By Soren Billing
Long term prospects 'remain strong' despite hit to portfolio of equities during slowdown.
The UAE’s insurance sector could be in for a bumpy earnings season following uncertainty in the region’s stock markets, but the long term growth prospects remain strong.
“Our portfolio of equities is not worth today what it was worth three or four months ago,” Jason Light, chief executive of Emirates Insurance Company, said.
“However, by any calculation, we have more than five times more capital than we need to manage the insurance business that we do.
“So this, what I hope will be a temporary set back in the market, is not particularly critical for our business model.”
Most UAE insurers have generous capital bases that tend to be invested in the equity markets, which have boomed over the past few years.
On balance, those equity portfolios have delivered reliable profits to the company.
Kevin Willis, director of financial services at Standard & Poor’s (S&P) in London, believes earnings in the sector will probably be dented by the falling stock markets.
“We can certainly envisage some deteriorating operating performances coming through in the third quarter for UAE based insurers as a result of the slump in equity market values,” he said.
That trend is likely to have continued into the fourth quarter.
Observers say the country’s fragmented insurance industry is likely to consolidate but Light of Emirates Insurance Company said it could take up to ten years before any significant mergers take place, with continued growth meaning there is little incentive to merge in the medium term.
Next year, the company sees gross written premiums (turnover) rising by 15 to 20 percent.
“Usually the things that drive consolidation are lower profits or losses and at least amongst the established companies here we haven’t yet seen that,” he said.