2022 continues to be a big one for mergers and acquisitions in UAE insurance market. Hot on the heels of conventional counterparts - such as NGLIC and RSA Middle East, GIG and AXA Gulf - it’s the turn of the Islamic insurance market (known commonly a ‘Takaful’) to hit the M&A limelight.
Takaful Emarat Insurance and Islamic Arab Insurance (Salama), recently announced their plan to merge through a non-cash deal. Likely to be in the form of an additional share release by Salama to Takaful Emarat’s shareholders, this deal is reflective of a growing trend of consolidation in the UAE insurance market in the final half of 2022, with the others being Dar Al Takaful and National Takaful (trading as Watania).
Still more players
What does this mean for the market? First, M&A by their very nature shrink the market. To the uninitiated, this might sound like a bad thing, owing to a perception that more insurers equals more products and more choice. Whilst to a certain extent this might be true, it’s a somewhat one-dimensional perspective and certainly not reflective of the real benefits that scaling down the market brings. Despite all the M&A activity seen in the past year especially, there are still a significant number of insurers in the UAE market all looking for a slice of the action. So the market remains wide, varied and customer-conducive, with many product lines being preserved, as they become part of the companies’ consolidated portfolios.
What consolidation also brings is strength. Rationalization of resources, both human and physical, which means the strongest survive in terms of talent, processes and systems. Operational effectiveness is optimized and this has a positive impact on balance-sheets, something that will be most welcomed in the wake of recent solvency laws and the imminent introduction of IFRS17 regulations. The latter requires a company to measure insurance contracts using updated estimates and assumptions that reflect the timing of cash flows and any uncertainty relating to insurance contracts.
More transparency safeguards
This will provide transparent reporting about a company’s financial position and risk, and give comfort to consumers, trading partners and regulators alike. And talking of regulators, we’re seeing a ramp-up in the requirements from a compliance angle too, as the Central Bank of UAE joining SAMA, the Saudi Central Bank, to establish a framework for collaborative supervision of the insurance sector in the two countries.
Hopefully, the tightening of solvency margins will also lead to a trend of the market firming up from a premium perspective. For us in the industry the past couple of years have been especially challenging from a sustainability standpoint, with pricing strategies that ranged from the relaxed to dangerous. To attract business at any cost, some insurance providers came up with bare-bones rates. And with no margins left after deduction of operating expenses and claims provisions, many portfolios, especially those in the motor line, went into negative financial positions.
A motor ‘rally’
In turn, this not only affected motor but also other insurance classes, as composite insurers looked to other lines to prop up their ailing portfolios. Motor minimum premiums must rise for reasons of sustainability, and reduced competition in conventional and Takaful markets should see this happen. We are beginning to see motor ‘rally’ in Q2- and Q3-2022, with some underwriting upturns on both premium and profit.
Motor revenue is on the road to comeback, and ever-increasing pricing is a sign of its resurgence. Fighting for their financial health, all who operate within this sector - be it insurers, repair firms, parts suppliers, care hire outlets - will be seeking to secure higher prices in Q4-2022 and at the start of 2023. This they need to do as they battle spiraling costs caused by global inflation, supply chain issues and the legacy of Covid cutbacks.
There’s never a dull moment in the UAE insurance market. Fascinating, fast-paced and future-proofed at every opportunity, it’s starting to mature into a force to be reckoned with on the global stage.
