UAE insurers see fortunes change as underwriting profits surge, says Moody’s
Regulatory changes improve industry’s performance
LONDON: Listed UAE insurers have reported a surge in profits in 2017 as a result of regulatory changes introduced over the past three years, according to ratings agency Moody's Investors Service.
Aggregate profit of the 29 listed insurers jumped by 46 percent to reach 1.31 billion dirhams ($360 million) in 2017.
The improved profits mark a change in fortunes for an industry that has struggled with increasing competition, which has driven down premiums and profit.
The insurers' underwriting profitability — a measure of profitability for the industry — improved to 91 percent for the first nine months of 2017, from 99 percent and 105 percent in 2016 and 2015, respectively.
“For many insurers the profitability improvement in 2017 has brought respite from steady capital depletion that was driven by bottom-line losses in previous years,” said Mohammed Londe, an assistant vice president at Moody's.
The uptick in profits is a result of increased insurance prices, driven up by the implementation of regulations such as the introduction of actuarial reserving in 2015, the agency said.
A new UAE government policy on automobile insurance, the unified motor policy, brought in last year, introduced minimum prices and standardized coverage for policyholders. This also played a role in pushing up prices, said the report.
Moody's said the industry's performance could attract fresh interest from both existing shareholders and new investors, which might help insurers replenish their capital more easily if needed.
The agency said it currently expects UAE insurers to maintain the higher level prices throughout 2018, while warning the industry to be vigilant to signs of pricing pressures returning.
The report said the sector faces the risk of insurers wanting to expand rapidly “ushering in a fresh period of price competition” by offering benefits and discounts to customers.
Profitability could also hit insurers unable to recover valueadded tax (VAT) from policyholders on unexpired risks. The tax was introduced on Jan. 1 this year.
While the impact of VAT could be significant for 2018 profits, all policies from this year onwards will include the new tax.
The Moody's report follows research by S&P Global, published on Feb. 20, that called 2017 a “remarkable year” for the insurance sector, noting insurers' improving profits.
The agency did warn that the market remains highly concentrated, with the top five insurers' market share rising to 59 percent in 2017. The remaining 25 insurers share 41 percent of the market.
Skyscrapers tower over downtown Dubai. Insurers in the UAE are starting to improve their financial performance after years of tough trading conditions. (Reuters)