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Price competition eroding UAE insurers’ profitability?

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AM Best said that the future outlook for the UAE market, as well as its correspondents in Bahrain, Kuwait, Oman, Qatar and Saudi Arabia, remains stable

Intense price competition in the UAE insurance market is reportedly eroding the profitability of listed insurance firms, global credit rating agency AM Best remarked in its latest study.

National insurance companies in the UAE posted an aggregate return on equity (ROE) of 7.9% in 2022, which is “materially” below the 10.3% return recorded in 2021, the report stated. ROE for the five-year period to 2021 also averaged just 9.6%.

“The insurance market in the UAE reported a marked deterioration in underwriting profitability in 2022,” the US-based consultancy said.

“This largely reflects the highly competitive market conditions and continuous pricing pressures,” it noted, while adding that the pricing pressures are particularly evident in the core motor and medical lines, which account for a significant proportion of retained risk in the market.

Across the region of the Gulf Cooperation Council (GCC), the motor and medical insurance segments, which constitute the majority of net written premiums, have also seen “pricing compromised”.

“Underwriting margins have become vulnerable to the post-pandemic normalisation of claim patterns and growing claims inflation,” the AM Best report stated.

However, the global credit rating agency said that the future outlook for the UAE market, as well as its correspondents in Bahrain, Kuwait, Oman, Qatar and Saudi Arabia, remains stable.

The stable outlook reflects the insurers’ solid footing as they enter 2023, although the region continues to face headwinds.

“The Gulf Cooperation Council [is] well placed to weather this economic uncertainty,” the consultancy said.

“The region has entered 2023 with fiscal surpluses, thanks in a large part to the buoyant oil price environment of 2022.; however, the weight of headwinds facing the market is increasing,” it added.

AM Best said that the implementation of mandatory insurance schemes in markets across the Gulf Cooperation Council region should improve near-term premium growth.

“In the UAE, repeated collaboration between the insurance industry and government has resulted in the development of innovative mandatory insurance products, creating opportunities for insurers in that market,” it concluded.

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