Sign in
GCC ins. providers are expected to see their income climb between 5-15% in 2024 on the back of “ongoing economic expansion in the region and rate increases,” S&P Global said in a report. “Favorable economic conditions and rate adjustments for motor and medical lines will remain key growth drivers,” S&P credit analyst Emir Mujkic says. Saudi ins. providers are projected to outpace other firms in the region this year, according to the report.
UAE ins. providers had a good 2023: Mostly driven by higher investment returns, UAE-based providers booked AED 1.8 bn in net income last year, up 19% y-o-y. The five largest listed ins. firms — out of 26 — accounted for 72% of the sector’s total income and 63% of total ins. revenues, according to S&P. This trend of market concentration is likely to continue as industry heavyweights “increasingly benefit from economies of scale and tend to have better access to resources,” compared to smaller firms, the rating agency predicts.
Weathering the (literal) storm: The ins. sector’s income is projected to remain on an upward trajectory driven by higher motor premiums and increased interest rates. Despite the damage caused by heavy rainfalls over the past months, the agency foresees the storm having little impact on local insurers as the losses are either “not insured or ceded to global re-insurers,” S&P said. Cession allows local insurers to reduce their risk exposure by passing on the losses to the re-insurers.
Moody’s forecast isn’t as sunny: Despite seeing profitability gradually pick up, the heavy rainfall that recently hit the UAE is expected to add pressure on local insurers, especially impacting small and medium-sized ins. firms that have not seen recent income growth, Asharq Business reports, citing a Moody’s report. With local ins. providers relying on reins. services to mitigate their losses, the recent weather events are projected to drive up reins. costs in upcoming renewals, according to Moody’s Ins. senior analyst Mohammed Ali Londe.
Other downside risks: The recently introduced 9% corporate tax is expected to compress earnings this year, while “investment incomes on fixed and cash deposits could decline slightly” if the US Federal Reserve moves to unwind its monetary tightening cycle this year, according to S&P.
While not currently impacting the ins. industry, geopolitical instability remains the most critical market risk, as a regional escalation of the war would be detrimental to the entire region’s economies and their banking systems, according to the report. Coupled with sluggish global economic growth, GCC insurers’ credit conditions and investment portfolios would be affected. Insurers with weaker capitalization and heightened risk exposure are expected to bear the brunt of worsened credit conditions in the scenario of prolonged geopolitical tensions as high-risk assets would “come under pressure.”
Consolidation could soften the blows: S&P Global foresees more ins. firms merging to increase their capital this year, as tighter regulations would put more pressure on smaller and underperforming companies to meet their solvency capital requirements.
ICYMI- Abu Dhabi National Ins. Company (Adnic) completed its acquisition of a 51% stake in Riyadh-based Allianz Saudi Fransi Cooperative Ins. (Allianz SF) last week, making it a majority shareholder in the Tadawul-listed ins. Company.
Credit conditions to hold firm: The rating agency projects that GCC ins. companies’ credit conditions will “remain broadly stable,” buoyed by “robust capital buffers, adequate growth,” and higher earnings.
