Robust economic growth driven by high oil prices and government investment in diversification combined with price increases will help insurers achieve underwriting profitability this year.
Moody’s Investors Service analysts said more frequent severe storms, such as those that affected the region in April, will contribute to greater risk awareness and increase demand for insurance.
“This could result in increased sales of comprehensive motor insurance, which covers damage to the policyholder’s own vehicle. In the UAE, motor third party liability insurance is mandatory, but demand for comprehensive cover is currently low,” explained Mohammed Ali Londe, vice president and senior analyst at Moody’s.
He said GCC insurers will also benefit from the expansion of compulsory insurance across the region. “The UAE, Oman, Saudi Arabia, Qatar and Kuwait continue to broaden their compulsory medical insurance requirements. Saudi Arabia has also widened its compulsory motor, domestic worker, pilgrimage and travel protection coverage, while the UAE has done the same for loss of employment and workers’ protection insurance,” said Londe.
The expansion of compulsory lines tends to lead initially to highly profitable revenue growth, which then gradually fades because of competitive pressure and rising claims, he said.
Simon James Robin Ainsworth, associate managing director at Moody’s said credit conditions for insurers in the GCC remain volatile. GCC insurance prices remain under competitive pressure as companies seek to grow their market share. “The sector’s investment portfolio is skewed towards domestic equities and real estate, increasing asset risk and magnifying exposure to downside scenarios that could arise from regional geopolitical tensions.”
Moody’s analysts expect GCC countries to achieve real GDP growth of between 1.4 per cent (Kuwait) and 4.6 per cent (UAE) this year thanks to high oil prices and government investment in economic diversification. “This, combined with insurance price increases last year, should translate into positive underwriting profitability in 2024, despite higher claims as a result of the April storms.”
In most GCC economies, ongoing or planned capital investments combined with solid business and consumer sentiment will drive growth in the months ahead. Growth in non-hydrocarbon sectors remains robust, driven by large government-led economic diversification projects designed to reduce long-term reliance on hydrocarbons. “Economic diversification plans, if successfully executed and increasingly supported by private sector investment, have the potential to significantly lift trend growth and employment in non-hydrocarbon sectors, which would contribute to growth of the insurance market,” they said.
The GCC countries’ average insurance penetration rate (premiums as a percentage of GDP) was 1.8 per cent in 2022, well below developed markets such as the UK (10.5 per cent) and the US (11.6 per cent).
The GCC countries’ low insurance penetration rate partly reflects their sizeable oil and gas sectors, which account for a high share of GDP but do not rely on the local market for the bulk of their insurance. “The region’s planned economic diversification will create opportunities to insure an expanding non-hydrocarbon sector, which will increase the penetration rate. This will encourage insurers to broaden their product range to include more non-hydrocarbon related commercial insurance, including coverage for small to medium sized businesses, diluting their current bias towards medical and motor products.”