Following years of annual growth in gross premiums of up to 20 per cent in the Islamic insurance sector in the GCC, growth slowed significantly to less than 1 per cent in 2016, said S&P Global Ratings in a new report.

The slowdown was mainly driven by the introduction of new mandatory covers, as well as strong increases in premium rates in Saudi Arabia, as new covers and actuarial pricing guidelines were adopted.

However, despite the slowdown, the pre-tax net income of the publicly listed companies in the sector improved materially to about $683 million in 2016, from about $274 million in 2015, mainly as a result of rate increases in Saudi Arabia following the introduction of actuarial pricing.

"Now that more policies are adequately priced, overall premium growth has slowed," said S&P Global Ratings' credit analyst Emir Mujkic. "The slowdown in premium growth has also been influenced by lower economic activity across all GCC states, as governments are trying to reduce or delay their spending due to lower revenues from hydrocarbon sales.”

Notwithstanding the material improvement in overall pre-tax net income, it is still too early to announce good news for the sector as a whole. This is because the profits are still unevenly distributed across the sector, and historic rapid growth, combined with accumulated net losses, continues to erode the capital strength and damage the credit profiles of a number of companies in the sector.

This is particularly true of some takaful companies in the UAE, which are often competing with larger and more diversified conventional (non-Islamic) peers in an overcrowded market. The shorter track records and less-diversified businesses of these UAE takaful companies put them at a disadvantage now that stricter regulations are being adopted in the country.

In 2016, the combined gross premiums of Islamic insurers in the GCC reached nearly $11 billion (based on available data from publicly listed companies), representing about 45 per cent-50 per cent of total global Islamic insurance premiums.

 

Last year, around 87 per cent of the Islamic insurance premiums in the GCC were written in Saudi Arabia, followed by the takaful sector in the UAE, with about 8 per cent of premiums.

“We anticipate that overall premium growth in the Islamic insurance sector in the GCC will pick up again slightly in 2017, as economic conditions slowly improve and governments continue to privatize some of their services, which should benefit the insurance sector as a whole,” S&P Global Ratings said.

“However, we expect that overall premium growth in the conventional insurance sector in the GCC will grow faster, by about 10 per cent, and outperform premium growth in the Islamic insurance sector, as conventional insurers often benefit from more diversified income streams,” it added.- TradeArabia News Service