Listed insurance companies will take a severe punch to their overall profit growth this year as the markets turn downward, a senior insurance official said yesterday.
"Investment income for insurance companies will fall by 40 to 50 per cent at least if the markets continue like this," said Abdul Muttalib Al Jaidi, general manager of Oman Insurance Company, which is listed on the Dubai Financial Market (DFM).
Al Jaidi, speaking on the sidelines of the World Takaful Conference, said insurance companies tend to rely heavily on income attained from investments in equities, bonds and property.
But in 2005, the overly exuberant markets allowed insurance firms to rake in huge gains. Oman insurance saw profits jump 272 per cent in 2005 to Dh755 million.
Profit growth across the sector is due for a massive adjustment this year, Al Jaidi said, pointing out the last year the sector's profits were derived 20 per cent premiums and 80 per cent investments.This year, he said the ratio would shift to 40 per cent from investments and 60 per cent from non-investment income.
"Profits will fall. Premium growth, however, is positive. But investment income will decline," he said.
While it is not unusual for insurance companies to expose their books to the market, analysts said many UAE companies focus their entire investment portfolios on domestic bourses, rather than diversifying into a collage of highrisk and low-risk investments.
Islamic insurance companies, however, said the market downturn would not impact on them heavily since they diversified their portfolios even during the market's upturn.
Dr Saleh Malaikah, vice-chairman and chief executive officer of Salama, a Takaful company, said the company employed a "very prudent" investment approach last year, including investments in the local markets, regional markets, private equity and real estate. Salama would concentrate no more than 50 per cent and not less than 15 per cent in the local markets, he said.
"We are not speculators. We are long-term investors. Since the market was upside, we have been very prudent," added Oussama Kaissi, general manager of Abu Dhabi National Takaful, which invests 25 per cent of its capital in property and blue-chip stocks.
Local conventional insurers are still poised to record premium growth of 15 per cent to 20 per cent, Al Jaidi added, particularly given the slew of new construction and infrastructure projects, and the growing market for mortgage financing.
© Emirates Today 2006
