Posted inBanking & FinanceBahrainGCCKuwaitLatest NewsOmanQatarSaudi ArabiaUAE

Why mergers are likely to increase in the GCC’s insurance sector

New research says merger and acquisitions are likely to increase as larger players target small to mid-sized insurers

UAE employers reminded of insurance obligations during Covid-19

Merger and acquisitions in the GCC insurance sector are likely to increase as larger players target small to mid-sized insurers as well as tech-enabled operators and aggregators, according to new research.

UAE-based investment banking advisory firm, Alpen Capital, said in its new report that a rise in M&A activity will not only strengthen the competitive capabilities of the players in the market but also encourage the creation of newer products and services amid weakening profitability.

Its GCC Insurance Industry report said the regional industry has witnessed moderate growth in recent years amid macroeconomic concerns, constrained fiscal and business spending as well as intensifying competition within the industry.

It noted that the outbreak of Covid-19 since the start of 2020 has also weighed on the growth prospects of the broader industry.

However, long-term prospects of the GCC insurance sector remain positive and digitisation initiatives by insurers in the region are not only helping in transforming the entire value chain but also providing an opportunity to stay ahead of competition, Alpen said.

These have helped in forming a strong base for the GCC insurance market, which is set to steadily grow over the next five years, it added.

According to Alpen Capital, the GCC insurance market is projected to grow at an annualised growth rate of 3.2 percent from $26.5 billion in 2021 to $31.1 billion in 2026.

Orient Insurance postpones Saudi expansion plans

The life insurance gross written premium (GWP) is projected to grow at a CAGR of 3.8 percent from $3.8 billion in 2021 to $4.6 billion in 2026 while the non-life insurance segment is estimated to grow at a CAGR of 3.1 percent to $26.5 billion in 2026.

Sustained increase in population, economic recovery, reopening of the tourism sector, and strong pipeline of infrastructure development projects are among the leading factors that will facilitate growth in the sector, Alpen added.

It said the UAE, the region’s largest market, is expected to grow at a CAGR of 4.1 percent to 2026, with the expansion of compulsory business lines, growing standards of regulation and supervision as well as favourable immigration policies likely to support its growth.

The second largest market, Saudi Arabia, is expected to grow at a CAGR of 1.6 percent led by massive infrastructure development as part of its Vision 2030, health and motor insurance lines and expected recovery in business activity.

Sameena Ahmad, managing director, Alpen Capital (ME) Limited, said: “Growth of the GCC insurance industry which slowed down since the onset of the pandemic is expected to pick up on the back of projected rebound in the economy, reviving business confidence and robust diversification plans adopted by the GCC nations.

“Moreover, reopening of the tourism sector and mega events such as the Expo 2020 and the FIFA World Cup 2022 are likely to provide additional boost to growth going forward.

“The pandemic has brought a shift in consumer behaviours leading to demand for innovative, customised and convenient solutions. This is likely to compel insurance firms in the region to either develop in-house technological capabilities or collaborate with InsurTech companies that can deliver improved customer experience,” she added.

The report also highlighted that low awareness regarding the importance of insurance products and relatively underdeveloped life insurance market continues to pose as a challenge for the sector.

Lower revenues due to slump in oil prices, coupled with Covid-19 induced travel restrictions, job losses, business closures, and a subsequent fall in per capita income have put the regional insurance industry under increased pressure and impacted overall demand for related insurance products.

Moreover, the rising uncertainty due to the pandemic has led to re-evaluation or delays in infrastructure projects which is likely to affect the growth of valuable insurance assets such as property.

Follow us on

For all the latest business news from the UAE and Gulf countries, follow us on Twitter and LinkedIn, like us on Facebook and subscribe to our YouTube page, which is updated daily.