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UAE Insurance Sector, The Complete Guide

December 2016

By Bayzat.com

December 1, 2016 | 10:30 | Dubai

The UAE insurance sector has witnessed a major boom over the last five years. Despite the pressure due to lower oil prices, the industry has declared higher profits in the first six months of 2016 as compared to the same period last year. Listed insurers in the country have reported aggregate profits both on an underwriting basis and a net income basis.

pic-1Source: IA, Annual Report on the UAE Insurance Sector, 2015

 

The following sections contain a deeper analysis of the insurers’ profitability and outlook.

Insurance Indicators

These are some of the key indicators on the performance of the insurance sector in the United Arab Emirates. The official figures for the year 2015 were released by Sultan bin Saeed Al-Mansouri, Minister of Economy and Chairman of the Insurance Authority (IA), in its annual report.

 

Top players

  • The top five insurers were: Oman Insurance, Orient Insurance, ADNIC, Emirates Insurance and Islamic Arab Insurance (Salama). They had a combined premium of AED 9.7 billion for 2015 as compared to AED 9.3 billion for 2014.

 

Premiums

  • Total written premium for all classes amounted to AED 37 billion. Its breakup between national and foreign company branches as well as year-on-year increase is detailed below

pic-2Source: IA, Annual Report on the UAE Insurance Sector, 2015

  • Listed UAE insurers posted a growth rate of 9% in gross premiums for first-half 2016 as compared to the 8% growth seen in first-half 2015. Within this, conventional insurers registered a 10% increase in premiums in first-half 2016, compared with 5% for the first half of 2015. Although majority of insurers registered some growth, the rates seemed to favor larger players.
  • Takaful sector registered slower growth rates, at 4%, compared with 30% for the first half of 2015. This could be attributed mainly to the reduction in premium income in 2016 for four of the eight Takaful insurers. However, the listed insurers in the UAE market still registered significant improvements in their net profits for first-half 2016 at AED 573 million compared AED 263 million in first-half 2015.
  • The total funds invested in the sector amounted to AED 45.7 billion. 60.5% of which is invested in financial securities followed by 20.7% in bank deposits.

 

Profitability

  • The highest growth in profit from 2014 to 2015 was shown by Dubai Islamic Insurance and Reinsurance (AMAN) with an increase of 341% from AED 0.5 million to AED 2.2 million. The highest growth in loss was shown by Green Crescent Insurance with a decrease in profit of 3800%, turning from a profit of AED 40,000 for 2014 to a loss of AED 15 million for 2015.
  • Among the 29 listed insurers analyzed, Orient Insurance presented the highest profit of AED279 million for 2015 as compared to AED258 million for 2014. Abu Dhabi National Insurance (ADNIC) presented the highest loss of AED 335 million for 2015 as compared to a loss of AED280 million for 2014.
  • The total loss for all listed insurance companies in the UAE for 2015 amounted to AED9.7 million (USD2.6 million), representing a 101% fall from 2014, according to the actuarial and risk management consultancy Badri.
  • The total shareholders’ equity of national insurance companies amounted to AED 17.5 billion as at 31 December 2015.

 

Factors Aiding Insurance Growth

The following are some of the key factors aiding insurance growth in the UAE:

  • Although oil prices have declined, the UAE economy has remained both politically and financially stable providing an environment that is conducive for continued economic growth. According to the ministry, this is credited to adopting economic policies that promote economic diversity such as increasing the contribution of non-oil sectors to the national economy and in providing the state with financial reserves which enable continuous funding needed for all its projects. In addition to this, the open-door economy policy adopted by them has been successful in bringing in foreign investments. The UAE ranked in the 13th position worldwide and the 1st position in the Middle East with respect to foreign investments from 2013 to 2015. The advancement of the economic, construction, and social activities in the State has had a positive impact on the insurance sector. The gross premiums written in the property and liability insurance classes rose from AED 24.9 billion in 2014 to AED 27.5 billion in 2015, an increase rate of 10.4%.
  • In cooperation with various government entities, the Insurance Authority (IA) has been supporting education and training in the insurance sector. An integrated education plan was developed to improve human competencies of the UAE nationals, who are academically and practically qualified, and adopt the initiatives aiming at promoting functionality of the insurance sector. This strategy aimed at building the sector to a high level of professionalism and competitiveness and making the UAE insurance market a role model in the Middle East and North Africa.
  • From 2015, the IA has also implemented aggressive awareness campaigns for the public which included launching diverse and appropriate awareness programs using multimedia, media, and booths of specialized exhibitions in all Emirates countrywide. The IA focused on visual and printed media by producing awareness raising videos promoted through a wide campaign in TV and cinemas nationwide. Appropriate artistic brochures were printed including awareness messages and the services presented by the IA for the policyholders, customers, partners, and the public.

 

Challenges

The following are some of the key challenges hindering the growth momentum of the Insurance sector:

  • Insurance industry in the UAE is currently over-crowded with significant number of domestic and international companies struggling to serve the limited sized market. Competition is particularly intense in personal insurance lines like motor and medical insurance.
  • Development of the regulatory environment in the insurance sector is considered inadequate. Some of the major deficiencies sighted in the framework are less sophisticated solvency regulation, low transparency standards, and insufficient guidelines to regulate investments of insurers. There also appears to be a wide range of regulatory discrepancies across the region.
  • The insurance sector faces severe shortage of skilled local workforce. This has had impacts across underwriting and risk-bearing capabilities of companies while putting increased pressure on their operating overheads. The IA is trying to mitigate this through education and trainings to build local competencies.
  • Low awareness about insurance and its benefits among consumers, and small to medium businesses. Many fail to recognize insurance as an effective means of wealth protection, savings, and security.
  • Prolonged global economic uncertainty has posed substantial challenges to insurance companies by creating volatility in investment values and returns.
  • The Arab uprising has heightened concerns of overall political instability in the Middle East region. Recurrence of such events may disrupt the general business and investment climate, and cause a sudden spike in insurance-related claims.

Conclusion: Although there is an upward trend being exhibited in the insurance sector based on the latest 2016 figures, there is also large uncertainty in the sustainability of this growth. As per S&P, more than 90% of medical premiums in the UAE are generated within the emirates of Abu Dhabi and Dubai combined. Since both are nearing completion of their mandatory medical insurance policies, it will become increasingly difficult for insurers to continue this pace of growth.

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