With stock prices reaching record lows Gulf insurers need to refocus and source less volatile alternatives to making money, Michael Bitzer, CEO of the Abu Dhabi-based National Health Insurance Company has urged.
“Most regional firms have almost entirely been focusing on the financial side of the business, with often more than 90% of company profits being generated from investments in non-insurance sectors,” he said.
Similar to the 1990s internet bubble, Gulf companies have relied on profitable equity investments until the recent stock market slide.
“Investment strategies in the Gulf are more aggressive and spontaneous than in developed countries, often without any visible structure. Markets were highly liquid, but since the bourse slowdown attitudes have changed and most players have hopefully learned their lesson,” Bitzer said.
Kevin Willis, credit analyst at credit rating agency Standard & Poors, urged regional insurers to diversify their portfolios as they might face investment alternative shortage in the future.
First quarter profits of 13 out of 17 insurance companies in 2006 fell by an average of 7.6% as a result of the drop in their incomes from investments in non-insurance sectors. Willis supports investing in equities within a controlled range.
“Companies can withstand a certain risk potential, depending on what extent they expose themselves to it.”
Overall figures still look promising, and with industry growth rates of 20% annually the market is likely to double by 2010.
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