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Outlook on GCC insurance markets revised to negative

Source: Middle East Insurance Review | Jul 2020

AM Best has revised its outlook on the GCC insurance markets to negative from stable, citing the economic downturn across the region and an expected lower insurance demand as the two main drivers behind the decision.
 
The fall in equity markets and potential decline in local real estate valuations are expected to have an adverse impact on capital buffers, said the agency in its latest market segment report on the GCC. Cash collection issues, which vary across the region, are likely to increase, contributing to the negative outlook. 
 
Lower insurance demand is expected following a delay in the rollout of mandatory health insurance in Oman and Bahrain, the postponement of Expo 2020 Dubai, and the potential delay of government infrastructure projects.
 
The GCC insurance markets will feel the effect of lower oil prices and a slowdown in economic activity due to COVID-19 containment measures on both underwriting and assets. The International Monetary Fund has revised GDP growth estimates downwards for all GCC countries.
 
However, the more robust governance and risk management frameworks adopted by companies in Saudi Arabia, the UAE and Qatar due to regulatory requirements are expected to cushion the impact of the negatives on the market, the report noted. Furthermore, insurers in the GCC are generally well capitalised and capable of enduring stress scenarios, said AM Best.
 
While the ultimate impact of the COVID-19 pandemic on the GCC insurance market is still unknown, it is expected to have a materially negative effect on most economies in the GCC as well as global investment markets, the agency said. This will consequently lead to pressure on insurers’ results and solvency.
 
Over the last few years, the GCC insurance premium has grown faster than GDP. However, that growth has been volatile, having been boosted by the implementation of mandatory insurance business lines such as medical. Premium volumes are expected to contract in 2020, partly reflecting the delays in implementation of mandatory medical lines in Oman and Bahrain, as well as reduced demand for non-compulsory insurance products. M 
 
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