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December 8, 2015 | 13: 10 | Dubai
Despite good premium growth, listed insurance companies in the UAE are showing further earnings strain so far this year, says a report by Standard & Poor’s (S&P). Gross premiums grew 9% year on year to AED 13.5 billion (or $3.7 billion) in the first nine months of 2015. The growing maturity and expansion of the Dubai compulsory health scheme, launched in the last quarter of 2014, was one reason for the increase, but others were the favorable economic and political climate. For instance, Abu Dhabi and Dubai are sustaining capital spending on housing, schools, and roads, with GDP forecast to rise more than an annual 3.5% through to 2019, S&P said.
However, underwriting and net earnings show real weakness so far this year. The 29 listed companies recorded an aggregate net underwriting deficit in the first nine months, representing a 103% net combined (loss and expense) ratio (NCR; the market’s main profitability measure). Some 45% of the listed companies (13 insurers) posted underwriting deficits. Net profits tumbled 90% from Sept. 30, 2014, and 10 companies reported net losses.
“We see three key factors behind the disappointing results: intense competition in all lines of business, technical reserving corrections, and weak investment returns,” the report ‘UAE Insurance Market: Earnings and Regulatory Pressures Are on the Rise’ said, adding, “We do not expect to see any meaningful recovery in the UAE insurance market’s earnings, either technical or net, before 2017. However, we believe companies are now starting to respond to the damage done by the fierce price competition in consumer lines. That said, depressed reinsurance pricing is still allowing for sub-technical margins in commercial lines, which are typically big risk values.”