S&P Global Ratings says mounting competition, more volatile investment returns will weigh on earnings for Gulf-basesd insurers
S&P Global Ratings has said it believes mounting competition, more volatile investment returns, higher regulatory costs, and stricter accounting standards will weigh on Gulf-based insurers' earnings this year.
The ratings agency said in a new report that growth of gross written premiums (GWP) in most GCC markets will likely stay sluggish, due to the lack of new mandatory insurance coverage and difficult economic conditions.
Although the GCC's six insurance markets should remain profitable, S&P said it anticipates a decline for some of them this year.
The report added that GCC economies have slowed over the past two years, due to fewer government-led projects resulting from lower oil prices. A modest pickup in GDP growth across the region in 2019 will not necessarily translate into stronger GWP growth, since lacklustre consumer spending and corporations' need to cut costs will persist.
"We expect the difficult market conditions in the Gulf region, combined with higher operating costs and more stringent accounting standards, will require insurers to adjust their investment exposures, underwriting and credit policies, and internal controls," it noted.
It added that larger companies, and those with strong existing internal reporting, systems, and controls, should be able to cope more easily with additional regulatory costs and demands, but some smaller and weaker capitalized insurers may struggle.
"In our opinion, the consolidation of insurers in the GCC would help improve their operational scale and increase the capital base of individual companies, allowing them to retain more risk and easing the highly competitive market conditions. However, we believe that regulatory incentives will be required to kickstart M&A activity, for example a requirement to increase capital bases and improve service levels."