Despite the challenges, however, Mujkic said their ratings are still supported by insurers’ “robust capital positions.”" We anticipate that pressure on some rated entities will gradually ease, since a number of companies have strengthened their internal controls and governance arrangements, or de-risked their asset portfolios following years of weakening capital and liquidity buffers,” said Mujkic “However, we expect that a number of smaller, unprofitable, and/or undercapitalised insurers will struggle to meet increasing regulatory demands," Mujkic added.
According to S&P, weaker economic activity has led to a slowdown in gross written premium (GWP) growth in most GCC insurance markets in recent years, and competition has intensified particularly in motor and medical lines, which together make up more than 60 percent of the total non-life GWP in each market.
S&P said that although economic growth in most Gulf countries is expected to pick up in 2020, the market may not see much stronger GWP growth, as slower consumer spending and cost-cutting measures among many corporations, coupled with a high competition, will likely persist.
The ratings agency believes, however, that the GCC insurance market will continue to expand and remain profitable overall, although at different rates, as average insurance penetration in the Gulf is still very low, at 1.9 percent, compared with 3.2 percent in other emerging markets and about 6.1 percent globally.
The GWP growth in the UAE is forecast to remain relatively modest in 2020 in the absence of any new significant requirements for mandatory insurance coverage. The main drivers for growth will be related to ongoing infrastructure spending in Abu Dhabi, Dubai and other emirates, as well as higher visitor arrivals in Dubai during the World Expo2020, the ratings agency said.
In Saudi Arabia, the ratings agency forecasts GWP growth of more than 5 percent in 2020. Key growth drivers will likely include the introduction of mandatory medical insurance for Hajj and Umrah pilgrims, which is likely to generate more than 1 billion Saudi riyals ($266.63 billion) in GWP.
Motor insurance in the kingdom is expected to pick up partly due to the increasing number of female drivers, as well as plans to gradually reduce the number of uninsured drivers, S&P said.
In Qatar, GWP growth of up to 5 percent is expected for this year, and this will be supported by higher reinsurance rates for energy, liability and other property/casualty reinsurance business.
Kuwait's insurance sector is expected to remain one of the fastest-expanding and most profitable in the GCC, with GWP growth of about 10 percent and stable profitability in 2020.
The Omani insurance sector will see a slight uptick in growth this year and remain among the GCC's most profitable markets, with a return on equity (ROE) of about 10 percent.
For Bahrain, S&P expects GWP growth and ROE to remain broadly similar to previous years.
Heightened geopolitical risks in the Middle East, as well as the recent outbreak of the new coronavirus in Wuhan, China could lead to increasing asset-price risk according to S&P.
“We do not expect a direct military conflict between the U.S. and Iran or their regional allies. However, if there is a significant increase in tensions, investors could shift their attention to more stable regions, which could result in slower economic growth, increased volatility in equity and property markets, and a negative effect on investment returns,” S&P said.
Oil prices have fallen by more than 15 percent since early January, following the new coronavirus outbreak.
“We believe this will not materially affect insurers' underwriting results, given the low number of GCC cases so far, but a further or more prolonged decline in oil prices could lead to slower economic growth in the region,” S&P said.
Although the GCC insurance markets remain at different stages of regulatory development, S&P said it welcomes a move toward more sophisticated, risk-based regulations from simple absolute minimum capital requirements.
The ratings agency believes that GCC insurers will need to continue to build up their actuarial, compliance and risk management functions to cope with increasingly complex and costly regulatory demands.
(Reporting by Gerard Aoun; editing by Cleofe Maceda)
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