The key factors that will drive the growth of insurance in the UAE this year are linked to continued infrastructure projects in Abu Dhabi, Dubai and other emirates, according to S&P Global Credit Ratings.
In addition, the number of arrivals in Dubai to attend Expo 2020 events is expected to reach 25m over a period of six months from 20 October 2020. Local insurance companies will cover the event as well as provide health insurance to a large number of foreign visitors, reported Al Bayan quoting S&P.
Furthermore, the implementation of compulsory health insurance in the northern emirates could support the growth of insurance in the short to medium term.
The agency said it expects the insurance industry's operating performance to remain profitable.
S&P pointed out that on the other hand, an escalation of geopolitical risks in the Middle East and the continuing trade disputes between some major global economies, and other events, such as the spread of the Wuhan coronavirus, could lead to higher risks in the sector in the Gulf countries.
Some insurance companies invest a large part of their funds in equities, which could be affected by increasing capital market volatility.
In addition, insurers could be involved in costly preparations for the implementation of IFRS 17 that is scheduled to take effect in 2022. They have increased spending on information technology and other systems in readiness for complying with IFRS 17, and may also have to increase capital.
Despite these challenges, S&P says that credit ratings are still supported by the strong capital positions of insurance companies. It expects that pressure on some of rated insurance companies will gradually decrease with a number of companies improving internal control and governance practices and reducing risks to their asset portfolios.