Insurers in the Gulf Cooperation Council (GCC) countries will face moderate credit risk over the next 12-18 months due to muted economic growth driven by low oil prices and relatively high exposure to volatile investment assets, according to Moody’s.
Low range-bound oil prices have reduced insurance growth potential as a result of lower personal income affecting personal lines business and reduced government spending adversely impacting commercial lines.
Growth in GCC premiums sank from 12.3% in 2015 to 3.3% in 2016, and a similar growth rate of about 3.5% is expected in 2017, said Moody’s.
In addition to the impact of sluggish economic growth, Mohammed Londe, an Assistant Vice President at Moody’s, explained that: “Asset quality continues to be a key credit weakness for many insurers in the region.
“Low levels of GCC sovereign and corporate bond issuance have historically limited insurers’ fixed income investment options, increasing their exposure to volatile equities and illiquid real estate investments, making their investment returns more volatile.
The credit risk comes despite recent improvements in insurance regulation in GCC countries having given re/insurers a considerable boost, resulting in improved profitability and capitalisation, although analysts noted many smaller insurers are struggling with rising regulatory compliance costs.
Regulations are moving towards risk-based capital requirements and actuarial reserving, with each GCC country in different stages of development; Bahrain and Saudi Arabia have some of the most developed regulatory framework in the region, while UAE and Qatar are in the implementation phase of new regulations.
However, the re/insurance industry also stands to benefit from factors expected to drive premium growth including “continued expansion of compulsory medical cover across the region, as well as rising motor and property insurance prices to support premium growth for the next 12 – 18 months,” said Londe.
Infrastructure spending, including events such as EXPO 2020 and 2022 World Cup, are also expected to further support premium growth over the next five years and help offset potential credit weakness.
