GCC insurance market on solid footing but headwinds gathering strength, says Best

The Gulf Cooperation Council’s (GCC) insurance market has a “solid footing” entering 2023, but the weight of headwinds facing the market is increasing, according to AM Best. In particular, the ratings agency highlighted the intense competition that is driving pricing pressure, supply chain disruptions, increasing inflationary pressures, and hardening reinsurance market conditions. Despite these headwinds, Best is maintaining its stable market segment outlook for the insurance markets of the GCC – comprising Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates. It noted the regional resilience to challenging global macroeconomic conditions as buoyant oil prices contribute to continued fiscal surplus across the region. In addition, Best pointed to opportunities for continued insurance sector growth, as economies strengthen, new insurable risks enter the market and product offerings diversify through the enforcement of mandatory insurance covers. And over the longer term, increasing merger and acquisition activity in the region has the potential to improve market profitability and reduce price competition, said Best. Best said it expects to see heightened M&A activity continuing across the insurance markets of the GCC. “A significant driver for this activity is the inorganic growth opportunity it brings to increase market footprint, generate economies of scale and/or diversify geographical reach. Increased regulatory requirements, rising operating costs, and competitive pressures, as well as a scarcity of insurance licences available in the region, are also contributing to heightened activity,” it said. Intense competition in the market has resulted in concerns over premium rate adequacy, attracting the attention of regulators and impeding market performance, said Best. It said certain regulators have taken steps to address price adequacy in recent years and to reduce the level of discounting offered in return for customer retention, issuing guidance circulars and formalising conditions as to when discounts can be granted. As for reinsurance, Best noted that insurers in the region are heavily reliant on reinsurance capacity to support participation on large-scale government-related contracts, mainly for commercial property and engineering projects. With insufficient capital to support these risks independently, GCC insurers typically cede a sizeable proportion of premiums to the international reinsurance market. “For many insurers in the region, inwards reinsurance commissions from these reinsurance placements form a substantial component of underwriting profitability. The impact and repercussions of hard reinsurance market conditions may disrupt business models for those heavily dependent on reinsurance support. Insurers’ participation on large-scale risks will be dependent on the continued availability of capacity at an acceptable price,” said Best. It added that in the coming years, insurers in the region may also begin to face challenges in securing reinsurance capacity if reinsurance partners reduce their appetite for conventional energy risks due to ESG considerations.

GCC insurance market on solid footing but headwinds gathering strength, says Best

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