After witnessing strong topline growth across 2022 – 2023, Islamic and Takaful insurers based in the Gulf Cooperation Council (GCC) region are continuing to benefit from favourable growth prospects, which is mainly due to higher insurance demand in Saudi Arabia, says S&P Global Ratings.
In a new report, S&P explained that increasing competition and declining investment returns resulting from the anticipated decrease in interest rates, and potentially more volatile capital markets, could weigh on the industry’s earnings over the next 12-18 months.
S&P also noted, that although they expect the effects of the Israel–Hamas war will remain contained to the region, the risk of regional escalation however, is increasing.
“Although this is not our base case, a regional escalation could impair business sentiment in the wider Middle East, including the GCC region, reduce growth prospects, and impair GCC insurers’ investment portfolios,” S&P said.
Moreover, the agency also stated that it expects the Islamic insurance sector in the GCC region to expand by about 15%-20% in 2024, with revenues exceeding over $20 billion
S&P expects the Saudi market to be the main driver of topline growth in the GCC region, which is mostly due to Saudi Arabia, the region’s largest Islamic insurance market, continuing to benefit from higher economic growth.
Across 2022 – 2023, topline growth was particularly strong, with the sector increasing by 20%-25% annually, which was primarily driven by the market in Saudi Arabia which expanded by about 27% in 2022 and another 23% in 2023.
Going of results for the first half of 2024, it is suggested that net profits could wind up further improving thus year, after GCC Islamic insurers reported record results in 2023.
S&P explained that the aggregate net profit in the sector improved to about $967 million in 2023, from about $100 million in 2022, with this increase mainly being driven by the Saudi market, whose underwriting results improved and investment income increased to about $690 million in 2023, from about $345 million in 2022.
As well as this, the Saudi insurance market witnessed a material increase in premium income from motor lines, with underwriting results from 2023 benefiting from rate adjustments in several lines and from Saudi authorities’ decision to reduce the number of uninsured vehicles.
S&P also added that apart from several positive outliers, the agency’s credit ratings on GCC Islamic insurers remained broadly stable over the past 18 months, and that they do not expect any major rating actions to take place over the next 6-12
months, due to the fact that most rated insurers are sufficiently capitalsed.
“While we expect overall credit conditions for Islamic insurers will remain stable over the next 6-12 months, consolidation will likely remain a hot topic among smaller and midsize players. About one-fifth of Islamic insurers in Saudi Arabia and about one-third in the United Arab Emirates merged in recent years, S&P Global Ratings credit analyst Emir Mujkic, commented.
