UAE insurers post profits in H1

dubai — UAE insurers showed signs of recovery by declaring profits in the first six months of the year compared to same period last year despite lower oil price pressure.

Listed insurers in the country made a comeback in the first half of 2016, reporting aggregate profits both on an underwriting basis and a net income basis, after reporting aggregate losses in 2015, according to ratings agency S&P’s.

The recovery took place despite a backdrop of sizable economic pressures in the Gulf Cooperation Countries (GCC), with global oil prices hovering between $30 and $60 per barrel, leading to fiscal pressures, slower economic growth, and volatile stock markets.

The UAE is vulnerable to many of these factors, resulting in S&P’s reduced forecasts for GDP growth in the coming years. However, this slowdown has not been a barrier to the expansion of the local insurance market, as it continues on its growth trend with support from the Dubai Compulsory Health Insurance Scheme.

Dubai completed a three-stage roll-out of health cover in June 2016. In aggregate, the UAE health insurance sector has seen a major boom since 2013, with medical premium growth averaging 30 per cent over this period.

“Considering that more than 90 per cent of medical premiums in UAE are generated within the emirates of Abu Dhabi and Dubai combined, and both emirates have now completed their medical insurance projects, we believe it will become increasingly difficult for insurers to continue this pace of premium growth, unless they find innovative ideas to diversify into newer business lines,” the ratings agency said.

There are currently 60 insurance companies in the UAE, out of which 29 are listed on one of the two stock exchanges (ADX and DFM). Listed insurers control almost half of the total UAE market premiums.

The listed UAE insurers posted growth of nine per cent in gross premiums for first-half 2016, similar to the eight per cent growth seen in first-half 2015. Within the industry, conventional insurers registered a 10 per cent increase in premiums in first-half 2016, compared with 5 per cent for the first half of 2015. Growth was more heavily weighted toward the larger players, although the majority of insurers registered some growth.

The takaful sector faced a slower pace of growth, at 4 per cent, compared with 30 per cent for the first half of 2015, owing to the dip in premium income in 2016 for four out of eight takaful insurers. On aggregate, the listed insurers in the UAE market registered significant improvements in their net profits for first-half 2016 at Dh573 million compared with net profit of Dh263 million in first-half 2015, marking 118 per cent growth overall.

This improvement is mainly driven by ADNIC’s turn-around to profits, amounting to Dh107 million from a net loss of Dh299 million in first-half 2015, adding an overall Dh406 million to overall market results. While this recovery distorts the market results, 17 of the 29 listed companies posted improved net results in first-half 2016.

The takaful sector on an overall basis shows further deterioration in net earnings, with net losses of Dh114 million compared with a net loss of Dh9 million for first-half 2015.

Within the industry, conventional insurers registered a remarkable improvement, with an overall combined ratio of 93 per cent for firsthalf 2016, compared with 103 per cent in first-half 2015. However, the picture remains weaker for takaful insurers who reported a net combined ratio of 122 per cent in first-half 2016 versus 103 per cent in first-half 2015. Of the eight listed takaful insurers, six posted combined ratios over 100 per cent.