Mounting geopolitical tensions and intense competition are set to weaken growth for re/insurers in the Gulf Cooperation Council (GCC) region, according to analysts at Moody’s.
The rating agency said that GCC insurers are set to face moderate-to-high credit risk over the next 18 months due to tensions between the US and Iran.
The stand-off is expected to harm investor confidence in the region and increase external financing costs, which could delay large scale infrastructure projects and weaken 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,” he added.
Market fragmentation in the GCC region has also led to intense competition among insurers, as small players strive to gain market share, further putting 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.
Moody’s also highlighted that volatile investment performance remains a credit risk for many GCC insurers, although companies in countries with more sophisticated regulatory regimes, such as the UAE and Saudi Arabia, are less affected.
