GCC:Biggest marts to see premium growth, volatile profits -- S&P

MEIR
Although the GCC region is far from uniform in terms of insurance

developments, new regulations and types of insurance cover as well as government infrastructure spending, are likely to contribute positively to premium growth in its four largest insurance markets this year, according to a report published yesterday by S&P Global Ratings entitled "Gulf Cooperation Council Insurers: Gross Premiums Will Grow, But Profitability May Be Volatile In 2017".

This is despite the current economic slowdown in the region, which is the result of relatively low oil and gas prices, as these contribute heavily to government budgets. The four GCC markets are Saudi Arabia, the UAE, Qatar, and Kuwait.

"We forecast that gross premiums in the four largest GCC insurance markets will continue to increase in 2017, by around 30% in Kuwait, and by up to 10% in the other three markets," said S&P Global Ratings analyst Emir Mujkic. "Our growth assumptions are based on the planned privatisation of medical insurance schemes and ongoing government spending on infrastructure projects, which will lead to a larger number of insurable risks."

The S&P report added: “Premium growth will exceed our expectations for real GDP growth in the four largest GCC insurance markets in 2017. We forecast that GDP growth will range between 1.5% for Kuwait and about 3.5% for Qatar.”

The four largest insurance markets in the GCC are likely to remain profitable in 2017. However, there is a risk that, in addition to further reserving requirements following the adoption of new regulations in the UAE, the enforcement of mandatory insurance cover in Saudi Arabia, and the privatisation of medical insurance in Qatar and Kuwait, could strain insurers' technical performance, as they lack sufficient data to price the new business appropriately. S&P therefore sees some potential risks to profitability in the short term.

Fierce competition will continue to increase the gap between large and small insurers, as greater size helps insurers to mitigate high fixed costs and increase their competitiveness.

In S&P's opinion, with the help of regulators, this widening gap could prompt the start of industry consolidation over the next one or two years, particularly in Saudi Arabia, and to a lesser extent in the UAE, in a bid to reduce the number of small and loss-making insurers. However, the international ratings agency does not expect any transformative mergers.