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United Arab Emirates Insurance Report Q4 2011
Business Monitor International, Nov 2011, Pages: 63
Business Monitor International's United Arab Insurance Report provides industry professionals and strategists, corporate analysts, insurance associations, government departments and regulatory bodies with independent forecasts and competitive intelligence on United Arab's insurance industry.
- The continuing expansion of UAE's economy should underpin the steady growth of the insurance sector. However, it is not clear what will cause non-life penetration to increase over the forecast period.
- Life insurance will likely remain very underdeveloped, partly because local households do not need it. There will remain, however, a substantial opportunity to sell life insurance and other organised savings products to expatriates.
- The UAE will remain one of the most important markets for takaful.
- Most local companies lack scale in a fragmented and not necessarily profitable industry.
- The regulatory environment is still being developed by the Insurance Authority. The UAE's insurance sector can be described as being reasonably large in absolute terms, fairly rapidly growing, open to foreign companies, fragmented and highly competitive – with the result that a lot of players are not making an adequate return on their capital.
Growth in the past has been driven by the rise in health insurance, which became compulsory for private sector workers in 2008 and by the rise of takaful (shari'a-compliant insurance), which accounts for about one fifth of total premiums.
Relative to its peers in the region, the UAE's insurance sector is also unusual in that there are two separate regulatory regimes. Offshore business is undertaken by companies that are established in the Dubai International Finance Centre (DIFC) and regulated by the Dubai Financial Services Authority (DFSA). Onshore business is regulated by the Insurance Authority.
Although the two regulators signed a memorandum of understanding (MoU) at the end of April 2011, an organisation that is regulated by the DFSA does not automatically have the right to undertake onshore business in the rest of the UAE.
The latest figures from the country's 25 or so listed insurance companies indicate that many of the smaller – and not so small – players have been adjusting, quite successfully, to challenging conditions. Over a quarter of the UAE's listed insurance companies reported that gross written premiums in H111 were smaller than they had been in H110. Net written premiums have risen by considerably more than gross written premiums, with the result that retention ratios have risen.
It appears that many companies have become more selective about the business that they are writing and have, as a consequence, been less dependent on the global reinsurance industry. Further, it appears that the industry as a whole was little affected by the volatility in regional and global financial markets in early 2011.
However, any description of the insurance sector as one that is growing needs to be heavily qualified. Much of the increase in gross written premiums in H111 relative to H110 is due to the rapid expansion of contributions received by one takaful operator, Islamic Arab Insurance Co. (Salama) in relation to motor and family takaful. But for the growth in the business of Salama (which was the largest national insurer overall in terms of gross written premiums/contributions), the total premiums of the listed companies would only have been about 3% higher in H111 than they had been in H110.
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