While the listed insurers on the seven stock exchanges across the GCC delivered a mixed bag of results for 2018, Qatar Insurance Company remains the crème de la crème in terms of profits and premiums amid a tough environment.
The year 2018 was a difficult one for the majority of the 87 listed insurers in the six GCC countries amid a challenging operating environment plagued by high levels of economic, political and financial system risks.
The combined profits of listed insurers in the GCC fell by 0.8% to $1,108.8m in 2018, while the total GWP grew by 2% to $20,097.3m, according to their latest financial results published on the seven stock exchanges, including two from the UAE.
To further illustrate how tough the business environment was last year, 45, or more than half, of GCC listed insurers reported a decline in their profits – from as low as -2.3% to a high of -2,367.4%. In terms of GWP, 41 insurers experienced negative growth in the range of -0.1% to -75.3%. Tadawul-listed Saudi Indian Company for Cooperative Insurance (Wafa) suffered a double whammy of having the largest dip in terms of both profits and GWP.
In early February 2019, the Saudi Arabia’s Capital Market Authority (CMA) approved Wafa’s request to file for financial reorganisation procedure under the Bankruptcy Law. On 26 February 2019, the CMA extended the suspension of trading on Wafa. The suspension is to continue until CMA finds that the insurer is able to resume issuing and renewing insurance policies, the market regulator said in a statement.
It is worth noting that the financial results of the 32 listed Saudi insurers were based on their filings for the January-September period. The CMA has exempted listed entities from disclosing their financial results for the fourth quarter of 2018. However, listed companies shall disclose annual financial statements for 2018, in line with the CMA’s securities listing regulations, and the full year results are expected to be disclosed latest by 31 March 2019.
Tale of two heavyweights
With over 30 entities, the Saudi Arabia’s Tadawul has the largest number of listed insurers in the GCC. In the UAE, 17 insurers are listed on the Abu Dhabi Securities Exchange (ADX) and another 13 on the Dubai Financial Market (DFM).
Listed Saudi insurers continued to post dismal results for the first nine months of 2018, with net profit before zakat plunging 39.3% to $235.3m and GWP declining by 3.5% to $7,117.1m.
After growth rates of about 20% annually between 2013 and 2015, the increase of GWP in Saudi Arabia has slowed significantly since 2016. S&P said the market declined over the past two years due to slow economic activity, the application of higher no-claims discounts for motor policies, strict actuarial pricing, and the departure of more than 1m expatriates in 2018 stemming from higher taxes on foreigners and increasingly nationalist employment policies. These factors weighed on profitability last year and will continue to do so in 2019, said the rating agency.
In comparison, the UAE-listed insurers continued its trend of an overall increase in profits and GWP in 2018, albeit at a slower pace. Over the last few years, market growth was primarily driven by regulatory changes (ie, increased motor tariffs and the Dubai Health Authority (DHA) mandated medical coverage for the insureds in Dubai in 2017). However, despite motor tariff system amendments in 2018 that were expected to lead to more challenging results, the aggregate premiums stabilised with marginal improvement in overall net profitability, said Milliman in its report ‘Market Monitor – UAE: Preliminary Insurance Disclosures 2018’.
On the whole, the combined net profit of the UAE’s 30 listed insurers increased by 5.8% to $371.8m in 2018, while GWP grew marginally by 0.5% to $5,969.3m. Insurers listed on the ADX posted positive growth in both profits and premiums in 2018 – 27.1% to $192.5m and 1.6% to $2,662.0m. On the other hand, insurers listed on the DFM saw their overall profits and GWP shrink by 10.3% to $179.2m and 0.5% to $3,307.3m, respectively. Commenting on the UAE-listed insurers’ performance last year, A.M. Best said the underwriting returns for listed insurers in the UAE continued to benefit from improved underwriting discipline following changes introduced in 2017 that set minimum pricing levels both for motor and medical insurance.
Smallest market shines
Compared to Saudi Arabia and the UAE, Bahrain has only four listed insurers, behind Qatar’s 5, Kuwait’s 6 and Oman’s 10. Nevertheless, despite this small number, the listed Bahraini insurers delivered an impressive 97.3% jump in net profit to $26.6m last year – the highest growth rate among the seven bourses, thanks to the outstanding performance of Solidarity Bahrain and Takaful International.
The listed insurers in Bahrain – the smallest insurance market in the GCC – also achieved a significant milestone with their combined GWP surging by 35% to $444.9m last year, well ahead of the growth rates seen in other GCC stock markets.
Solidarity Bahrain, a subsidiary of Solidarity Group Holding, recorded the third strongest net profit growth rate among all listed GCC insurers last year, up 1,500% y-o-y to $6.9m, due mainly to the significant improvement in technical and investment income in 2018 compared to the corresponding previous period. Qatar Stock Exchange’s listed Al Khaleej Takaful, with 11,040% growth in net profit, was the clear leader in terms of overall profitability in the GCC. Takaful International, which saw a profit jump of 1,120.13%, was the fourth most profitable listed GCC entity.
Solidarity also posted the best GWP growth in Bahrain in 2018, up 89.5% y-o-y to $80.0m. This growth rate is only behind DFM-listed Orient UNB Takaful’s 404.8%.
Top performers by GWP & profits
In terms of individual performance by premiums and profits, Qatar Insurance Company (QIC) remains the crème de la crème of the listed insurers in the GCC. The Qatari insurer generated $3,463.1m in GWP (+8.1%), $182.5m in profits (+56.8%) and its market capitalisation stood at $3,145.3m.
The insurer’s stellar performance can be attributed to its strategy to continue to expand the low-volatility business, which represents a considerable portion of the QIC Group’s total portfolio. The group’s international operations, namely Antares, Qatar Re, and QIC Europe Limited (QEL) remained the key growth engines and brought in 77% of total written premiums in 2018, while the local and regional markets accounted for the remaining 23%.
In a distant second place in terms of premiums was Bupa Arabia with $1,957.5m (+10.8%), while another Saudi insurer, The Company for Cooperative Insurance (Tawuniya) came in third with $1,349.2m (-8.9%). The fourth and fifth spots went to Kuwait’s Gulf Insurance Group with $1,104.4m (+10.2%) and UAE’s Oman Insurance Company with $1,007.3m (-0.5%).
In terms of profits, with $115.5m, Bupa Arabia was also ranked second after QIC. It was followed by UAE’s Orient with $109.2m (+11.3%), Qatar General Insurance & Reinsurance Company with $75.3m (+5.0%) and Abu Dhabi National Insurance Company with $64.2m (+3.7%).
Tough times ahead
Going forward, both S&P and A.M. Best expect 2019 to be more challenging.
“Of prime concern is the softening of rates for motor, which occurred in 2018. Additionally, pricing across all other lines has reduced, driven by the highly competitive market environment. These policies will earn out in 2019 and could lead to technical margin erosion. Further softening of rates in 2019 would not be unexpected,” said A.M. Best.
A continuing area of unease remains in the prospective performance of medical, particularly relating to the DHA schemes. The rating agency said, “Whilst these policies have thus far performed well, A.M. Best expects a deterioration in margins going forward as policyholders become more aware of their cover and the claims-making process. Additionally, continued fluctuations in oil prices and reduced government spending will continue to affect insurance purchasing.”
S&P said it believes mounting competition, more volatile investment returns, higher regulatory costs, and stricter accounting standards will weigh on GCC insurers’ earnings this year. What’s more, growth of GWP in most GCC markets will likely stay sluggish, due to the lack of new mandatory insurance coverage and difficult economic conditions. Although the GCC’s six insurance markets should remain profitable, “we anticipate a decline for some of them this year”, the rating agency said.
With the difficult market conditions in the Gulf region, combined with higher operating costs and more stringent accounting standards, S&P said it will require insurers to adjust their investment exposures, underwriting and credit policies, and internal controls. Larger companies, and those with strong existing internal reporting, systems, and controls, should be able to cope more easily with additional regulatory costs and demands, but some smaller and weaker capitalised insurers may struggle as they navigate through the challenging business landscape in 2019. M