DUBAI
The UAE’s 29 listed direct insurers reported aggregate profit gain of 46 per cent to Dh1.31 billion in 2017, from Dh0.9 billion in 2016.
Healthy top-line growth, improved operating profits, and stronger shareholders’ equity in their 2017 is viewed as the beginning of a strong turnaround for the industry by rating agencies analysts.
“The significant improvement (in profits) reflects a stronger underwriting performance thanks to an increase in technical pricing, driven by regulatory changes introduced over the last three years. Looking forward, we expect UAE insurers to maintain prices at their current higher level, supporting profitability in 2018,” said Mohammad Londe, an Assistant Vice-President at Moody’s.
For many insurers, profitability improvement brings respite from capital depletion. The insurers that benefited the most from the better underwriting environment were the top ten listed direct insurers in UAE Listed UAE direct insurers’ combined equity recovered to Dh16.4 billion at year-end 2017 from Dh15.8 billion in 2016.
“Based on our analysis, we consider these improved results as a positive factor for the overall market,” said S&P Global Ratings credit analyst Sachin Sahni.
The upturn in underwriting results reflects an increase in insurance prices thanks to the introduction of actuarial reserving in 2015 and by the implementation of a unified motor policy in UAE in 2017, which introduced revised minimum prices and provided standardised coverages for policyholders.
“The impact of these regulatory changes on UAE insurers’ underwriting performance was in line with our expectations. The increase in prices has returned most UAE insurers that reported large underwriting losses in 2015 to profitability, or close to it. Those that were already profitable have further improved their financial performance,” said Londe.
Analysts expect UAE insurers to generally maintain prices at their current higher level in 2018, driven by the improvement in underwriting controls as part of regulatory driven enhancement to risk management, despite some signs of pricing pressure. A sustained improvement in profitability would help the market regenerate the much needed capital over the medium to long term.
Despite the strong performance in 2017 threats to profitability remain. These include the risk that insurers’ seeking rapid growth could offer benefits and discounts to customers, ushering in a fresh period of price competition. Furthermore Insurers that are unable to recover from policyholders the recently introduced value-added tax (VAT) on unexpired risks may also face margin compression.
The risk of reduced profitability due to VAT is most significant for those insurers who have significant unexpired risks and are unable to either amend the policy with relevant customers and/or collect their recoverable at year end 2018. Although the impact could be significant for some in 2018, all 2018 and going forward premiums will include VAT.
The insurance sector in the UAE is anticipated to grow at the fastest annualised average pace of 12.1 per cent, followed by Saudi Arabia at 10.5 per cent, according to the latest GCC Insurance Report from Alpen Capital. The UAE will continue to be the largest insurance market in the region with a market size expanding to $18.1 billion (Dh66.4 billion) by 2021. “Growth of premiums in UAE will be driven by large project developments ahead of Expo 2020, pricing revisions and new opportunities such as property insurance,” said Siraj Bhavnagarwalla, Managing Director, Alpen Capital (ME) Limited.
