S&P Global Ratings said ratings on insurers in the GCC will remain broadly stable in 2021, mainly due to the robust capital buffers despite ongoing economic uncertainty relating to the COVID-19 pandemic.
Real GDP in the GCC countries will likely recover to about 2% in 2021 on average, after the sharp contraction in 2020, but we believe that key sectors, particularly real estate, hospitality, and retail, will remain under pressure this year, stated S&P in its "GCC Insurers In 2021: Robust Capital Supports Credit Quality" report.
Ongoing high competition, a contraction in population of about 4% across the GCC on average, and economic uncertainty will weigh on growth prospects and earnings, while elevated asset risk could lead to further volatility in the coming quarters, said the expert.
With the relatively large number of insurers in the region, some of which are small or posting losses, we expect to see further capital raising and consolidation, particularly in Kuwait and Saudi Arabia where regulators may introduce higher capital requirements, it added.
The report cites the main risk for GCC insurers as a potential return of volatility in capital markets, which could weaken credit conditions for insurers in 2021, particularly if central banks gradually lift forbearance measures later this year.
Among the opportunities for GCC insurers is a large uninsured population; higher awareness of insurance products and the need for protection among the population could increase the demand for medical and critical illness policies covering Covid-19 and other pandemics.
bout 84% of insurers in the GCC maintain capital adequacy above the ‘AAA’ confidence
level in our capital model, compared with about 59% across all of EMEA, said S&P in its report.
However, the overall size of most insurers' capital is relatively small and can therefore
quickly fluctuate, it stated.
Strong growth, single events, or accumulated losses have been the key reasons for a decline in capital buffers at some insurers in recent years, it added.
