Within this overall trend, the non-life insurance segment is likely to outperform the life insurance segment due to new rules on the compulsory purchase of health insurance products and encouraging regulatory reforms, the report by financial advisory service firm Alpen Capital found.
Its latest GCC Insurance Industry report, released this week, which covers the United Arab Emirates, Saudi Arabia, Qatar, Bahrain, Kuwait, and Oman, found the industry was slowly transitioning from its largely protected status into a more globally competitive sector.
“With governments realising the importance of an efficient and stringent regulatory requirement to foster growth, the industry is seeing several reforms to combat challenges such as slowdown in profitability and premium growth resulting from intense competition,” said Sanjay Vig, managing director of Alpen Capital (ME).
“Soaring valuations and limited market share are discouraging consolidation in the industry; however stricter solvency and capital requirement regulations may push small players to consider the M&A route to sustain and grow in the industry,” he added.
“Soaring valuations and limited market share are discouraging consolidation."
Profitability challenged
The report notes that overall profitability of the insurance industry in the Gulf has been weak since 2010 due to low investment yields and negative underwriting results.
“In line with poor financial performance, the capitalisation is also challenged by the increasing capital requirements, as the industry is exposed to lower pricing and riskier assets,” it said.
Although premium rates are at the bottom in most markets, a favourable economy coupled with regulatory reforms should provide some support for a growth in gross written premiums.
On a brighter note it found that the penetration rate for insurance products in the GCC nations was expected to increase to 3.3% in 2020 from just 1.4% in 2014.
The report also found that Qatar was likely to be one of the fastest growing markets though would remain in third position after the UAE and Saudi Arabia.
The Alpen Capital survey identified several major trends as likely to have a big impact on the Gulf insurance industry going forward. These included:
- Strong inroads being made by international insurance companies
- Regulatory changes will drive industry consolidation
- A move towards a risk-based pricing model
- Enhanced use of digitisation and customisation to improve efficiency
- Increasing focus on Enterprise Risk Management
- Greater use of bancassurance and online distribution methods
