Moody's – GCC insurers face big challenges
Thursday, 02 27 2020, Category: Rating, Country: Gulf Cooperation Council
Insurance companies in most Gulf Cooperation Council (GCC) countries will face moderate-to-high credit risk over the next 12 to 18 months, reflecting mounting geopolitical tension and intense competition, says Moody's Investors Service in a report published today.
Tensions between the US and Iran may harm investor confidence in the region and increase external financing costs. This could delay large scale infrastructure projects and weakening regional growth."
"Slowing growth would weigh on insurance demand, with property and casualty lines such as construction, marine & energy being particularly affected," said Mohammed Ali Londe, an Assistant Vice President Analyst at Moody's Investors Service. "That being said, the GCC countries' low rate of insurance penetration remains supportive of long term future growth."
Market fragmentation in the region has led to intense competition among insurers, as small players strive to gain market share. Tough competition puts the sector's profitability and capitalisation under pressure. Although many regional insurers have benefitted from ample reinsurance capacity and therefore have been able to share losses with reinsurers, Moody's expects competition to drive consolidation in the long run, especially as smaller insurers are under pressure from more onerous regulatory requirements.
Moody's also highlights that volatile investment performance remains a credit risk for many GCC insurers. Insurers in countries with more sophisticated regulatory regimes which rely on risk-based capital models and investment guidelines, such as the UAE and Saudi Arabia, are less affected.
Regulations are at different stages of development in each GCC country, but are converging towards risk-based capital requirements and actuarial reserving. Such measures are supportive of insurers' credit quality, although they create adjustment challenges for smaller operators.