S&P Global Ratings has forecast that gross premiums in the UAE will grow by approximately 5% and the Saudi insurance market will see GWP increase by 5-10% in 2022.
In the UAE, growth in GWP will primarily be supported by ongoing infrastructure spending and an expected increase in visitors and residents, thanks to new visa programmes that aim to attract highly qualified expatriates.
“Higher domestic inflation and increasing interest rates in the US are expected to continue to pressure central banks in emerging markets like the UAE, to increase rates to restrain inflation and prevent capital outflows. This could weigh on financing conditions in some markets. However, higher oil and commodity prices positively contribute to GDP growth in the UAE, a primarily net energy exporting economy, and could support an increase in insurance demand in the country,” said S&P Global Ratings’ director Emir Mujkic.
Furthermore, with how the UAE’s currency is pegged with the US dollar, UAE-based insurers will benefit from higher investment returns on cash and fixed deposits as interest rates rise. However, UAE insurers do remain exposed to capital market volatility, since on average about 50% of their total investments are allocated in high-risk assets such as equities and real estate. “Rated insurers in the UAE are typically very well capitalised, with substantial excess capital above capital needs. This distorts somewhat the sector’s return on equity, which we forecast at about 8% in 2022,” he added.
An increase in mobility and resumption of nonessential medical services led to an increase in claims frequency in 2021, which is expected to continue in 2022. Combined with a decline in motor rates by up to 50% in recent years, S&P expects a weaker operating performance in the UAE with a net combined ratio of about 92%- 93% in 2022, compared to approximately 91% in 2021.
In Saudi Arabia, S&P said the GWP growth will likely be driven by more favourable economic conditions due to higher oil prices and the introduction of additional covers. At the same time, however, the rating agency anticipates motor business to remain under pressure due to intense competition and lower rates.
S&P forecasts underwriting performance will remain under pressure in the Saudi market with the net combined ratio remaining at 99%-104% in 2022, compared with 104% in 2021. Investment income, on the other hand, is expected to improve and support overall earnings as interest rates continue to rise.
Mr Mujkic said, “We expect 2022 to be another difficult year and one that will require insurers to reassess their pricing strategy, particularly for motor business.”
In Saudi Arabia, unlike in some other emerging markets, the insurers’ investment risk is relatively low, as most assets are held in fixed deposits or money market instruments at securely rated banks. M