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22 July 2015
JEDDAH -- The Gulf states have experienced massive regulatory change with respect to insurance over the past 12 months, Standard & Poor's said Tuesday. Recent measures include the doubling of the minimum capital requirements in Oman, enhanced liquid asset requirements in Kuwait and the United Arab Emirates (UAE), and more stringent solvency measures in Bahrain.
In a report published Tuesday, "Regulatory Changes Cause A Shakeout In Gulf Islamic Insurance Markets," Standard & Poor's Ratings Services considers the long-term effect of these measures.
"We anticipate that improved supervision should encourage better capital management, liquidity, internal controls, and corporate governance, which we consider positive from a credit perspective," the report noted.
"However, the more-demanding insurance regulation in the region will increase short-term pressure on players in these typically overcrowded markets by increasing costs. Shariah-compliant (takaful) insurers, in particular, are already struggling to manage high expense ratios because of their lack of scale," it added.
Despite year-on-year premium growth of over 10% in most GCC markets, S&P considered takaful sector in particular to be overpopulated. More than 70 Shariah-compliant insurers in the Gulf Cooperation Council (GCC) region are competing for premium income of nearly $10 billion, about 80% of which is based in Saudi Arabia.
"In our opinion, takaful companies have not sufficiently differentiated their product offerings from the conventional insurers, and are therefore targeting the same customer base, particularly in the fiercely competitive motor insurance market, " S&P report said. "Unless they successfully differentiate their products and attract new insurance buyers to their Shariah-compliant product, we anticipate that it will be difficult for them to achieve sustainable business positions," S&P noted.
© The Saudi Gazette 2015
JEDDAH -- The Gulf states have experienced massive regulatory change with respect to insurance over the past 12 months, Standard & Poor's said Tuesday. Recent measures include the doubling of the minimum capital requirements in Oman, enhanced liquid asset requirements in Kuwait and the United Arab Emirates (UAE), and more stringent solvency measures in Bahrain.
In a report published Tuesday, "Regulatory Changes Cause A Shakeout In Gulf Islamic Insurance Markets," Standard & Poor's Ratings Services considers the long-term effect of these measures.
"We anticipate that improved supervision should encourage better capital management, liquidity, internal controls, and corporate governance, which we consider positive from a credit perspective," the report noted.
"However, the more-demanding insurance regulation in the region will increase short-term pressure on players in these typically overcrowded markets by increasing costs. Shariah-compliant (takaful) insurers, in particular, are already struggling to manage high expense ratios because of their lack of scale," it added.
Despite year-on-year premium growth of over 10% in most GCC markets, S&P considered takaful sector in particular to be overpopulated. More than 70 Shariah-compliant insurers in the Gulf Cooperation Council (GCC) region are competing for premium income of nearly $10 billion, about 80% of which is based in Saudi Arabia.
"In our opinion, takaful companies have not sufficiently differentiated their product offerings from the conventional insurers, and are therefore targeting the same customer base, particularly in the fiercely competitive motor insurance market, " S&P report said. "Unless they successfully differentiate their products and attract new insurance buyers to their Shariah-compliant product, we anticipate that it will be difficult for them to achieve sustainable business positions," S&P noted.
© The Saudi Gazette 2015
