Dubai: During the first six months of 2016, UAE insurers reported aggregate profits after aggregate losses in 2015, indicating a recovery is under way despite sizable economic pressures and growth in the GCC following a prolonged slump in oil prices.
On aggregate, the listed insurers in the UAE market registered significant improvements in their net profits for first-half 2016 at Dh573 million ($156 million) compared with net profit of Dh263 million in first-half 2015, marking 118 per cent growth overall.
Return on average shareholder’s equity improved to 3.5 per cent in first-half 2016 from 1.6 per cent in first-half 2015. The first-half 2016 profits, if sustainable for the rest of the year, would mark a significant recovery from the overall market net loss of Dh123 million for 2015.
“The UAE insurance market continues to grow, supported by the rollout of Dubai’s Compulsory Health Insurance Scheme, which was completed in June 2016,” said Sachin Sahni, S&P Global Ratings credit analyst.
In aggregate, the UAE health insurance sector has seen a major boom since 2013, with medical premium growth averaging 30 per cent over this period.
“Considering that more than 90 per cent of medical premiums in UAE are generated within Abu Dhabi and Dubai combined, and both emirates have now completed their medical insurance projects, we believe it will become increasingly difficult for insurers to continue this pace of premium growth, unless they find innovative ideas to diversify into newer business lines,” said Sahni.
There are currently 60 insurance companies in the UAE, out of which 29 are listed on one of the two stock exchanges (ADX and DFM). Listed insurers control almost half of the total UAE market premiums.
Premium growth
While the UAE’s GDP growth is estimated to be around 3 per cent over 2015-2016, the listed UAE insurers posted growth of 9 per cent in gross premiums for first-half 2016, similar to the 8 per cent growth seen in first-half 2015.
Within the industry, conventional insurers registered a 10 per cent increase in premiums in first-half 2016, compared with 5 per cent for the first half of 2015. Growth was more heavily weighted toward the larger players, although the majority of insurers registered some growth.
The takaful sector faced a slower pace of growth, at 4 per cent, compared with 30 per cent for the first half of 2015, owing to the dip in premium income in 2016 for four out of eight takaful insurers.
The industry witnessed a period of cut-throat competition, pricing below a technically sustainable level, and concentration on less than a handful of business lines, which has ultimately resulted in overall losses and a weakened operating environment. UAE insurers are now progressively adopting the recent regulatory changes issued by the Emirates Insurance Authority.
While insurers implemented the first phase, covering financial statement disclosures, with few hiccups, in 2016, the real test will be the implementation of the second phase, covering the basis of calculating the technical provisions and asset allocation limits (except real estate), and the third phase, covering solvency margin, minimum guarantee fund, and asset allocation limits for real estate. Insurers will have to abide by the requirements of the second phase by the end of 2016 and the third phase by year-end 2017.
“We anticipate that the second phase of regulations will bring uncertainty. We think that any material strengthening in provisions could undo the improvements in profitability we have seen in the first half of 2016,” said Sahni.
