UAE insurance industry to sustain dominance in GCC

Top Stories

UAE insurance industry to sustain dominance in GCC

GCC insurance tripples in size and posts $22.2b premium in 2014.

By Muzaffar Rizvi

  • Follow us on
  • google-news
  • whatsapp
  • telegram

Published: Sun 25 Oct 2015, 12:00 AM

Last updated: Sun 25 Oct 2015, 2:00 AM

The UAE will continue to dominate in Gulf Cooperation Council (GCC) insurance market, which is poised for further growth in coming years despite slower-than-expected oil price recovery, according to the latest report by Moody's Investors Service.
Despite being a small insurance market, the rating agency said the GCC remains the fastest growing insurance region, outpacing all other markets with top line growth of close to 15 per cent in 2014. It expects that the region's high economic and fiscal strength as well as increased insurance penetration will help secure similar strong growth rates in 2016-18.
Moody's report title 'GCC insurance industry entitled: Growing economy will drive further market growth over next two years', said sector's growth will continue to be supported by governments, which are making an increasing number of insurance products compulsory. 
The GCC insurance industry has more than tripled in size since 2006 as insurance premiums increased from $6.4 billion to $22.2 billion last year. This represents a compound annual growth rate (CAGR) of 16.8 per cent over the period, although growth in each market varies, ranging from as high as 20.7 per cent CAGR in Qatar to as low as 6.4 per cent CAGR in Kuwait.
The UAE insurance industry remained the largest in the region and produced over $9.1 billion of insurance revenues in 2014, equating to approximately 41 per cent of the premiums written in the GCC.

Saudi Arabia is the second largest insurance market in the GCC, with total premiums of $8.1 billion in 2014, and represented over 36 per cent of the GCC premiums written in 2014 with a compound annual growth rate (CAGR) of 20.3 per cent during 2006 to 2014.
Qatar is the third largest insurance market in the GCC. It generated total premiums of $2.2 billion, approximating to 10 per cent of the GCC premiums written, and posted a CAGR of 20.7 per cent during the period.
"The positive growth outlook on the region will continue to attract insurers - both domestic and foreign - to invest in the GCC markets, but this is likely to increase competition and put even further pressure in what is already a weak-to-average profitability in the sector," said Mohammed Ali Londe, Moody's assistant vice-president and analyst.
Moody's report said many jurisdictions in the region are enhancing regulations to strengthen the sector in particular areas, such as capital adequacy, assets quality and reserve adequacy along with providing more transparency to the marketplace. It expects that these enhanced regulations and implied additional costs of monitoring, managing and reporting may also encourage consolidation among some smaller market players, potentially reducing competitive pressures and aiding market stability.
"Insurers in the region are generally strongly capitalised and possible future pressure on profitability is unlikely to reduce the credit strength of the sector in the medium term," Londe said.
Moody's notes that the region also benefits from a generally stable sovereign backdrop, even though it is exposed to low oil prices and has the potential for political turmoil. Most GCC countries exhibit strong sovereign creditworthiness, as reflected in the fact that four of the six GCC sovereigns are rated Aa3 or higher, with all six being investment grade and four having a stable outlook.
The rating agency said insurance penetration within the GCC is well below two per cent of GDP (apart from UAE and Bahrain), compared with 5.2 per cent in Austria, which has similar premium size to the GCC and much lower than that of advanced economies such as in the US (7.3 per cent) and UK (10.6 per cent).
 With a CAGR of 15.9 per cent during 2006 to 2014, the UAE insurance industry has grown marginally slower than the GCC average, but the insurance penetration and density [the per capita $ spend on insurance] is now higher than most GCC countries at 2.2 per cent and $974, respectively, in 2014.

The UAE insurance industry, comprising of 60 insurers including 34 national and 26 foreign insurance companies in 2014, is more than equipped to reap the benefit of the market's potential growth. Large local groups such as Oman Insurance Company, Abu Dhabi National Insurance Company, Orient Insurance, Emirates Insurance Company and Al-Ain Ahlia Insurance Company, hold strong general market positions as a result of government-based business placement and local population preferences.
Foreign insurers such as RSA, AXA, Zurich, and AIG are also present, often using their globally developed expertise in commercial and industrial insurance to target local risks, according to the report.
"We expect the implementation of the enhanced regulations and implied additional costs of monitoring, managing and reporting may also encourage consolidation among some smaller market players, potentially reducing competitive pressures and aiding market stability," Londe said.
Moody's said non-life insurance forms the majority of business at around 75 per cent of total premiums, with a focus on motor, marine, engineering, liability and health. It also noted that low risk lines of home and life insurance have grown strongly, with the life segment recording a CAGR of 23 per cent during 2006-14.
The report also discussed UAE's insurance industry asset risk and its reliance on bank deposits, volatile equities and real estate market. The UAE insurers have invested in bank/government bonds and equity securities [cumulatively accounting for 64.7 per cent of invested assets]. The remainder of invested assets were held mainly in local bank deposits [accounting for 22.3 per cent) and real estate markets [accounting for 12.7 per cent).
Moody's said the financial regulations introduced by the UAE insurance regulator this year will improve insurers' asset quality, with new limits on risky asset classes and concentration risk. In addition as insurers continue to improve their asset-liability management (ALM) skills and asset-matching, credit risk will diminish.
"We note that UAE insurers would still be able to invest up to 80 per cent of their investments in real estate and equities, limiting the potential improvements in asset quality. We consider asset quality to be the key credit weakness for many UAE insurers' and these steps are a positive development," Londe said.
 - muzaffarrizvi@khaleejtimes.com


More news from