Continued growth seen in Gulf insurance sector, paced by UAE, Oman: report

The Gulf’s insurance market is set to grow to be worth US$44bn by 2021, despite such challenges as the persistently lower global oil price and the “ensuing austerity measures” that have disrupted economic activity in the GCC, “and subsequently the underwriting business”, according to a new report.

The United Arab Emirates and Oman – both of which have introduced compulsory health insurance regulations recently, with Oman’s set to come into force next year – are expected to lead the growth in the GCC’s insurance market, the report, carried out by Dubai-based Alpen Capital, a boutique investment advisory business, notes.

In its 113-page report, Alpen Capital predicts that the insurance sector in the six-country Gulf Cooperation Council area will grow at a compound annual growth rate (CAGR) of around 10.9% between 2016, when it was worth US$26.2bn, to around US$44bn in 2021.

Growth in 2017, though, “is likely to be moderate, as the industry players [adapt] to new regulations amid increasing competition and recovering economic activity”, the report says, in an introductory summary of its findings.

“Nevertheless, growing population, economic diversification and country-specific regulations to strengthen the insurance sector are the factors that will present underwriting opportunities going ahead.”

Alpen Capital’s report is described as an update of a previous piece of research published in October, 2015.

Other key findings:

  • During the forecast period — through 2021 — Saudi Arabia will be the third-fastest growing GCC market, at an annualised pace of 10.5%, behind the UAE and Oman, where the industry’s annualised growth rate is expected to average around 12.1%.
  • As the share of the market held by the UAE and Oman grows, that of the industry in other GCC countries “may contract”.
  • The insurance markets in the UAE and Saudi Arabia are estimated to grow to US$ 18.1bn and US$16.4bn, respectively, by 2021.
  • Between 2016 and 2021, the non-life insurance market in the GCC is expected to grow at a
    rapid CAGR of 11.7% to US$ 39.8bn, “in view of the new regulations improving pricing of insurance policies, an anticipated revival in the economy, mandatory covers and rising healthcare costs.”
  • “The life insurance market i the GCC “is projected to grow at an annual average rate of 5.3%, led by rising population and risk awareness”.
  • Insurance penetration in the GCC is forecast to expand to 2.5% in 2021, after having stood at  1.9% in 2016 , while the “density”, or gross written premiums as measured per capita,  is likely to grow at a CAGR of 8.4% to US$729.6.

‘Resilience amid deceleration’

In an introduction to the report, Alpen Capital executive chairman Rohit Walia noted that the GCC’s insurance sector had “demonstrated resilience amid a decelerating economy” recently, “highlighting the industry’s growth prospects” and “notwithstanding the impact of constrained fiscal,
business and consumer spending”.

“Limited implementation of mandatory health insurance and risk-based pricing in the major markets of the UAE and Saudi Arabia, respectively, [have] helped to keep the growth prospects of the insurance industry in the GCC intact,” he added.

“A growing population base and revenue diversification efforts of the GCC governments have also aided the growth of the industry.

“The sector is witnessing a major overhaul of the regulatory framework, as the governments are deploying  efficient and stringent guidelines to make the insurance sector globally competitive.

“The GCC insurance sector remains under-penetrated, and this presents immense opportunities for the industry, [which is also] backed by favorable demographics and strengthening government regulations.”

That said, the rapidly-evolving regulatory landscape is also working to make the GCC insurance market “more competitive”, with the result that the insurance sector there has begun showing signs of consolidation has started showing signs of consolidation, “particularly in Saudi Arabia and the UAE”.

“The sector does face short-term challenges in the backdrop of reduced public and business spending. Guidelines strengthening capitalisation levels, making health insurance mandatory and linking premium pricing to risks will be the major forces aiding growth.”

Walia recommended those GCC insurers keen to build market share look to “technology-driven innovation, consumer-centric strategies and product diversification” to help drive their businesses.

To read and download the Alpen Capital report from the firm’s website, click here. 

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