High competition and a surge in motor and medical claims will continue to constrain Gulf Cooperation Council (GCC)’s earnings, particularly in the largest regional market Saudi Arabia, if insurers do not substantially adjust their premium rates, according to a S&P report.
This is despite the Gulf region’s ongoing economic recovery from the Covid-19 pandemic – spurred by higher hydrocarbon prices, government spending on infrastructure projects, and increasing activity in the non-oil sector-, which, according to analysts, will support Islamic (Takaful) insurers’ growth prospects in 2022 and 2023.
S&P warned that the picture for individual markets in the region may not be as positive as the region’s.
They pointed out that even though last year was profitable overall for the sector, earnings were not evenly distributed.
Analysts said: “Qatar’s relatively small Takaful sector remained the region’s most profitable, with insurers reporting a combined (loss and expense) ratio of lower than 80% (a lower combined ratio indicates a higher underwriting profit). Meanwhile, the largest market, Saudi Arabia, saw weak results, with about two-thirds of insurers recording underwriting losses, leading to an overall combined ratio of about 103% compared with 98% in 2020.
“We anticipate that intense competition and an increase in claims frequency will continue to weigh on Islamic insurers’ earnings in 2022, before a modest recovery in 2023 thanks to anticipated rate adjustments in loss-making lines and higher interest rates, which should boost investment returns.
According to the report, ongoing pressure on earnings and capital has already resulted in some capital raising and consolidation in the two largest markets – Saudi Arabia and the United Arab Emirates (UAE) – in recent years. S&P expects this trend to continue this and next year.
Additionally, weak profitability combined with new regulation and higher capital requirements will likely prompt further capital raising and consolidation, notably in Saudi Arabia and the UAE over the next year.
