GCC insurance market to see weak GWPs in 2021: S&P

Dubai - S&P noted that very high competition in the overcrowded GCC insurance industry will continue to weigh on earnings in 2021.

Gross written premiums (GWPs) will likely remain weak in most of the Gulf Cooperative Council (GCC) insurance markets in 2021 amidst lower business activity and increased competition among Takaful and conventional insurers in recent years, says a new report.

“Our credit ratings on Islamic (Takaful) and conventional insurers in the GCC have remained broadly stable over the past 18 months, supported by relatively strong capital buffers. The outlook on the sector for the next 12 months (also) remains stable. However, given that risks related to the pandemic persist, we could take rating actions in the event of a sharp decline in asset prices, unexpected and severe technical losses, or governance and internal control failures,” S&P Global Ratings said in a note released on Wednesday.

"An uneven recovery, ongoing cost-saving measures in many industries, and a shift to less business travel have further increased the pressure in key sectors such as real estate, retail, transportation, and hospitality," said S&P Global Ratings credit analyst Emir Mujkic.

"We believe these factors, combined with very intense competition in the insurance sector, are weighing on growth prospects for gross written premiums of both Takaful and conventional insurers," Mujkic added.

S&P noted that very high competition in the overcrowded GCC insurance industry will continue to weigh on earnings in 2021.

“Despite a recent material improvement in profitability in Saudi Arabia's insurance sector, more than one-third of insurers continue to report losses. A new insurance law with higher reserving requirements due to come into force over the next year could also increase pressure on small and unprofitable takaful players in Kuwait that will need to raise capital to meet these requirements,” S&P said.

"Overall, while we expect growth in the sector, we think it'll be unevenly spread, with larger conventional insurers taking more of the gains than the Takaful," added Mujkic. — waheedabbas@khaleejtimes.com