Potential premium growth following the rollout of mandatory health insurance in Oman and Bahrain, as well as short-term growth opportunities arising from the 2020 World Expo in the UAE, are key factors supporting a stable outlook for the GCC insurance market, said AM Best.
In addition, extensive reinsurance support, advances in risk management and improved regulatory sophistication across the region, are factored into the outlook.
In its recently published report, ‘Market Segment Outlook: Gulf Cooperation Council’, the rating agency said these factors are partially offset by a heightened risk environment due to elevated geopolitical risks. This increases the potential for volatility in hydrocarbon prices, which may, in turn, affect public spending in the region.
Insurers reporting under the international financial reporting standards (IFRS) face challenges and opportunities relating to IFRS 17, a new accounting standard for insurance contracts, the agency said. There will be operational challenges to implement the standard, which is currently scheduled to be effective for accounting periods beginning on or after 1 January 2022. Financial statements are also likely to be more complex under IFRS 17, particularly for life business, and the new reporting will present a challenge to maintain continuity of key performance indicators with those currently used.
However, the agency also views the standard as presenting an opportunity for insurers to resolve some of the shortcomings in current reporting and to disclose a better economic representation of the entity in audited financial statements to external stakeholders, again particularly in the life segment.
The outlook noted that the balance sheets of GCC insurers generally remain well capitalised and capable of enduring catastrophe stress scenarios, although insurers are vulnerable to shocks in investment markets, which may become more severe if economic and political instability increases.
Balance sheet strength could come under pressure for some insurers if earnings decline and shareholder dividend expectations do not adjust. The rating agency believes insurers which are innovative, have capital buffers, are able to rationalise their dividend policies, and have preferential access to business are in a better position to withstand the pressures of the current operating environment. M