The Riffle
The Financial Services Regulatory Authority (FSRA) of Abu Dhabi Global Market has launched an ambitious review of its insurance regulatory regime. Through Discussion Paper No. 1 of 2025, the FSRA sets the stage for a modern, risk-sensitive, globally aligned framework—one designed to position ADGM as a world-class reinsurance hub.
The initiative draws inspiration from global benchmarks such as Solvency II, Bermuda’s BSCR, Switzerland’s SST, and IAIS standards, while also embracing innovation and simplification. Stakeholder feedback remains open until 16 February 2026.
Key Highlights of the Proposed Framework
1. A Risk-Sensitive Prudential Regime
ADGM Solvency Capital Requirement (ASCR)
The FSRA proposes a new capital calculation method centred on a Value-at-Risk (VaR) approach, calibrated over a one-year horizon. The ASCR will:
Recognise diversification across geography, sectors, and products.
Require insurers to maintain 120% of ASCR as a target ratio (or 150% for higher-risk entities).
Integrate a revised Minimum Capital Requirement and a “look-through” method for indirect exposures.
Introduce an intervention ladder for supervisory action.
Internal Models
Insurers may adopt full or partial internal models, subject to FSRA approval, with the aim of aligning regulatory capital more closely with actual risk. “Off-the-shelf” internal models may also be permitted for certain risk categories.
2. Three-Tier Own Funds Structure
To align ADGM with global solvency regimes, FSRA proposes a tiered capital system:
Tier 1 (Unlimited): Highest-quality capital such as paid-in ordinary shares and share premium.
Tier 2 (≤ 50% of ASCR): Subordinated instruments that absorb losses after Tier 1.
Tier 3 (≤ 15% of ASCR): Lower-quality capital, including preference shares and net deferred tax assets.
This structure enhances capital transparency, loss-absorbency, and supervisory clarity.
3. Enhancing Group Supervision & Governance
The framework will emphasise:
A principles-based definition of “group.”
Stronger oversight of intragroup transactions.
Assessment of the fungibility and transferability of capital.
Scalable governance and enhanced reporting, especially for insurers using internal models.
4. Innovation in Risk Transfer & Asset Management
Synthetic Sidecars
A standout proposal is the exploration of synthetic sidecars—a fully funded, collateralised risk-transfer mechanism within an insurer’s legal entity, functioning similarly to covered bonds. This could unlock new capital flows without requiring separate vehicles.
Insurance-Linked Securities (ILS)
The FSRA is examining how to support a robust ILS ecosystem, including catastrophe bonds. The global market reached USD 107 billion in 2024, demonstrating strong investor appetite for uncorrelated returns.
5. Asset–Liability & Liquidity Management
The FSRA is considering:
A matching-adjustment model allowing private credit, real assets, and potentially digital assets for liability matching.
Requirements to address duration mismatches for both life and non-life insurers.
Risk-sensitive treatment of derivatives, including capital charges for dynamic hedging exposures.
6. Key Areas Where FSRA Seeks Industry Feedback
Stakeholder views are invited on transformational topics:
Composite Reinsurers
Should ADGM allow firms to write both life and non-life reinsurance, aligning with global practice?
Investment & Asset Rules
Areas under review include:
Prudential treatment of alternative assets such as private credit.
Specialist asset thresholds and reporting requirements.
Arm’s-length governance for related-party transactions.
Potential use of FRTs or virtual assets for asset-liability matching.
Private Capital & Asset-Intensive Reinsurance (AIR)
The FSRA is exploring safeguards around private equity involvement, and alternatives to AIR—such as excess-of-loss structures or synthetic sidecars.
Operational Enhancements
These include a simplified portfolio transfer process tailored for reinsurance and requirements for insurers investing in esoteric or unrated assets.
7. Consultation Timeline & Next Steps
Comments Deadline: 16 February 2026
Submission Email: [email protected]
This discussion paper is the first step in a multi-phase initiative. More detailed consultation papers will follow in 2026, outlining refined rules and implementation expectations.
Conclusion
ADGM’s forward-looking initiative aims to build a next-generation insurance regulatory framework—one that is globally competitive, risk-sensitive, and innovation-ready. With its proposed shift towards economic-based capital, stronger governance, and openness to new risk-transfer mechanisms, FSRA signals its commitment to shaping ADGM into a leading reinsurance hub for the region and beyond.
