The financial regulator in Abu Dhabi is asking for stakeholder and industry feedback as it considers developing a framework to support growth of an insurance-linked securities market there, while also seeking input to a concept for a “synthetic sidecar” structure that would sit within a regulated insurance entity.The Financial Services Regulatory Authority (FSRA) of Abu Dhabi Global Market (ADGM) is seeking feedback on a number of proposals for a significant update to its regulatory framework for insurance business.The goal is to foster and support further development and growth of the insurance and reinsurance industry in Abu Dhabi Global Market (ADGM).The regulator says it aims to “strike a prudent balance between competitiveness, regulatory strength, and operational simplicity, ensuring that ADGM attracts leading market participants while maintaining robust standards.” Reinsurance is a particular focus right now for Abu Dhabi and the regulator sees an opportunity to enhance innovation within its local industry, while building efficiency and trust to attract more business to ADGM.

Demonstrating that new focus, Abu Dhabi recently established the Association of Reinsurance (ADGM) Limited (ARIA) as the country aims to elevate its marketplace and the role of re/insurance in the region.Also in 2025, , a global reinsurance platform based in ADGM (Abu Dhabi Global Market) with $1 billion plus of equity capital and partnerships with asset managers BlackRock and Lunate, while Mark Wilson the former CEO of Aviva and AIA Group is the new reinsurer’s CEO.The new push to modernise and advance the insurance and reinsurance regulatory environment in Abu Dhabi is the latest signal of the vision the country has for developing a modern and efficient marketplace for re/insurance.

Part of this includes looking to how the re/insurance and capital markets intersect, with insurance-linked securities (ILS) on the agenda as well as an innovative regulatory approach to a reinsurance sidecar structure that can sit within a regulated insurance entity instead of in a separate regulated vehicle.The FSRA notes that “the insurance and reinsurance landscape is evolving rapidly” and that it acknowledges there are room for refinements to its current regulatory regime, as well as enhancements that can stimulate innovation and make the Abu Dhabi market more competitive and attractive.As part of any enhancements made to the regulatory framework, insurance-linked securities (ILS), from catastrophe bonds, through life ILS structures, collateralised reinsurance and sidecars are also being considered.

The FSRA recognises the “utility” such transactions can bring to the re/insurance sector in Abu Dhabi, as well as how they might affect the own funds that a regulated insurance entity might need to hold.They can also support increased market capacity in ancillary areas such as asset management, and the regulator is looking at whether new concepts such as a synthetic sidecar may also prove attractive options to drive innovation and modernisation for the sector.As it undertakes the update of its regulatory framework, the FSRA is exploring the potential for insurance-linked securities to play a role.

For insurers and reinsurers, “ILS can increase the overall capacity of the reinsurance market and offer protection that is generally less vulnerable to counterparty default,” the FSRA explains.While, the regulator also notes the benefits to investors, in offering a diversifying source of attractive returns given their performance is not typically correlated with broader economic cycles.The regulator said it is “considering ways in which to develop its framework to support the growth of an ILS market.” Abu Dhabi is the first regulator in the region to request input and feedback on the potential for ILS to play a role in its domestic insurance and reinsurance market.

While this is an early stage request for input, the FSRA is already looking for feedback on a more advanced concept of a synthetic sidecar vehicle, which would act as a reinsurance sidecar but not need to sit within a separate and distinct structure of its own.The regulator notes that both the synthetic sidecar and more traditional sidecar concepts are equally of interest and hold potential for the Abu Dhabi reinsurance market as it continues to develop.On the synthetic sidecar the FSRA explains, “The FSRA is currently exploring the possibility of leveraging the benefits of a sidecar transaction for insurers without the need to use and collateralise a separate entity, i.e.

adopting a “synthetic sidecar” approach within the insurance entity.“Unlike traditional sidecars, which typically involve the creation of a separate legal entity to assume specific insurance risks, the synthetic sidecar structure is intended to operate within the existing insurer framework, using a fully funded approach.” The synthetic sidecars obligations would be fully funded and entirely collateralised from the start, providing certainty and security to counterparties and investors, the FSRA notes.On a capital basis, the synthetic sidecar would be treated like any other fully funded arrangement, with funds ring-fenced for their purpose and managed to support the specific risks being transferred, so not combined with a re/insurers assets.

As a result, the FSRA says they have a covered bond analogy for the synthetic sidecar structure proposal, with repayments guaranteed by a specific pool of assets, not the credit of the re/insurer.Paid-in capital assets to the synthetic sidecar arrangement would be ring-fenced and isolated, so exclusively available to meet its obligations.Key features of a synthetic sidecar are similar to a traditional reinsurance sidecar, in issuing a loss absorbent instrument such as preference shares or subordinated debt, which can be written down based on the performance of the reference portfolio of insurance liabilities.

The FSRA believes this could be more cost-effective than raising equity or subordinated debt.They explain, “There is a recognition that such innovative solutions could assist insurers as an alternative to raising capital through the traditional equity or debt markets and the potential may also exist for the use of synthetic sidecars, or traditional sidecars where appropriate, for more innovative types of insurance.” The FSRA further stated, “The synthetic sidecar is an innovation that combines the full collateralisation of traditional sidecars with the structural protections of covered bonds.By guaranteeing obligations through a dedicated asset pool within the insurer, it offers enhanced security and transparency for risk transfer arrangements.

This makes the synthetic sidecar an attractive, forward-looking option for both reinsurers and investors seeking robust risk mitigation solutions.” As part of the review of the regulatory framework, the FSRA is “considering permitting this risk mitigation technique,” subject to development of the synthetic sidecar concept and appropriate levels of consultation with stakeholders.The interest in reinsurance sidecars extends to additional use-cases as well.The FSRA is also exploring the appropriateness of sidecars, both traditional and its synthetic sidecar concept, for more innovative types of insurance, such as parametric coverage and asset-risk only reinsurance (asset intensive, so typically on the life reinsurance side), the regulator said, and it asks for feedback of any specific considerations related to these additional use-cases.

It’s encouraging to see this focus on identifying how the capital markets might play a role in the development of Abu Dhabi’s reinsurance market and that the regulator is clearly cognisant of just how important insurance-linked securities structures can be, in enabling re/insurers to access risk and reinsurance capital efficiently.The fact it is also looking at how to innovate beyond the standard ILS structures we see today, as evidenced by the synthetic sidecar, is also encouraging, as it shows the regulator taking a forward-thinking approach for how it can make re/insurers access to the capital markets more efficient.Recall that Abu Dhabi is not a complete stranger to the ILS market, as .

As the insurance and reinsurance market builds-out in Abu Dhabi, its capital markets and investor communities will no doubt watch any ILS developments closely, as there could be a strong synergy that can be tapped given the size of some of the pools of capital in the country and the Gulf region..All of our Artemis Live insurance-linked securities (ILS), catastrophe bonds and reinsurance can be accessed online.Our can be subscribed to using the typical podcast services providers, including Apple, Google, Spotify and more.