GCC insurance sector’s profitability defies dismal forecast

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Combined profits in 6-nation bloc hit $324M; UAE enjoys 30% share

Quashing dismal forecasts of an industry downtrend in 2019, insurance sector profitability in the GCC surged 5 per cent in the first quarter with the UAE claiming more than 30 per cent of the total.

The combined insurance sector profitability of the six-nation bloc rose to $324 million in the first quarter from $308.7 million a year ago. The profitability of 26 listed insurance companies in the UAE in the quarter reached $98.15 million compared to $98.2 million in the year-ago quarter, showing almost flat growth, according to data released by Bloomberg & U Capital Research.

S&P Global Ratings expects the trend of decreasing profitability to continue in 2019. The ratings agency said in a report that growth of gross written premiums (GWPs) in most GCC markets will likely stay sluggish, due to the lack of new mandatory insurance coverage and difficult economic conditions. Although the GCC’s six insurance markets should remain profitable, S&P said it anticipates a decline for some of them this year.

“A modest pickup in GDP growth across the region in 2019 will not necessarily translate into stronger GWP growth, since lacklustre consumer spending and corporations’ need to cut costs will persist,” it said.

Kenneth G. Maw, managing director at RP Insurance Consultants, said the UAE is “certainly undergoing testing times and quite rightly most businesses are battening down the hatches and are probably more focused on controlling expenditure… which unfortunately has a knock-on effect throughout the economy”.

“Notwithstanding this, the sample of listed firms only reflects probably half the number of operating insurers in the country and I am certainly aware that many of the unlisted firms have experienced strong performance and growth in Q1 through implementing improved IT systems and improving service delivery so all is not just doom and gloom and opportunities are out there to stimulate growth,” said Maw.

“With increasing geopolitical tensions regionally, we probably will continue to face an unsettled period although historically, the insurance industry has tended to weather these storms fairly unscathed, however only time will tell. It will be interesting to gauge the same set of stats after Q3 and Q4 to get the real picture of what is happening in 2019,” said Maw, an industry veteran in the UAE.

Commenting on the research data, Maw said: “The positive incline of 5 per cent rise in GCC-wide profitability has been heavily supported by almost a 30 per cent increase in Saudi Arabia’s figures, as well as 17 per cent in Kuwait.”

“Needless to say, Saudi Arabia is enjoying a steep incline as in addition to a lot of activity in terms of major new projects and capital investment within the kingdom, it is also still in the process of rolling out compulsory medical insurance which has no doubt injected further premium spend. Kuwait too has been investing heavily in new projects which will have stimulated its’ above average growth in premium,” said Maw.

He said in view of the fragility of some of the smaller firms operating in the territory, “this is probably the right time to start looking more closely for M&A opportunities and consolidation within the Insurance sector for insurers as well as brokers”.

Fareed Lutfi, secretary-general of the Emirates Insurance Association, has also said M&As would inevitably happen in the UAE’s overcrowded insurance and Takaful industry.

“M&As are inevitable to happen in the UAE and the GCC. Usually, banks start – which has already happened in the GCC – and then the insurance sector follows. We have already seen some mergers and acquisitions taking place recently in Bahrain,” said Lutfi.

In a separate report, S&P said the main drivers of premium growth in 2019 would be an increase in infrastructure spending in Abu Dhabi following the adoption of a Dh50 billion multiyear stimulus package, and investments in Dubai in the run-up to Expo 2020. The ratings agency said a new labour insurance system to replace bank guarantees for workers could also lead to higher premium volumes.