GCC insurers' growth likely to stay on course

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The top-line growth of insurers in Gulf Cooperation Council (GCC) countries is likely to result from higher insurance demand in 2024 due to ongoing economic expansion in the region and rate increases, S&P Global Ratings said in a recent report.

“We expect GCC insurers’ top-line growth will range between 5 per cent and 15 per cent in 2024, with Saudi insurers likely to expand at the fastest pace again,” S&P Global Ratings credit analyst Emir Mujkic said. “Favourable economic conditions and rate adjustments for motor and medical lines will remain key growth drivers.”

Insurance demand will benefit from ongoing investments in infrastructure projects, population growth, and regulatory initiatives, such as the extension of compulsory insurance covers. At the same time, a moderation in claims inflation for motor and other property/casualty lines will help insurers preserve margins, the report said.

Despite the change in accounting standards, S&P noted that GCC insurers’ top-line growth was substantial in 2023, particularly in Saudi Arabia and the UAE. “However, we anticipate a more moderate top-line growth in 2024 as we do not expect that rate increases — particularly in the motor business — will be similar to those in 2023. Instead, we anticipate motor and medical rates in Saudi Arabia and the UAE could start to decline in the second half of the year as policyholders and authorities could demand lower rates and competition intensifies,” the report said.

As insurance markets continue to grow, the gap between larger and smaller insurers will likely widen, S&P said. “The largest companies will expand at a faster pace than smaller companies, while generating a significant share of overall profits. In contrast, some smaller companies could struggle to remain profitable and solvent due to high competition and operating costs,” the report said.

The five largest of the 25 listed insurers in Saudi Arabia — the largest insurance market in the GCC — generated about 73 per cent of total insurance revenues in 2023, up from 69 per cent in 2022. Similarly, in the UAE, the five largest of the 26 listed insurers generated about 63 per cent of total insurance revenues in 2023, compared with 61 per cent in 2022. Earnings are similarly concentrated, with the five largest insurers generating about 81 per cent of total profits in Saudi Arabia and 72 per cent in the UAE in 2023, the report said. “These market concentrations will persist as the largest insurers increasingly benefit from economies of scale and tend to have better access to resources and expertise than smaller ones,” it added.

In 2023, listed insurers in the UAE reported a 19 per cent year-on-year increase in net profits to UAE Dh1.8 billion, from about Dh1.5 billion in 2022. The increase mainly resulted from higher investment returns. “We forecast the sector will remain profitable in 2024, thanks to adjustments in motor insurance rates,” the report said.

Noting the high rains that have hit the country in recent months, S&P said: “Although the UAE have seen some very heavy rainfalls in early 2024, we do not think that insured losses will materially affect local insurers. This is because many losses are either not insured or ceded to global reinsurers. We also expect insurers will continue to benefit from higher interest rates, which will increase their investment returns. That said, we note that the 9 per cent corporate tax on net profits, which was introduced on June 1, 2023, will weigh on insurers’ earnings.”