Regulatory pressures and fierce competition will lead to significant consolidation of the life industry in the UAE and Saudi Arabia over the next two years, according to a report by S&P Global Ratings.
The gap between large and small insurers will grow as greater size helps insurers to mitigate high fixed costs and increase their competitiveness, said S&P Global Ratings analyst Emir Mujkic.
“In our 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,” he said.
While the first steps toward market consolidation will take place in 2017, S&P said that it did not expect “any transformative mergers”, in the ‘Gulf Cooperation Council insurers: Gross premiums will grow, but profitability may be volatile in 2017’ report.
Credit conditions for rated insurers in the four largest Gulf Cooperation Council (GCC) markets by gross premiums (Saudi Arabia, UAE, Qatar, and Kuwait) will remain broadly stable in 2017, S&P said.
“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 Mujkic.
“Our growth assumptions are based on the planned privatization of medical insurance schemes and ongoing government spending on infrastructure projects, which will lead to a larger number of insurable risks.”
It further predicts GDP growth will range between 1.5% for Kuwait and around 3.5% for Qatar during the year.
“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.”