is currently in place that prohibits new entrants to the direct insurance market. Establishing a presence in the DIFC however, provides a convenient platform to underwrite reinsurance business in the region.
It has been reported that Lloyd’s wishes to set up a full trading platform in the DIFC and is working with the Dubai Financial Services Authority (DFSA) in relation to applicable regulatory regime. Lloyd’s platforms have been set up in a number of other jurisdictions. In certain instances, this has involved a change of the regulatory regime in those jurisdictions to accommodate the unique nature of Lloyd’s trading as an association of underwriters. For example, in Singapore the regulatory regime was amended in 2001 by the insertion into the Insurance Act (Cap 142) of a new Part IIA to provide for “foreign insurer schemes.” The Lloyd’s Asia Scheme was set up enabling Lloyd’s underwriters in London to accept non-life insurance business directly in Singapore through service companies, the coverholders for relevant Lloyd’s members, with Lloyd’s of London (Asia) Pte Ltd acting as the administrator. In Japan, Lloyd’s Japan Inc was established, which is a wholly owned subsidiary of Lloyd’s and allows Lloyd’s underwriters to underwrite non-life business through Lloyd’s Japan Inc as their general agent.
It will be intriguing to see the nature of the regulatory environment that would apply to any Lloyd’s platform in Dubai, as the precise format is under consideration. The DFSA may create a special regime for Lloyd’s in the DIFC, which could involve creating a vehicle for Lloyd’s underwriters to establish a physical presence in the DIFC or, possibly, the appointment of Lloyd’s as an agent for London based syndicates or some other regulatory regime.
With the DIFC increasingly developing as a subscription market, an increased Lloyd's presence may lead to improved consistency of contractual terms used by the market. In particular, law and jurisdiction clauses may be subject to greater scrutiny. Under Dubai law all contracts entered into in the DIFC are automatically open to the jurisdiction of the DIFC Courts. In addition, Lloyd’s itself would be open to the jurisdiction of the DIFC Courts by virtue of a presence in the DIFC. Whilst English law and jurisdiction are likely to remain a popular choice, there could be room for increased use of the DIFC Courts, which provide a convenient dispute resolution forum in the MENA region. Indeed, the DIFC Courts are starting to hear more jurisdiction disputes involving reinsurances placed in the region.
Whilst the full commercial impact on the regional markets and the manner of doing insurance business in the DIFC remains to be seen, undoubtedly the news of Lloyd's plans serves to underline the burgeoning reinsurance hub that the DIFC has become.