UAE: Financial regulations will underpin insurers' profitability - Moody's
Source: Middle East Insurance Review | Apr 2017
UAE’s new financial regulations should, in the medium term, underpin insurers’ profitability as well as their capitalisation, asset quality and reserve adequacy, said Moody’s Investors Service in a recent report, entitled “UAE – Insurance: Regulatory overhaul is credit positive despite short-term challenges”.
UAE insurers will likely see a medium-term improvement in their credit profiles as the sector adjusts to financial regulations introduced in February 2015 and overcomes initial compliance hurdles, the report said.
“At the same time, price competition may ease as increased regulatory costs trigger industry consolidation and price hardening,” said Mr Mohammed Ali Londe, Assistant Vice President - Analyst at Moody’s.
Industry consolidation is likely as a result of the new regulatory landscape. “Additional costs associated with the new regulations may prompt the consolidation of smaller insurers, or encourage them to focus on business lines that yield adequate returns,” explained Mr Londe.
Profitability for UAE insurers remains under short-term pressure as new actuarial reserve-setting and reporting requirements will drive continued technical reserve strengthening in 2016 and 2017. Over the medium term, however, stricter reserving requirements will likely encourage adequate premium rate-setting market-wide, supporting profitability.
Asset quality will also likely improve for insurers as the new rules will, over time, limit insurers’ traditionally high exposure to riskier assets such as equities and property.
In addition, the rating agency expects overall solvency to improve as the regulations set capital requirements corresponding to specific risks borne by each company.