The combined profit of the 29 listed insurers for January to September in 2015 amounted to AED215 million (US$58.5 million), an 83% plunge compared to the corresponding period of 2014 of AED1,276 million, according to an analysis by Badri Management Consultancy (BMC), an actuarial consulting company.
A large part of this reduction is due to ADNIC, said BMC. Without ADNIC’s results, the combined profits for the first nine months of this year would have stood at AED546 million, representing a 54% decrease from AED1,183 million for the corresponding period last year.
ADNIC booked the highest loss of AED331 million for the first three quarters of 2015 compared to a profit of AED94 million for the corresponding period in the previous year. The main reason for this was strengthening of reserves. BMC said that with the implementation of new insurance regulations, it is likely that other insurers will follow suit and increase reserves.
The average loss ratio for the 29 insurance companies analysed was 78% and the average combined ratio stood at 103%.
The insurers reported total premiums of AED13.6 billion in the first nine months of 2015, up 9% y-o-y. The top five insurers had a combined premium of AED7.5 billion for the first nine months of 2015 as compared to AED7.1 billion for 2014, and their share declined marginally from 57.0% to 55.6%.
For the analysis, BMC extracted data from the third quarter of 2015 financial statements of insurance companies that were publicly available.
No “meaningful recovery” in earnings expected
In a recent report, Standard & Poor’s (S&P) said some 45% of the listed companies (13 insurers) posted underwriting deficits, and it does not see any “meaningful recovery” in earnings before 2017.
S&P Credit Analyst Kevin Willis said: “We see three key factors behind the disappointing results: intense competition in all lines of business, technical reserving corrections, and weak investment returns.”
S&P believes that these factors will remain in place through 2016. Furthermore, low oil prices are now a fact of life for the Gulf region and will eventually likely bring other economic consequences. And though interest rates are rising in response to tighter liquidity, the additional yields generated may not fully offset any normally resulting erosion in asset values.
“We do not expect to see any meaningful recovery in the UAE insurance market’s earnings, either technical or net, before 2017,” said Mr Willis.
“As insurers complete independent actuarial reviews, we believe the insurance market is likely to continue to need reinforcement of technical reserves through 2016, and this will tend to depress earnings. We think the combination of new regulatory demands and poor earnings increase the likelihood of business cessations in the years to come,” the report added.
AED1 = US$0.27