While GCC insurance markets are generally still profitable, the trend of decreasing profitability is expected to continue in 2018 and 2019, said S&P.
In an assessment of listed insurance companies across the GCC, the rating agency found the profitability of GCC insurers, excluding those in the UAE, to be on a downward trend since 2015.
The most striking decrease in profitability is that of listed insurers in Saudi Arabia, which fell from about $580m in 2016 to approximately $380m in 2017 – mainly due to weaker results of two market-leading companies, said Mr Emir Mujkic, a lead analyst of insurance ratings at S&P, in an article by The National.
The insurance sector in Qatar also suffered a large drop in profitability in 2017 given the impact of natural disasters that hit the US on the country’s largest insurer, Qatar Insurance, and the Qatar boycott.
Most markets are generating profits. However, the operating performance of non-life GCC insurers remains volatile and highly susceptible to government regulations and profitable investment returns. The pressure on insurers’ profitability will continue and the industry is likely to see companies raise funds or look for alternative methods to comply with new regulations, potentially leading to more industry consolidation, said the agency.
Geopolitical risks and fluctuations in global equity and commodity prices could also contribute to greater volatility since investment returns typically contribute to a significant share of insurers’ earnings.
Long-term prospects remain stable
While growth in insurance premiums are likely to be slower in some GCC markets this year compared with previous years, longer-term growth prospects of the industry remain satisfactory. A growing population and improving insurance awareness are driving the gradual growth of GCC insurance markets.
In 2017, the UAE had the region’s largest and fastest-growing insurance sector, recording an estimated 12% y-o-y growth in GWP. The UAE market is forecast to see a double-digit growth in 2018, while some other markets in the region are likely to experience relatively slow growth, mainly due to challenging economic and geopolitical conditions, said the agency.
Growth in the insurance sector is highly dependent on government-driven initiatives such as infrastructure and development spending, new regulations and the introduction of new mandatory (medical insurance) covers.
The possible implementation of mandatory medical covers in the UAE’s Northern Emirates, the planned privatisation of medical insurance in Kuwait and Qatar and increasing health insurance penetration in Saudi Arabia will favourably impact the sector in the medium term. M