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Intense price competition in the UAE insurance market is eroding the profitability of listed insurance firms, global credit rating agency AM Best said in a new report.
National insurance companies in the UAE posted an aggregate return on equity (ROE) of 7.9% last year, which is “materially” below the 10.3% return recorded in 2021. ROE for the five year-period to 2021 also averaged just 9.6%.
“The insurance market in the UAE reported a marked deterioration in underwriting profitability in 2022,” the US-based consultancy said, without disclosing further details.
“This largely reflects the highly competitive market conditions and continuous pricing pressures,” it noted.
Pricing pressures are particularly evident in the core motor and medical lines, which account for a large proportion of retained risk in the market.
Across the GCC region, the motor and medical insurance segments, which make up the majority of net written premiums, have also seen “pricing compromised”.
“Underwriting margins have become vulnerable to the post-pandemic normalisation of claim patterns and growing claims inflation.”
Outlook
However, AM Best said that the outlook for the market in the UAE, as well as Bahrain, Kuwait, Oman, Qatar and Saudi Arabia, remains stable.
The stable outlook reflects the insurers’ solid footing as they enter 2023, although the region continues to face headwinds.
“The GCC [is] well placed to weather this economic uncertainty,” the consultancy said.
“The region has entered 2023 with fiscal surpluses, thanks in a large part to the buoyant oil price environment of 2022.; however, the weight of headwinds facing the market is increasing.”
It said that the implementation of mandatory insurance schemes in several markets across the region should improve near-term premium growth.
“In the UAE, repeated collaboration between the insurance industry and government has resulted in the development of innovative mandatory insurance products, creating opportunities for insurers in that market,” AM Best said.
(Writing by Cleofe Maceda; editing by Daniel Luiz)
