Growth in gross premiums in the Islamic insurance (takaful and Islamic cooperative tawuni) sector in the GCC slowed significantly to less than 1% in 2016, according to a report by S&P Global Ratings.
The slowdown follows years of annual growth in gross premiums of up to 20%, mainly driven by the introduction of new mandatory covers, as well as strong increases in premium rates in Saudi Arabia as new covers and actuarial pricing guidelines were adopted.
“The slowdown in premium growth has also been influenced by lower economic activity across all GCC states, as governments are trying to reduce or delay their spending due to lower revenues from hydrocarbon sales,” said S&P Global Ratings’ Credit Analyst Emir Mujkic.
Despite the slowdown, the pre-tax net income of publicly listed companies in the sector reached US$683 million in 2016, up from about $274 million in 2015, mainly as a result of rate increases in Saudi Arabia following the introduction of actuarial pricing.
Notwithstanding the material improvement in overall pre-tax net income, it is still too early to announce good news for the sector as a whole, said S&P. This is because profits are still unevenly distributed across the sector, and historic rapid growth, combined with accumulated net losses, continues to erode the capital strength and damage the credit profiles of a number of companies in the sector. This is particularly true of some takaful operators in the UAE, which are often competing with larger and more diversified conventional peers in an overcrowded market. The shorter track records and less diversified businesses of these UAE takaful operators put them at a disadvantage now that stricter regulations are being adopted in the country.
In 2016, the combined gross premiums of takaful operators in the GCC reached nearly $11 billion (based on available data from publicly listed companies), representing about 45%-50% of total global takaful premiums. Last year, around 87% of the takaful premiums in the GCC were written in Saudi Arabia, followed by the takaful sector in the UAE, with about 8% of premiums.
S&P anticipates that overall premium growth in the takaful sector in the GCC will pick up again slightly in 2017 as economic conditions slowly improve and governments continue to privatise some of their services, which should benefit the insurance sector as a whole. M