AM Best, the credit rating agency, has reaffirmed its stable outlook for the insurance markets of the Gulf Cooperation Council (GCC), which includes Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates (UAE).
In its latest report, Best’s Market Segment Report: Market Segment Outlook: Gulf Cooperation Council Insurance, AM Best highlights several factors influencing the region’s insurance industry.
Despite regional geopolitical tensions, the GCC’s economic conditions remain strong, and while any escalation of tensions could have secondary effects, the region’s economic resilience continues to provide a solid foundation for growth.
One of the primary drivers of growth is the increasing demand for insurance across the region. AM Best notes that this is being fuelled by the development of new insurance products, an expansion in insurable risks, and new solutions being introduced to meet the needs of a growing population.
As GCC countries continue to diversify their economies away from oil dependency, several government-backed initiatives, particularly in sectors like renewable energy and tourism, are creating opportunities for insurers to expand their portfolios.
Furthermore, mandatory insurance schemes, such as those already introduced in the UAE and expected to roll out across other GCC countries, will continue to boost the market. These initiatives are projected to generate new revenue streams and increase insurance penetration in the region.
AM Best notes that while the outlook remains positive, there are challenges that could temper growth. GCC insurance markets are highly competitive and fragmented, with intense pricing pressures threatening profitability.
Regulatory measures, though generally beneficial for ensuring market discipline, have created increased operational costs, especially for smaller players. Moreover, the reliance on oil prices to drive economic growth remains a significant risk.
Volatility in oil prices, driven by factors like global trade tensions or fluctuations in demand, could create economic uncertainty, particularly for countries within the GCC that are heavily dependent on the hydrocarbon sector.
Despite these challenges, AM Best states that market consolidation is expected to continue, particularly in the form of mergers and acquisitions (M&A). The trend towards consolidation has been ongoing, driven by regulatory changes and the search for economies of scale.
AM Best anticipates that consolidation will continue through 2025, especially as smaller and mid-sized insurers struggle to meet capital requirements and rising operating costs.
According to AM Best, cross-border M&A activity is expected to increase as companies seek diversification and opportunities for growth in other GCC countries. Successful mergers could provide insurers with increased operational scale, geographic diversification, and improved market positions.
The regulatory environment in the GCC is also evolving, with increasing scrutiny and a greater focus on risk management and governance.
Insurers are being required to adopt more robust risk management frameworks and to meet stricter solvency requirements. While these changes are aimed at improving market stability, they also place a financial burden on insurers, particularly smaller ones that may struggle to comply with the growing demands.
Additionally, AM Best notes that regulatory interventions, such as those seen in the UAE with motor premiums, are helping to correct pricing inadequacies in the market and encourage insurers to adopt more disciplined pricing strategies.
Despite the challenges, the report shows that the outlook for the GCC insurance market remains favourable, with growth opportunities emerging from both regulatory changes and an increasing focus on risk management.
The region’s economic diversification efforts, the introduction of new insurance products, and the development of mandatory insurance schemes will continue to drive expansion in the insurance sector.
However, insurers must also navigate market saturation, pricing pressures, and fluctuations in oil prices to maintain profitability and ensure long-term growth. As the region adapts to evolving market conditions, the insurance industry will play a crucial role in supporting economic stability and development.
