DUBAI: Omani insurers remain reliant on reinsurers for technical assistance and show limited risk-bearing capacity particularly for some lines of business. Going forward, Moody’s expects that insurers will take on more underwriting risk with higher retention, owing to the increased capital requirements.

The risk retention of the Omani market is low, indicated by the overall 2013 retention of 54 per cent. This low level of risk retention is historically driven by national insurers, with foreign insurers retaining greater amounts of premiums.

The low retentions in property, marine, engineering and liability lines demonstrates insurers’ limited risk-bearing capacity, or over-reliance on third-party reinsurers for technical assistance, neither of which are generally regarded as credit positives.

“Going forward, we expect insurers to take on more underwriting risk, through higher retentions and/or through raising business volumes or weakening pricing as a result of the increasing levels of capital,” said Mohammad Ali Londe, a Moody’s analyst.

The majority of non-motor business is written via the 29 brokers in the market, while motor is predominantly written directly, mainly through branches. Bancassurance, an avenue previously limited in its use, has recently seen Omani insurers initiating partnerships with banks. This should enable the market to benefit from this distribution channel which has flourished in some of the other GCC markets.

Similar to the other GCC markets, Oman’s insurance market has been dominated by non-life products at over 90 per cent. Motor and medical premiums are the largest lines, cumulatively contributing around 58 per cent of the gross and around 79 per cent of net written premium in 2013.

Reliance on higher risk assets expected to continue, especially for smaller insurers. “In terms of investment portfolio, we anticipate that trends witnessed elsewhere in the GCC (i.e. significant investments in real estate and equities) will remain a feature of Omani insurance company balance sheets for the foreseeable future,” said Londe.

As capitalisation levels increase in line with regulatory requirements, insurers are expected to take on more investment risk by deploying excess capital into investment in high risk asset classes, potentially increasing volatility in the market’s performance. However adherence to restrictions on asset concentration, which are likely to have already been adopted by the larger and/or international groups, should limit excessive exposures.