Dubai: The UAE insurance industry has recently started to show signs of impact due to lower oil price and the challenging economic environment.
“The UAE insurance industry is going through some serious challenges. New regulations for the insurance sector were introduced in January 2015 by the UAE Insurance Authority, which may lead to short-term challenges for the industry as insurers adjust and adapt to the new regulations. While the new reforms may initially cause a shake-up, they are essential for the long-term benefit and development of the industry,” said Sanjay Jain, MENA Insurance Advisory Leader, EY.
The new regulations will include the implementation of proper reserving, actuarial certifications, introduction of better governance and controls and re-alignment of investment portfolio.
Saudi Arabia recently implemented similar reforms such as the introduction of new guidelines around reserving and actuarial-led pricing, which initially resulted in less than ideal financial results and a strong reaction from the market. However, the Saudi market has grown significantly in the current financial year and is now expected to surpass the UAE in the near future to become the largest insurance market in the GCC.
Despite good premium growth, listed insurance companies in the UAE wereshowing further earnings strain for the first 9 month of last year, according Standard & Poor’s. Gross premiums grew 9 per cent year on year to Dh3.5 billion in this period.
“However, underwriting and net earnings show real weakness,” said Standard & Poor’s credit analyst Kevin Willis. The 29 listed companies recorded an aggregate net underwriting deficit in the first nine months, representing a 103 per cent net combined (loss and expense) ratio (NCR; the market’s main profitability measure). Some 45 per cent of the listed companies (13 insurers) posted underwriting deficits. Net profits tumbled 90 per cent in the first 9 months of the year compared to the same period last year.
“We see three key factors behind the disappointing results: intense competition in all lines of business, technical reserving corrections, and weak investment returns,” said Willis.
UAE insurance market risk management survey jointly conducted by EY and Munich Re showed a considerable amount of work remains to be done with 40 per cent of the responding insurance companies in the UAE stated they do not have a dedicated risk management department. The survey gauged the maturity of ERM practices in the KSA and the UAE insurance markets, identifying risk management challenges that insurance companies face and take a view on the evolving risk governance practices.
“While the global insurance sector is facing disruptive changes in the form of digital; aggregators; driverless cars; robotics, etc., Mena insurers are facing increased challenges due to oil price volatility. The situation in the UAE is further compounded by the changing regulatory regime which will put additional pressure on insurers, particularly on the marginal players,” said Jain.
According to EY, these changes will be an opportunity for those insurers who have the vision, ability and financial resources to take advantage of potential market consolidation. The degree and extent of enforcement of the new regulations by the UAE Insurance Authority will play a key role in the impact on insurers and long term development of the UAE insurance industry.
