Dubai: Strong balance sheets have taken the sting out of the dismal overall underwriting results of the UAE insurers last year.

Aggregate return on equity (ROE) in 2014 was 5.4 per cent, down from 8.1 per cent in 2013. Adnic is again an outlier, and if excluded, overall ROE for 2014 climbs to 8 per cent, almost exactly the same as in 2013.

There are some wide disparities though, with six companies reporting negative ROEs, and nine reporting ROEs above 10 per cent. Based upon disclosures in the financial statements 10 per cent of the market’s net profit of Dh878 million derives from asset value gains, and on balance no single company was dependent upon asset value gains for declared 2014 net profit. Of the 29 listed insurers, 10 recorded increased net profits in 2014.

Total shareholder funds of listed insurers were Dh16.7 billion last year up 7 per cent from Dh15.7 billion in December 2013 indicating strong capital adequacies for the market.

Total assets (including reinsurers’ reserves) grew by 9 per cent to Dh39.2 billion to year-end 2014, and of this total, invested assets were Dh25 billion, so 59 per cent, down just slightly from 61 per cent at end-2013. S&P sees no meaningful change in the asset allocation strategies for the market, with 30 per cent in bank deposits, 38 per cent in equities, and 22 per cent in real estate. Of note, net technical reserves of Dh8.2 billion (up 11per cent) were 84 per cent covered by cash deposits alone, so we see a robust liquidity position for the market overall, when including equities.

For the market as a whole, the year ahead is expected to be see earnings volatility. But higher prices in motor and medical will start to promote a recovery in earnings by the end of the year.

“We believe 2015 might be seen as an inflection point, with underwriting starting to recover by year-end and investment yields slowly benefitting from the anticipated rise in interest rates. At the same time, equity prices and investment yields (remember, these are 38 per cent of invested assets) may slip,” said Willis.

Despite the overall positive outlook some of the recent regulatory changes are expected to pressure on earnings. The new insurance laws introduced in February 2015 by the Emirates Insurance Authority may constrain earnings recovery. If fully adopted implemented this year, the sector is likely to see further corrective actions in terms of reserve strengthening by insurers, and this may keep underwriting results depressed.