While higher reinsurance costs in the UAE will spur premium growth, they may also weigh on earnings, particularly those of smaller and midsize players, according to S&P Global Ratings credit analyst Emir Mujkic.
In a report titled ‘GCC Insurers' Growth Prospects Could Slow In Some Markets’, released on 3 March, he said that the overall underwriting performance of UAE insurers is profitable, supported by rate adjustments and reinsurance commissions.
A lack of new licence issuances and the dominance of large players in the UAE market create high operational and regulatory barriers to entry.
Mr Mujkic also said that rate increases after the floods in April 2024 could spur growth in the UAE in 2025. Other factors that would boost growth include ongoing infrastructure developments, the introduction of mandatory insurance schemes and population growth.
Headwinds
Aside from the likely dampening of earnings due to higher reinsurance costs, headwinds which the UAE insurance industry faces include:
-
Insurers have a material, although declining, exposure to high-risk assets, which could lead to capital and earnings volatility.
-
About one-quarter of listed insurers operate below or only slightly above minimum solvency capital requirements. There is therefore a heightened risk of regulatory intervention.