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UAE Freezones Biz News Updates
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UAE insurers post strong gains in premium growth and profits in the first
half 2017
Regulatory changes boost fortunes of the sector
UAE’s insurance sector has reported strong growth in gross premiums written
(GPW) and net profits and trend is expected to continue into the second half
this year, according to analysts.
The total net profit (after tax) for all listed insurers in the UAE
increased by 27 per cent to about Dh766 million in the first half of 2017
from about Dh604 million for the same period in 2016.
Analyst attribute the recent revenue growth to two key regulatory
initiatives. “We believe this growth can be largely attributed to two key
regulatory initiatives,” said S&P Global Ratings credit analyst Emir Mujkic,
“namely, rate increases in motor insurance, which are the result of a new
unified motor policy that the UAE Insurance Authority introduced in January
2017, and the final stage in the implementation of compulsory medical
insurance in Dubai, which has increased the number of policyholders under
this scheme.”
While premiums and net income showed strong growth in the first six months
of 2017, total growth in shareholders’ equity remained relatively flat.
Strong premiums growth, combined with unevenly distributed profits, is
increasingly putting pressure on the capital buffers of some weaker
capitalised insurers in the market. However, apart from some individual
exceptions, analysts expect overall credit conditions in the UAE insurance
sector to remain stable over the next 12 months.
Regulatory Initiatives
At half-year 2017, gross premiums for the 28 (out of 30) publicly listed
insurance companies in the UAE increased by 17 per cent to Dh12.2 billion
(about $3.3 billion) from Dh10.5 billion for the first six months in 2016.
The growth in premium income was supported by two key regulatory
initiatives. The first initiative was the UAE’s introduction of a new
unified motor policy in January 2017, which provides enhanced benefits such
as increased insurance cover for third-party liability claims of up to Dh2
million compared to Dh250,000 previously. This new motor cover sets minimum
rates that insurers can charge their customers for each vehicle class to
limit price wars in the market.
To comply with the new minimum rates, a number of insurance companies had to
increase prices. “We estimate that this has led to an increase in premium
volume from this line of business of more than 15 per cent. Given that the
revenue income from motor insurance contributes to about 25 per cent to 30
per cent per of premium income in the UAE market, this change has been a key
reason for the increase in premium volume,” said Mujkic.
Medical insurance coverage
The second key reason for the significant boost to premium growth was the
new business from compulsory medical insurance in Dubai. This scheme entered
its third and final implementation stage in 2016, when about 1.5 million
uninsured, of the emirates’ roughly 3.8 million residents, had to obtain
medical insurance coverage, initially by year-end 2016, which was then
extended to March 31, 2017. The mandatory cover already led to significant
increases in premium volume during the second half of 2016 for a number of
selected insurers that are authorised to write this business.
In addition to the significant increase in gross premium growth, the
insurance market in the UAE also recorded a strong increase in net profits.
Some segments of the new business from the compulsory medical scheme in
Dubai have proven to be highly profitable so far. This particularly applies
to the more basic coverage plans for policyholders, with a monthly income of
less than Dh4,000. Furthermore, rate increases for motor as well as for fire
and some medical insurance policies, have led to better profit margins.
August 27, 2017
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Courtesy Gulf News
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