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UAE insurers’ profits squeezed by growing competition, low oil

February 2016

February 27, 2016 | 13:40 | Dubai

The preliminary disclosures of UAE’s national insurers listed on the Abu Dhabi Securities Exchange and Dubai Financial Market (DFM) have shown marked deterioration in operating performance with the market being loss-making in 2015, which is in stark contrast to the robust performance of the market in 2014, says the insurance ratings firm A.M. Best.

“Competition remains fierce within the UAE; national insurers compete not only against each other, but also against regional and international insurers. However, the UAE remains an attractive market, with a growth in premium revenue of 7.4% during 2015,” it added. Many listed insurers in the UAE have suffered a triple hit from weak technical performance, reserve strengthening and investment losses in 2015. The impact of weak earnings have caused significant capital erosion for many market participants.

The aggregate results for 2015, which indicate a market loss of approximately AED 106 million ($29 million), compared to a healthy profit of AED 859 million ($234 million) in 2014. Of the 29 listed insurers, 20 have recorded weaker operating results than in 2014 and 13 reported a net loss for 2015. However, the bulk of the market loss was generated by three companies: Islamic Arab Insurance Company (Salama), Abu Dhabi National Insurance Company (ADNIC) and Al Sagr National Insurance Company (Al Sagr), which between them recorded operating losses of AED 648 million. The performance for the market during the year translated into a poor return on equity of minus 0.7%. In A.M. Best’s opinion, the downturn is due to three key factors: a deterioration in underwriting performance due to intense price competition, weakened investment performance due to the effect of the decline in oil prices on equity markets, and reserving requirements as prescribed by the Insurance Authority, the UAE insurance regulator.

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