Insurers in the United Arab Emirates (UAE) are expected to face challenging market conditions in 2019 due to weakened underwriting discipline and competition surrounding rates, according to analysts at A.M. Best.
The UAE insurance sector continued its earnings momentum in 2018 to deliver a second consecutive year of strong profits, while national insurers generally posted improvement in both underwriting and overall performance, combined with modest premium growth.
Regulatory changes in 2017 also resulted in improved pricing and underwriting discipline for key business lines such as motor and medical insurance, contributing to underwriting returns in 2018.
However, in the absence of any continued regulatory intervention in 2018, A.M. Best has observed that underwriting discipline appears to have weakened, with market practice returning to its historic levels of fierce competition and heavy rate discounting.
Analysts noted that a number of UAE companies undertook capital management actions in 2018, particularly those that were in breach of the Insurance Authority’s solvency requirements.
Some insurers sought to reduce the impact of inadmissible funds by de-risking their investment portfolios, while others have sourced other financial reinsurance solutions to alleviate solvency, and a small number have continued to rely on additional capital from shareholders to shore up solvency.
Despite all of these actions, A.M. Best expects that some companies will still remain below regulatory solvency levels for 2018, although it remains uncertain how the regulator will respond to continued breaches at this time.
Overall, the UAE insurance sector posted a 6.4% increase in net profits in 2018 and a return on equity of 8.4%, slightly above the 2017 returns of 8.1%.
“Despite the strong results in 2018, AM Best expects 2019 to be a more challenging year,” the rating agency stated in its report. “Of prime concern are the above mentioned softening of rates for motor which occurred in 2018.”
“Additionally, pricing across all other lines have reduced, driven by the highly competitive market environment,” it continued. “These policies will earn out in 2019 and could lead to technical margin erosion. Further softening of rates in 2019 would not be unexpected.”
