UAE Insurers Report Strong Results Supported By Gains In Underwriting Income

Dubai: UAE insurers posted healthy top-line growth, improved operating profits and stronger shareholders’ equity in their 2017 financial results, according an analysis of the full-year results by Standard & Poor’s.

“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. “That said, we do not see any immediate ratings impact on the UAE insurers that we rate, and credit conditions for each insurer may vary according to their individual performance.”

Data from preliminary results show listed UAE insurers’ total revenues rose by 16 per cent to Dh22 billion in 2017, boosted by compulsory medical insurance and the Unified Motor Insurance Policy.

Actuarial pricing on motor and medical, actuarial verification of technical reserves, and minimum motor tariffs also boosted insurers’ performance, with the market’s underwriting profits up by 61 per cent and net income by 45 per cent.

“We believe the last phase of compulsory medical insurance in Dubai and the introduction of the Unified Motor Insurance Policy [with increased tariffs] have contributed toward this increase, which is line with our expectations,” Sahni.

Last year most insurers reported major improvements in underwriting and technical profitability. The disclosures on underwriting profitability are limited and might be subject to adjustments for unallocated general and administration expenses; nevertheless, based on the absolute numbers disclosed, the market’s overall underwriting profits grew by 61 per cent to Dh2 billion compared to Dh1.3 billion in 2016.

Various regulatory initiatives contribute to this improved underwriting performance. These include actuarial pricing on motor and medical, actuarial verification of technical reserves, as well as minimum motor tariffs, which have all collectively brought discipline into the market.

In terms of net profits, the overall market’s net income for 2017 increased to Dh1.3 billion, marking year-on-year growth of 45 per cent and an average return on equity of 8 per cent up from 6 per cent in 2016.

While the full breakdown is not yet available, analysts say excellent underwriting clearly is the main driver for such strong growth in profits. This is a stark change compared with the past few years when insurers’ net income was heavily reliant on investment income, with underwriting results being generally break-even.

Last year, only three of the 29 insurers reported losses in 2017, highlighting that the overall market conditions are favourable. The growth in underwriting profitability and net profits are heavily affected by the results of one insurer, Salama, which reverted to profits in 2017 after reporting underwriting and net losses in 2016. Excluding Salama’s results, the market’s overall underwriting profits and net income increased by 38 per cent and 18 per cent, respectively.

The insurance sector in the UAE is anticipated to grow at its 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 the size of the market 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 of Alpen Capital (ME) Limited.

Mounting calls for consolidation

Dubai: The UAE insurance market is still highly concentrated, with the top five insurers’ market share rising to 59 per cent last year.

The trend in the industry shows that large players are getting bigger, with the remaining 25 insurers sharing 41 per cent of the market. This is also evident from the top five insurers expanding by 21 per cent while the remainder only grew by 8 per cent.

Orient Insurance not only contributed heavily to growth of the top five insurers but also became the No 1 insurer (by gross premiums), registering a staggering 51 per cent increase in its premiums.

Last year’s financial data showed the combined shareholder equity increased by 5 per cent from Dh15.6 billion to Dh16.5 billion. A couple of rights issues and a new takaful entity incorporated during the year bolstered growth.

“Clearly, the rate of increase in shareholders’ equity does not match premium growth, which indicates a marginal strain on insurers’ capital adequacy. However, with solvency regulations coming into full effect from the beginning of 2018, we believe the regulatory oversight and expected consolidation activities should keep a check on insurer’s capital adequacy and financial strength,” said Sachin Sahni, an S&P Global Ratings credit analyst.