News Middle East27 Feb 2020

Middle East:Medical inflation to weigh on health insurers' profits

27 Feb 2020

Fitch Ratings says in a new report that it expects medical inflation to keep squeezing profits for health insurers in the two largest markets in the Middle East, namely, Saudi Arabia and the UAE, says Fitch Ratings in a new report.

In the report titled, “Middle East Health Insurance: Inflation Squeezing Profits”, Fitch says it believes that profits for UAE insurers writing health business will continue to be squeezed by medical inflation and intense competition. The combined ratio for health insurance in the UAE was 100.1% in 2018 (2017: 97.8%).

The international credit rating agency believes that earnings for health insurers in Saudi Arabia remain under pressure from medical claims inflation outpacing recent premiums increases. This was reflected in the loss ratio jumping to 91% and 88% in 2019 and 2018, respectively, from 77% in 2017.

Growth opportunities

Health insurance business dominate in the insurance sector in both the UAE and Saudi Arabia. The health segment has been the fastest growing insurance line in the region since the implementation of compulsory cover in the UAE from 2005 and in Saudi Arabia from 2006, notes Fitch.

The health insurance market in both regions has matured in recent years, reflected in slowing growth and even contraction in Saudi Arabia in 2018.

Fitch believes overall profitability will remain under pressure for health insurance companies in Saudi Arabia. The loss ratio is deteriorating and price increases may not be enough to offset increasing medical claims inflation.

However, Fitch expects significant growth in the Saudi sector in 2020 following the introduction of health insurance, linked to visas, for religious visitors from abroad. Fitch expects this growth to account for more than $800m of premiums (about 8% of total insurance premiums) and cover around 17m people annually.

More broadly across the Middle East, Fitch expects implementation of compulsory health insurance in many countries will drive growth across the region.

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