Atlas Magazine April 2014

Insurance in the Gulf between shadow and light

Since the 2000s, insurance in the Gulf has been reporting growth rates worthy of countries like China and Brazil. The market has benefited from the sound economic fundamentals with rapidly developing sectors such as construction, public works, telecommunications, energy and transport.

Structural modernization along with the advent of Islamic finance has also boosted an insurance business that had been previously struggling.

In fact, this new Eldorado’s shining picture with ideal growth rate and outstanding potential cannot overshadow its shortcomings.

Much of the growth in the Gulf countries is not accounted for by insurers but results from the measures undertaken by the authorities who have introduced the obligation of motor and health insurance. In the United Arab Emirates, the largest market in the region, health and motor classes combined account for 55% of premium revenues in 2012. For the same year, this rate jumped to 75% in Saudi Arabia. During the years 2005 to 2012, health insurance has progressed by 824% and 1375% respectively in Saudi Arabia and the United Arab Emirates.

The overrepresentation of these two classes of business in the insurers’ portfolio is likely to jeopardize the viability of local companies. Health and motor insurance generate either low profits or large losses that cannot offset other risks of small rather non life companies, caught up in a hyper-competitive market.

That was the case of the overall Saudi market whose last year results reported a loss of 346 million USD for a turnover of 6 672 million USD, with 21 direct loss-making insurers out of the 32.

Another indicator of Gulf insurers’ weakness, profits emanates traditionally from real estate investments and not from technical insurance operations.

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