S&P expects modest insurance growth in the UAE
Friday, 02 14 2020, Category: Rating, Country: U.A.E
Insurers in the Gulf Cooperation Council (GCC) region may encounter several risks this year that could end up them having to raise more capital or consolidate their companies.
Intensifying competition, increasing asset risk and more onerous and costly regulations are among the major risks that could weigh on the earnings and credit conditions of GCC insurers, according to S&P Global Ratings.
"It is likely that some will have to raise new capital, consolidate through mergers, or even exit the market entirely. This could particularly be the case in Saudi Arabia and Kuwait, where new regulations including higher capital requirements are likely to be adopted in the near future," Emir Mujkic, credit analyst at S&P Global Ratings, said.
Despite the challenges, however, Mujkic said their ratings are still supported by insurers’ “robust capital positions.”" We anticipate that pressure on some rated entities will gradually ease, since a number of companies have strengthened their internal controls and governance arrangements, or de-risked their asset portfolios following years of weakening capital and liquidity buffers,” said Mujkic “However, we expect that a number of smaller, unprofitable, and/or undercapitalised insurers will struggle to meet increasing regulatory demands," Mujkic added.
According to S&P, weaker economic activity has led to a slowdown in gross written premium (GWP) growth in most GCC insurance markets in recent years, and competition has intensified particularly in motor and medical lines, which together make up more than 60 percent of the total non-life GWP in each market.
S&P said that although economic growth in most Gulf countries is expected to pick up in 2020, the market may not see much stronger GWP growth, as slower consumer spending and cost-cutting measures among many corporations, coupled with a high competition, will likely persist.
The ratings agency believes, however, that the GCC insurance market will continue to expand and remain profitable overall, although at different rates, as average insurance penetration in the Gulf is still very low, at 1.9 percent, compared with 3.2 percent in other emerging markets and about 6.1 percent globally.
The GWP growth in the UAE is forecast to remain relatively modest in 2020 in the absence of any new significant requirements for mandatory insurance coverage. The main drivers for growth will be related to ongoing infrastructure spending in Abu Dhabi, Dubai and other emirates, as well as higher visitor arrivals in Dubai during the World Expo2020, the ratings agency said.