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Islamic insurers in the GCC will probably continue to face headwinds, despite a better overall. The forcasted slowdown follows years of annual growth in gross premiums of up to 20 %, which was mainly driven by the introduction of new mandatory covers, as well as strong increases in premium rates in Saudi Arabia, as new covers and actuarial pricing guidelines were adopted, S&P Global Ratings noted yesterday.
“Now that more policies are adequately priced, overall premium growth has slowed,” said S&P Global Ratings’ credit analyst Emir Mujkic. “The slowdown in premium growth has also been influenced by lower economic activity across all GCC states, as governments are trying to reduce or delay their spending due to lower revenues from hydrocarbon sales,” Mujkic added.

The insurance sector across the GCC is expected to report growth in gross premiums on continued growth in infrastructure investment and favourable regulatory changes. S&P Global Ratings analyst Emir Mujkic said gross premiums will increase in 2017 by around 30% in Kuwait, and by up to 10% in the other three markets. GDP growth will range between 1.5% for Kuwait and about 3.5% for Qatar. 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. There are currently 2.5 million Saudi nationals working in the private sector that 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.

The overall profitability of Takaful industry is under strain largely because the industry has yet to break into some of the most profitable lines of business that are dominated by conventional payers, according to rating agency Standard & Poor’s.
“In our view, the takaful sector is underperforming, especially in the UAE, because it lacks the advantages of conventional insurers, which are often larger and benefit from better economies of scale. They have more-established distribution mechanisms and so their revenue generation is less dependent on intermediaries,” said Emir Mujkic, Associate Director, Finance Services of Standard & Poor’s.
The crowded UAE and other Gulf Cooperation Council insurance markets often suffer from overcapacity, which can often trigger aggressive price wars. “In our opinion, Islamic insurance companies require considerable capital investment to become established, yet relatively new companies often come under pressure to generate profits and deliver healthy returns to their investors,” said Mujkic.