GCC insurers face competitive environment despite growth - report

One of the most significant challenges facing insurers in the Gulf Cooperation Council (GCC) is their ability to grow profitability and differentiate themselves in an increasingly competitive operating environment, a report by A.M Best has said.

The GCC is host to three insurance hubs servicing the Middle Eastern & Northern Africa (MENA) region – the Dubai International Financial Centre (DIFC), the Qatar Financial Centre (QFC) and Bahrain.

According to the report, competition among market participants continues to increase, despite the slowdown in the pace of new entrants into the market in recent years. Many local companies, in an effort to diversify their profiles and utilise capital more efficiently, are attempting to expand outside their local markets and grow their presence and franchise in the region.

This is adding to competitive pressures further.

The report stated “The MENA region has experienced regime changes and political unrest in the wake of the Arab Spring, which began in 2011, and resulted in the fall of some long-standing regimes. The social unrest has brought about a decline in investor confidence in much of the region and a subsequent decline in foreign investment. However, this has been somewhat offset by increases in the price of oil in the oil- and gas-producing GCC nations.

“In the past few years, most GCC countries’ stable operating environments have attracted capital, although political instability overhangs the region. To varying degrees, the GCC countries have been affected by the Arab Spring, with Bahrain being the most negatively impacted. However, the Bahrain insurance market is displaying resilience as its GPW is expected to grow further in 2013,” the report noted.

The report warned that such political uncertainties could continue to dampen activity in the region.

“The MENA region has experienced regime changes and political unrest in the wake of the Arab Spring, which began in 2011, and resulted in the fall of some long-standing regimes. The social unrest has brought about a decline in investor confidence in much of the region and a subsequent decline in foreign investment. However, this has been somewhat offset by increases in the price of oil in the oil- and gas-producing GCC nations.

“While the top line has been affected by regional political and economic instability, many A.M. Best-rated GCC insurers have displayed resilience in their operating performances, despite the consequential limitations on underwriting activity and the impact on investment markets. Following the unrest, there has been a material tightening of policy wording in the region, driven by the international reinsurance market seeking to alleviate uncertainty or conflict arising from strike, riot and civil commotion (SRCC) definitions.

Most GCC insurers and reinsurers tend to be well capitalised and able to absorb riskier investment profiles, the report stated.

“While there is a high degree of prudence and stability on underwriting activities, investment strategies have tended to be aggressive. This subsequently leads to volatility, not just in a company’s earnings performance, but also in its level of risk-adjusted capitalisation as market values fluctuate.

“A.M. Best notes many insurers and reinsurers have made concerted efforts to adopt more conservative and stable investment policies, shifting toward more liquid investment portfolios and secure investments, including cash deposits and bonds.