Intense competition and an increase in claims frequency will continue to weigh on Islamic insurers’ earnings in 2022, S&P said in a report on the outlook for the GCC Takaful industry.
But it forecast a modest recovery in 2023 thanks to anticipated rate adjustments in loss-making lines and higher interest rates, which should boost investment returns.
Ongoing pressure on earnings and capital has already resulted in some capital raising and consolidation in the two largest markets–Saudi Arabia and the United Arab Emirates (UAE) in recent years. S&P expects this trend to continue in 2022 and 2023.
Upcoming regulatory- and accounting-related changes (such as International Financial Reporting Standard 17) will likely lead to rising operational costs, requiring insurers to upgrade their information technology systems and other internal processes. This will also reinforce the need for capital raising and mergers, it said.
S&P expects improving economic sentiment, ongoing infrastructure spending, new mandatory coverage, and overall higher insurance demand will benefit the Gulf Cooperation Council (GCC)’s Islamic insurers over the next two years.
Higher hydrocarbon prices, with an assumption of an average Brent price of $100 per barrel (/bbl) for the rest of 2022 and $85/bbl in 2023, will lead to accelerated economic growth in the oil-exporting region. This should feed through to the Islamic insurance sector, with gross written premiums/contributions (GWP/C) expected to expand about 10% in 2022 and 5%-10% in 2023, the agency said.
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