UAE insurers face moderately low risk from coronavirus
Friday, 05 29 2020, Category: Rating, Country: U.A.E
Insurance companies in the UAE may see less premiums this year due to the pandemic and low oil prices, but underwriting profits could provide a much-needed boost.
Ratings agency S&P said on Thursday that the country faces “moderately low” risk from the economic shocks caused by the coronavirus outbreak and oil price slump, hence it remains a “relatively safe” market for property, casualty (P/C) and health insurers.
“Despite an expected slowdown in premium growth in 2020, owing to lower oil prices and measures taken to contain COVID-19, underwriting results in the UAE market will likely remain among the most profitable in the region,” S&P said.
The ratings agency said the property, casualty and health insurance sector in the country continues to enjoy “relatively strong profitability” due to “relatively modest insurance product risks,” coupled with favorable regulations.
Another key strength of the market is the “high barrier to entry,” due to the absence of new licenses and business concentration toward large players.
While there is stiff competition in the UAE’s insurance market, which is home to 62 licensed insurers, more than 40 percent of the total gross written premiums (GWP) and more than 60 percent of net profits are generated by only top five insurers.
Out of the licensed insurers, nearly half (30) are listed publicly listed. Based on the 30 listed insurers, the market generated an average five-year combined (loss and expenses) ratio of 95 percent and return on shareholders’ equity of around 6 percent over 2015-2019.
This year, S&P expects the total combined ratio of listed insurers to remain below 91 percent due to relatively low exposure to COVID-19-related claims compared with Saudi Arabia, Kuwait or Qatar. Besides, there were also fewer motor and medical claims during the recent coronavirus lockdown.