S&P Global Ratings' ratings on insurers in the Gulf Cooperation Council (GCC) to remain broadly stable in 2021, mainly thanks to robust capital buffers and despite ongoing economic uncertainty relating to the COVID-19 pandemic, the international credit rating agency says.
Real GDP in the GCC countries will likely recover to about 2% in 2021 on average, after the sharp contraction in 2020, but S&P believes that key sectors, particularly real estate, hospitality, and retail, will remain under pressure this year, says Mr Emir Mujkic, director - lead analyst, Insurance Ratings at S&P in the report “GCC Insurers In 2021 - Robust Capital Supports Credit Quality”.
Ongoing high competition, a contraction in population of about 4% across the GCC on average, and economic uncertainty will weigh on growth prospects and earnings, while elevated asset risk could lead to further volatility in the coming quarters.
With the relatively large number of insurers in the region, some of which are small or posting losses, S&P expects to see further capital raising and consolidation, particularly in Kuwait and Saudi Arabia where regulators may introduce higher capital requirements.
About 84% of insurers in the GCC maintain capital adequacy above the ‘AAA’ confidence level in S&P's capital model, compared with about 59% across all of EMEA. However, the overall size of most insurers' capital is relatively small and can therefore quickly fluctuate. Strong growth, single events, or accumulated losses have been the key reasons for a decline in capital buffers at some insurers in recent years.