The insurance market of the United Arab Emirates (UAE) continued its earnings momentum in 2018, to post a second consecutive year of bumper profits.
AM Best’s analysis of the preliminary disclosures of the national insurers listed on the Abu Dhabi Securities Exchange (ADX) and the Dubai Financial Market (DFM) showed material improvements in overall performance, combined with modest premium growth.
In 2018, aggregate underwriting profits for UAE-listed insurers experienced a marginal decline of 1.7 per cent, to reach AED 1.7 billion. However, net profits showed a strong increase of 6.4 per cent, to AED 1.4 billion. Underwriting returns continued to benefit from improvements in pricing and underwriting discipline as a result of regulatory changes in 2017 in the key business lines of motor and medical insurance.
AM Best also noted that policies underwritten in 2017 continued to benefit 2018 results, favourably contributing to technical earnings.
Overall, the market returned a return on equity (ROE) of 8.4 per cent, slightly above the 2017 returns of 8.1 per cent. Whilst the ROE metrics for top-tier and mid-tier insurers remained broadly stable relative to 2017, AM Best noted the improvements in insurers in the bottom tier.
Following two years of strong premium growth, in both volume and rates, GWP increased modestly in 2018. Overall, listed insurers generated combined GWP of AED 21.9 billion during 2018, representing an uplift of 0.5 per cent from 2017.
Growth in 2016 and 2017 was attributable to the mandatory business lines of motor and medical insurance, which both benefited from regulatory reforms.
In 2018, however, in the absence of regulatory intervention, AM Best has observed that underwriting discipline appears to have weakened, with market practice returning to its historic levels of fierce competition and heavy rate discounting. This has been most acutely felt in motor. Market reports suggest that pricing for motor softened materially in 2018, by 15 per cent, to 18 per cent.
Additionally, AM Best was also aware that many companies are offering higher commissions to agents and brokers across all business segments, which would squeeze technical margins.
The top tier of four companies continued to control a substantial market share of more than 50 per cent of premium revenue in 2018.
Oman Insurance, which was dislodged by Orient Insurance in 2017 as the largest insurer in the country (by GWP), regained its top position in 2018, although the difference between the two companies is marginal. AM Best expects both companies to remain the UAE’s two largest insurers in the medium term.
Within the mid-tier segment, AM Best notes contrasting fortunes in leadership rankings.
The changing market profile were driven by different strategies, with some insurers seeking to actively manage their portfolios through enhanced risk selection whilst others have sought to grow through size and scale.
AM Best also observed that companies that have identified niches or unique distribution strategies have also benefited. However, AM Best continued to view with caution companies that grow significantly in soft market environments.