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GCC insurers’ gross premiums set to grow despite slowing economies

Recent reforms in Saudi Arabia, Qatar, Kuwait and the UAE to improve underwriting incomes

Gulf News

Dubai: The insurance sector across the GCC is expected to report growth in gross premiums on continued growth in infrastructure investment and favourable regulatory changes, according to analysts.

“We forecast that gross premiums in the four largest GCC insurance markets will continue to increase in 2017, by around 30 per cent in Kuwait, and by up to 10 per cent in the other three markets,” said S&P Global Ratings analyst Emir Mujkic.

Premium growth is projected to grow in excess real GDP growth in the four largest GCC insurance markets in 2017. S&P forecasts that GDP growth will range between 1.5 per cent for Kuwait and about 3.5 per cent for Qatar.

“Our growth assumptions [of insurance premiums] are based on the planned privatisation of medical insurance schemes and ongoing government spending on infrastructure projects, which will lead to a larger number of insurable risks,” said Mujkic.

The four largest insurance markets in the GCC are likely to remain profitable in 2017. Despite the low oil prices and modest growth levels posted in 2016, Saudi property and casualty (P/C) and health sectors still offer insurers opportunities.

“By late 2017 or early 2018, we expect hospitals to start charging the insurers of at-fault motorists for the medical costs of accident victims, a move that could push motor rates even higher than current levels,” said Mario Chakar, a credit analyst at S&P.

Illegally uninsured vehicles

The Saudi Arabian Monetary Authority (SAMA), is expected to support the efforts of the traffic police to ensure drivers of illegally uninsured vehicles to buy motor coverage. Furthermore, government databases show that approximately 2.5 million Saudi nationals are working in the private sector but are not covered by their employers’ group medical schemes. During 2017, the authorities will seek to prompt private employers to provide medical cover for all their staff.

In a step toward more risk-based regulations, the UAE Insurance Authority is expected to move toward actuarial pricing in 2017, meaning that policies have to be priced at a level sufficient to produce a technical profit. This should help reduce cut-price competition, especially on compulsory lines. On January 1, 2017, a new tariff system for comprehensive and third-party liability motor insurance was introduced. The new cover, which includes higher liability coverage and compensation for replacement cars, means that insurance companies will increase premiums for these additional benefits. The burden of health care costs was already shifting toward the private sector, thanks to the Dubai Health Authority scheme, which required employers to provide their employees with health coverage.

Foreign nationals

Revenues in Kuwait’s P/C insurance sector depend partly on projects that are linked to government spending and partly on privatisation schemes. Again, this shifts the burden to the private sector from the government. The Kuwaiti government is also expected to separate the health care of expatriates and nationals. This initiative aims to restrict foreign nationals from accessing subsidised public health care and will likely increase annual health insurance costs for foreigners

Qatar is expected to stick to much of its huge infrastructure programmes. Analysts expect premium volume from commercial business will pick up again from the second part of 2017, as a number of projects are moving into the next phase ahead of the 2022 Fifa World Cup

The compulsory medical insurance for Qatari nationals will be introduced later this year and for expatriates in 2018. This will likely add significant premium volumes for the larger local insurers. Although analysts see some uncertainty around the timing of individual initiatives in the different countries of the region, the improvements are likely to outweigh the weakness in governments’ economic and fiscal positions.

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