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03 December 2023

UAE insurance sector jumps 27 per cent as economy grows

By Ryan Harrison



The growth of the UAE’s insurance market soared by 27 per cent in 2006, dwarfing all other Middle East economies, according to latest figures from Moody’s Investors Service.


The rating agency said total premiums volumes had reached $2.7 billion (Dh10bn) in the UAE, while its nearest competitor, Saudi Arabia, achieved $1.6bn.

The regulatory standards achieved by new financial hubs, such as the Dubai International Financial Centre (DIFC), were also keeping pace with more mature insurance markets worldwide.

Moody’s found soaring gross domestic product (GDP) in countries in the region and government intervention to increase the take up of retirement insurance had fuelled the growth of premiums, despite penetration rates remaining markedly lower than in many Western economies.


The report said: “The UAE remained the largest insurance market in the Middle East, according to 2006 data, reflecting the Emirates’ strong economic growth, major local and international businesses and diverse population.”


The market grew by 27 per cent in 2006, and the continued boom in population and growth in infrastructure and other investment look set to continue the insurance growth. Moody’s explained the UAE’s domestic insurance market remained relatively fragmented.

The number of registered local insurance companies, between 20 and 30, is relatively high, and in addition more than 20 foreign companies are active in the country. 

“Large local groups such as Oman Insurance, Abu Dhabi National Insurance Company, Salama, Arab Orient and Al Ain hold strong market positions, while many smaller players focus on niche product lines or distribution channels, with foreign companies initially focusing on the insurance needs of ex-patriot communities.”


Non-life insurance forms the majority of the UAE Groups’ business, at roughly 85 per cent of total premiums, with a focus on motor, marine, engineering, liability and health.

The UAE has seen some level of life insurance sales, although again Life insurance and in particular Takaful are expected to grow strongly, due to the increasingly affluent local middle classes as well as a buoyant ex-patriot population.


The report said: “Assets are largely invested in local and in some cases foreign equities, with total industry equity investments through 2006 at around 55 per cent of invested assets, with a lower proportion (nearly 30 per cent) in cash/bank deposits.

In recent years, given the strong growth in local stock exchanges, this investment strategy has led to good investment performance, although the sharp stock-market corrections in 2006 led to some severe difficulties for some insurers.”


Middle Eastern insurance markets are often characterised by relatively high numbers of small, often specialised insurers.

The Moody’s report found  one of the key credit challenges for the markets is the often-significant number of smaller, often unsophisticated players.


However, most markets also contain a handful of substantial and well-recognised market leaders, and Moody’s expected the trend of increasing numbers of larger and higher-profile insurers to continue as markets in the region mature.


Jose Morago, a Moody’s AVP/Analyst and co-author of the report, said: “Non-life insurance remains the dominant line of business, with most Middle Eastern markets showing relatively high levels of concentration on a select insurance retail lines, and sizeable commercial insurance contracts relating to higher-risk infrastructure projects in the region, such as oil, gas and construction.


The study, called Middle East Insurance set for continued strong expansion, said until recently regulatory systems across the region had been relatively weak, with some local markets being unregulated.


But substantial reform has been implemented in many markets, including the UAE, Jordan and Qatar, to improve regulatory oversight, with capital requirements broadly increasing.
“Regulatory standards in many markets and in the newly developed financial centres, such as the DIFC and the Qatar Financial Centre, are in many ways comparable to those of more developed insurance markets.


“Individual groups’ ambitious growth plans for the region suggest that capitalisation levels will be paramount,” said the report.


Moody’s said the capitalisation of many insurance groups in the UAE suffered through 2006 as falling equity markets heavily impacted many balance sheets, especially as many groups had fairly modest balance sheet strength initially. 


But, as in other markets, some of the larger groups maintain strong levels of capitalisation. For example, Salama reported 2006 consolidated shareholder equity of Dh1.3bn and net written premiums of Dh600m.


Financial Flexibility


Many insurers are actively traded members of the local (Abu Dhabi, Dubai) stock exchanges, such that market access is generally good, although not on a scale seen in more developed insurance economies.


Insurers also have relatively low or non-existent levels of financial borrowing. 

Moreover, many insurers are parts of substantial and wide-ranging conglomerates (For Example – Arab Orient and al Futtaim Group), or have strong connections (share ownership and/or board representation) from local ruling families, such that access to additional shareholder capital can in some cases be good.


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