For the first time in many years, the 29 listed insurers in the UAE as a whole showed a net underwriting deficit, with an aggregate combined ratio of 102% for 2014, compared to 97% for 2013, and return on equity of 5.6% for las year versus 10.0% for the previous year. Despite last year's showing, the positive economic outlook for the UAE is likely to expand the insurance market this year, according to Standard & Poor's Ratings Services.
In a report titled "UAE Listed Insurers Are Digging Out From Worst-Ever Underwriting Earnings" released this week, S&P said that the last of the listed insurers in the UAE have published their financial statements for 2014. “While the news isn't good, it's not all bad,” said S&P.
"Despite the highly competitive market, insurers have held onto their balance sheet strength, and investment returns and return on equity are weaker, but acceptable," said S&P's credit analyst Mr Kevin Willis, adding that, "underwriting earnings were, however, clearly worse than we had expected."
"The main reason 2014 earnings sagged was the fiercely competitive market for high-volume medical and motor lines. We believe that insurers will stop reducing prices in these lines of business, which should help earnings start to recover by end-2015," said Mr Willis.
Of the 29 insurers, 12 reported combined ratios of more than 100%, of which six were conventional and six were takaful. Of those 12 companies in deficit at the underwriting level, 11 were also in deficit in 2013. But one new entrant stands out: ADNIC, the second-largest insurer, with a 17% market share, which announced large underwriting losses and a net deficit for the year.
“If we exclude ADNIC's results, the listed market's combined ratio looks much better, at 96% (marginally better than 97% in 2013), and return on equity is at 8%, almost exactly where it was in 2013,” said S&P.
ADNIC’s gross written premiums increased by 9% to AED2.63 billion (US$720 million) in 2014 from AED2.41 billion in 2013. Net loss stood at AED 280 million for last year compared to net profit of AED156 million in 2013. Mr Ahmad Idris, CEO of ADNIC, said in a statement: "2014 was a year which highlighted important challenges that ADNIC faced. However, we have taken firm actions to address them. We have made innovation central to our business strategy and are committed to improving our service and product offerings. I am confident that our strategy will return ADNIC to sustained profitability and shareholder value in 2015 and beyond."
AED10 = US$2.72