August 2009

The UAE Insurance Industry report of Alpen Capital talks about the current status of the UAE insurance industry and how the economic slowdown has impacted the business. Although weakness in new car and home sales and construction project delays and cancellation will result in weaker growth in 2009 than over the past five years, the sector is expected to resume double digit growth rates in 2010 to 2012. The key factors underpinning the strong growth potential are low insurance penetration, relatively strong economic growth and favorable demographics.

According to the report, the UAE insurance companies are responding to slower growth in 2009 by ceding less business to reinsurance companies. There was a clear deceleration in gross premium growth in 2009, down from about 15% in the first quarter to only 1% in the second quarter. Meanwhile, net premium income (after reinsurance and provisions for unearned premiums) continued to grow at about 20% in the first and second quarters. This suggests the UAE insurers are retaining a greater part of risks that they have traditionally ceded to reinsurance companies due to concentration risk, technical complexity or lack of historic claims data.

The UAE insurers continue to perform very well in terms of underwriting performance, although rapid growth, increasing competition and cross-subsidization of unprofitable lines has resulted in gradually weaker underwriting margins over the last three years. Most of the UAE insurance companies are closely held and their stocks are inherently illiquid. The reports highlights that there is potential to unlock significant value by addressing relatively simple shortcomings in terms of investment strategy and transparency.

According to the report, conventional insurance continue to dominate the UAE market, but more and more players are also establishing Islamic compliant units. The report favours players that are present in both segments’, given the somewhat higher growth rates for Islamic insurance.

For more details please click here to access the complete version of the UAE Insurance Industry Report.