The GCC remains the fastest growing insurance region, outpacing all other markets with top line growth of close to 15 per cent in 2014, says Moody’s Investors Service in a new report, forecasting similarly strong rates over 2016-18.
The GCC insurance industry has more than tripled between 2006-14, with insurance premiums increasing to $22.2 billion from $6.4 billion, explained Moody’s report titled “GCC Insurance Industry: Growing Economy Will Drive Further Market Growth Over Next Two Years”.
This represents a compound annual growth rate (CAGR) of 16.8 per cent over the period, although growth in each market varies, ranging from 20.7 per cent CAGR in Qatar to 6.4 per cent CAGR in Kuwait.
“The positive growth outlook on the region will continue to attract insurers – both domestic and foreign – to invest in the GCC markets, but this is likely to increase competition and put even further pressure in what is already a weak-to-average profitability in the sector”, said Mohammed Ali Londe, Moody’s assistant vice president and analyst.
“However insurers in the region are generally strongly capitalised and possible future pressure on profitability is unlikely to reduce the credit strength of the sector in the medium term”, added Londe.
Growth in the sector will be driven by, inter alia, increased economic wealth in the region, together with increased insurance penetration. Currently, insurance penetration within the GCC is well below 2 per cent of GDP (apart from UAE and Bahrain), compared with 5.2 per cent in Austria, which has similar premium size to the GCC and much lower than that of advanced economies such as in the US (7.3 per cent) and UK (10.6 per cent).
Moody’s expects significant further growth driven by the region’s high economic and fiscal strength, despite slower-than-expected oil price recovery. Sector growth will continue to be supported by governments making an increasing number of insurance products compulsory.
Additionally many jurisdictions in the region are enhancing regulations to strengthen the sector in particular areas, such as capital adequacy, assets quality and reserve adequacy along with providing more transparency to the marketplace.
Moody’s expects that these enhanced regulations and implied additional costs of monitoring, managing and reporting may also encourage consolidation among some smaller market players, potentially reducing competitive pressures and aiding market stability.
Moody’s notes that the region also benefits from a generally stable sovereign backdrop, even though the region is exposed to low oil prices and has the potential for political turmoil. Most GCC countries exhibit strong sovereign creditworthiness, as reflected in the fact that four of the six GCC sovereigns are rated Aa3 or higher, with all six being investment grade and four having a stable outlook.
In addition to the weak-to-average profitability, common weaknesses include geographic and business lines concentration and high risk investment portfolios.
The report includes detailed information for each one of the GCC markets as well as highlighting common strengths and weaknesses of the insurance sector in the region.