UAE in­sur­ers see for­tunes change as un­der­writ­ing prof­its surge, says Moody’s

Reg­u­la­tory changes im­prove in­dus­try’s per­for­mance

Arab News - - BUSINESS - RE­BECCA SPONG

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)

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