Underwriting profitability for listed insurers in the UAE has returned in 2016 but is still borderline, according to S&P Global Ratings.
The average combined ratio improved to 99 percent in 2016, from its peak of 105 percent in 2015, which marks the return of technical profitability for the market.
“While the overall market results look profitable, 15 out of 29 listed insurers still posted combined ratios above 100 percent, which means more than half of the market is still technically unprofitable,” said S&P Global Ratings credit analyst Sachin Sahni.
Gross written premium increased by 10 percent on average in 2016, surpassing the growth rate of 8 percent seen in 2015, and 7 percent in 2014, the S&P report said.
The main driver for this growth was Dubai’s compulsory medical insurance scheme implemented by the Dubai Health Authority (DHA), it added.
On aggregate, the UAE insurers reported combined net income of AED906 million ($247 million) in 2016 compared to a net loss of AED154 million in 2015.
“While the market recovery into profits is commendable, we note that the majority of net income was driven by net investment income,” said S&P.
“In our view, some insurers will need to rebalance their investment portfolio because of regulations that put caps on equity and real estate investments,” it added.
The report noted: “We anticipate that some of these insurers will be required to raise capital or restructure over 2017-2018, as market participants will prepare to meet regulations on solvency margin and minimum guarantee funds, which will come into force by the end of 2017.
“The insurance market in the United Arab Emirates remains fragmented, but concentrated on the largest players,” said Sahni. “While medical has been the main contributor to premium growth in the past, we expect growth in 2017 will come from a combination of medical, motor, and property.”