AM Best is maintaining its stable outlook for the insurance markets of the Gulf Cooperation Council (GCC).
The GCC comprises Bahrain, Kuwait, Oman, Qatar, the Kingdom of Saudi Arabia, and the United Arab Emirates.
The ratings agency noted that while GCC insurers remain vulnerable to second-order effects from the Middle East conflict, strong performance and healthy risk-adjusted capitalisation leave many well positioned to withstand geopolitical headwinds. However, the impact of an extended conflict in the region could pose significant challenges.
Other positive factors supporting AM Best’s segment outlook include opportunities for insurance sector growth, as increasing insurable risks remain an important feature of the market.
Mergers and acquisitions (M&A) activity continues, with an increase in cross-market transactions bringing geographical diversification and economies of scale for those that successfully execute such deals.
In addition, increasing regulatory scrutiny is driving a greater focus on risk management and corporate governance.
The ratings agency also outlined near-term headwinds for the segment, including GCC insurers’ vulnerability to second-order effects from the Middle East conflict, such as higher inflation.
Increased volatility in energy prices is also heightening economic uncertainty, particularly for GCC countries that rely on the hydrocarbon sector or have higher breakeven oil prices.
Reliance on reinsurance leaves insurers’ profit margins vulnerable to changes in regional reinsurance market conditions.
AM Best highlighted the segment’s reliance on reinsurance, primarily to support specialty, commercial property and engineering lines of business. Should attempts to de-escalate the US-Israel conflict with Iran prove unsuccessful, reinsurance renewals will be a critical inflection point for the sector, with reinsurers potentially looking to reassess their risk appetites.
This could lead to a reduction in available capacity, higher pricing, and changes to terms and conditions, exclusions and event limits.
Given the uncertainty and potential volatility in the region, AM Best continues to monitor the situation and its impact on the GCC insurance markets.
