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United Arab Emirates Insurance Report Q4 2010
Business Monitor International, Oct 2010, Pages: 70
The United Arab Emirates Insurance Report provides industry professionals and strategists, corporate analysts, insurance associations, government departments and regulatory bodies with independent forecasts and competitive intelligence on the United Arab Emirates' insurance industry.
The development of the UAE – particularly Dubai – as a regional hub for insurance and other financial services will likely be complicated by the volatility in the markets following the problems experienced by Dubai World in late 2009. Nevertheless, the UAE’s physical infrastructure, the willingness and ability of the government of Abu Dhabi to continue to provide support to Dubai and the UAE’s competitive advantage in logistics and pharmaceuticals mean the insurance sector should continue to develop. Dubai’s problems have overshadowed other challenges. The UAE’s insurance sector, like its counterparts in other Middle Eastern countries – and developing countries where commerce is driven by patronage networks focused on wealthy families (e.g.: the Philippines) – is fragmented. Most insurance companies are small operations by the standards of anywhere other than the Middle East and are listed affiliates of local industrial conglomerates. Few have the benefits of economies of scale or have access to the advantages that come from being a part of a broader multinational group. Few have access to the skills and resources that would allow them to compete as providers of life insurance and other long-term savings products or expand beyond the UAE. On the basis of figures provided by companies to the stock exchanges of Abu Dhabi and Dubai, BMI believes that Oman Insurance Company (OIC) is the largest local player, accounting for approximately 20% of total premiums written by national companies, or 14% of total premiums. We believe that by this measure, the next two largest insurance companies, Abu Dhabi National Insurance Company (ADNIC) and Islamic Arab Insurance Company, are about half the size of OIC.
Over the long term, it is reasonable to expect that the UAE will play a significant role in the development of Islamic finance in general and takaful in particular. In the short term, however, structural problems such as the general lack of popular understanding of shari’a-compliant products and the shortage of suitably-qualified shari’a scholars is likely to continue.
In this report, we provide a breakdown of the insurance sector by line from the point of view of the regulator or trade association. The UAE’s insurance sector is dominated by accident liability products, which account for half of non-life products. Life products are limited and make up less than a sixth of the market.
At the time of writing, in September 2010, we were able to ensure that the report includes actual data for 2009. We have generally been able to use data published in 2010 to adjust our estimates for the year as a whole. We consider that total premiums for 2009 amounted to AED20,502mn. This included non-life premiums of AED17,518mn and life premiums of AED2,984mn. In 2014, we expect that the corresponding figures will be AED33,486mn, AED29,045mn and AED4,441mn. In terms of the key drivers that underpin our forecasts, we are looking for non-life penetration to rise from 2.10% of GDP in 2009 to 2.30% in 2014. We are looking for life density to increase from US$173 per capita to US$220. BMI’s insurance Industry Business Environment Rating (IBER) for the UAE is 55.8 out of 100.
Issues To Watch
Availability Of Skilled Talent
Until late 2008, the economic boom in the UAE meant that it was often difficult to find suitably-skilled local staff to meet the requirements of the laws directing the ‘emiratisation’ of the workforce. With the downturn in Dubai, this situation may well have changed.
Consolidation
In harder times it is less clear whether all the UAE’s entrepreneurial families will remain committed to (generally non-life) insurance if it is a non-core activity for their business groups. There may well be mergers and acquisitions as some players seek to boost scale in a challenging environment.
Deal-Making Through The DIFC
Prior to the problems of Dubai World in late 2009, the Dubai International Finance Centre (DIFC) had successfully attracted a variety of financial services companies seeking to establish representative offices. However, deals that were actually booked through the DIFC were fairly small in number and size, particularly after the global financial crisis reached its critical point in September 2008. The number of organisations present at the DIFC and, more importantly, the number of deals that are actually being done, will provide a useful indicator of how Dubai is developing as a regional financial centre.
Islamic Finance
The figures that have been published by the national insurance companies which are listed on the stock exchanges of Dubai and Abu Dhabi indicate that, in H110, much of the growth in overall premiums has been accounted for by leading takaful operators.
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