Listed insurers in the United Arab Emirates (UAE) showed strong operating performance during the first half of 2021, with net profit up 20% to AED1.14bn compared with the same period in 2020, according to AM Best. This led to a notable rebound in capital levels, up 12% compared with June 2020.
Market premiums written grew by nearly 6% to AED15.1bn for the first half of 2021. Best said the level of aggregate market premium growth is notable in the context of persisting soft pricing conditions for core business lines. “Motor and medical pricing remained under pressure going into 2021. More recently, there have been indicators that rates are increasing for these classes, as loss frequency and demand increase. Market-wide premium growth suggests an inflow of insurable risk opportunities and further rate hardening in other general insurance classes, such as property and engineering,” said the ratings agency.
Best noted that the market’s performance as a whole has been resilient to challenging macroeconomic conditions and intense competition. It said market conditions remain difficult in the UAE, particularly in core motor and medical lines, which represent a large part of insurers’ retained portfolios.
Underwriting performance for 2020 was boosted by Covid-19 impacts such as reduced frequency of motor and medical claims, as these classes of business have been subject to significant competition and pricing pressure since early 2020. Best explained that the UAE insurance market has been characterised by highly competitive conditions in recent years, and the effects of the Covid-19 pandemic have served to heighten competition.
“While insurers have demonstrated growth in capital, premiums written and profitability, Best is cautious on the outlook for the second half of the year. In particular, the potential for further increases in the loss ratio as claims experience normalises on competitively written business remains an area to watch,” said the ratings agency.
Best highlighted that digitalisation, modernisation and innovation are high on the agenda for insurers in the market, with operational disruption caused by Covid-19 accelerating strategies in these areas.