Dubai: In terms of insurance penetration, total revenue and insurance density, the UAE tops the Gulf Cooperation Council (GCC) region, Moody’s Investor Service said in a recent study.
Last year, the UAE insurance industry produced over $7.2 billion (Dh26.4 billion) of insurance revenues, approximately 45 per cent of the premiums written in the GCC. This makes the UAE the largest insurance market in the GCC.
“With a six-year compound annual growth rate [CAGR] of 17 per cent, the UAE has grown marginally faster than the GCC average. Insurance penetration and density is now higher than most GCC countries at 2 per cent and $1,464 respectively in 2012, albeit still modest compared to advanced economies,” Mohammad Ali Londe, an analyst with Moody’s, said.
With 63 insurers (61 primary insurers and 2 reinsurers) in 2012, the UAE’s insurance companies are more than equipped to reap the benefits of the market’s potential growth. Large local groups such as Oman Insurance, Abu Dhabi National, Salama, Arab Orient and Emirates Insurance hold strong general market positions as a result of government-based business placement and local population preferences. Foreign insurers such as RSA, AXA, Zurich and AIG are also present, often using their globally developed expertise in commercial and industrial insurance to target local risks.
According to official estimates, the UAE’s insurance sector is likely to expand around 10 per cent this year, and growth may accelerate after reforms which are currently being planned, the director-general of the government’s Insurance Authority said last month.
“We have to introduce new laws and regulations to regulate the whole sector to achieve more growth,” Ebrahim Obaid Al Za’abi, director general of the UAE Insurance Authority, said.
Proposed changes
Among such reforms are the setting up of a central sharia board of scholars to regulate takaful (Islamic insurance) and the introduction of regulations for insurance brokers, both of which are in the final stages, Al Za’abi said. An international consultancy has been hired to draw up regulations, he added without naming it.
Analysts say that although the sector is growing at a healthy rate, with the exception of the top five players in the market, the average premiums per insurer stand at approximately $83 million. “This indicates a considerable level of industry over-capacity, which depresses the market’s overall performance. Further consolidation or the exit of players is likely necessary in order to enhance market stability. The suggestion of consolidation has been voiced by the UAE Insurance Authority when it announced a desire to see mergers within the market earlier this month,” Londe said.
The asset quality of the UAE insurance sector came under close scrutiny following the global financial crisis. It is no secret that many insurers had a substantial portion of their investments in equities. The remainder of invested assets were held mainly in government bonds, in local bank deposits (accounting for 34.6 per cent) and real estate markets (accounting for 19.8 per cent).
“In our view, such exposure to volatile, albeit growing, local equity and real estate markets can represent a substantial credit challenge for many insurers, notwithstanding the significant increases in their asset valuations in 2013 year-to-date [YTD]. However, the continued development of the UAE’s capital markets, including for example continued growth in fixed income markets, should lead to wider asset choice and reduced asset volatility over time,” Harshani Kotuwegedara, associate analyst at Moody’s, said.
