The aggregate solvency position of insurers in the UAE remained adequate with a Solvency Capital Requirement (SCR) of 193.8% at the end of December 2022, compared to a required minimum of 100%, said the central bank (CBUAE).
In its ‘Financial Stability Report 2022’ the CBUAE said that the SCR declined by 4.1 percentage points from the end of the previous year due to a large increase in required capital compared to available own funds. The increase in required capital was mainly because of credit risk and underwriting risks on the back of claims and expense inflation.
The overall profitability of the insurance sector declined in 2022 amidst weaker investment performance, said the report. Total profit contracted by 25.1% to AED1.9bn ($517m), underpinned by net unrealised losses from bonds and equity investments. This was due to higher bond yields amidst rising interest rates and the weaker performance of global equities during the year.
Net underwriting income improved on the back of strong premium growth compared to claims payouts in 2022. As a result, the gross loss ratio improved, edging lower to 54.2%.
GWP in the UAE insurance sector continued to grow at 6.6% in 2022 to AED47.2bn, surpassing pre-pandemic levels. The growth was mainly driven by property and liability insurance followed by health insurance, which grew by 15.0% and 9.7%, respectively, during the year. In contrast, life insurance premiums fell by 15.3%. The largest branches in terms of premiums were health insurance with 46.2% of total premiums, followed by property and liability insurance with 37.7% and life insurance with 16.1% respectively.
Aggregate gross claims paid increased by 2.6% during 2022, led by property and liability insurance (16.9%) and health insurance claims (2.6%). Life insurance claims payouts plunged by 31.1%.
Insurers are susceptible to financial market volatility due to sizeable equity and bond investments, the report said. The UAE insurance sector’s investment portfolio amounted to about AED62.8bn as of the end of 2022. Equity investments formed the largest share of the total investment portfolio at 35.0%, followed by debt securities at 29.9%, cash and deposits at 27.7%, real estate investments at 5.9% and the remaining being other assets.
The UAE insurance sector comprised of 62 insurers, with a combined asset size of AED119.1bn as of the end of 2022. M