Gulf insurers drawn to bonds
Thursday, 05 25 2017, Category: Insurance and Reinsurance, Country: Gulf Cooperation Council
Regulatory change and surging high-grade debt issuance by governments are encouraging Gulf insurance companies to invest in bonds, bringing the region closer to investment patterns in developed economies.
Traditionally, Gulf insurers have shown little interest in bonds, partly because of a lack of supply of highly rated debt issued by governments or blue-chip corporates.
Equities and real estate account for most of United Arab Emirates insurers’ portfolios; bonds comprised about 11 percent of listed UAE insurers' assets in 2016, and only a small portion of that was investment grade, according to Moody’s.
In Saudi Arabia, insurers traditionally invest in shorter-term money market funds or fixed bank deposits. By contrast, many European insurers allocate more than 70 percent of their funds to bonds.
The pattern in the Gulf is changing, however, as governments of the six Gulf Cooperation Council (GCC) nations issue an unprecedented amount of bonds to cover budget deficits caused by low oil prices.