More GCC insurance mergers likely after flooding impact

Consolidation in the GCC’s insurance sector – already underway because of rising competition and stricter regulations on solvency capital requirements – could be accelerated by the impact of the flooding in the region last week.

Ratings agency S&P Global said this week that many insurance companies – mainly in the UAE, Kuwait and Saudi Arabia – were failing to meet the required solvency capital requirements even before the heaviest rains in 75 years arrived to further test their financials.

“We could see some solvency and liquidity issues among some of the [less] capitalised companies in the market,” Emir Mujkic, director of insurance ratings at S&P Global in Dubai, told a webinar on Tuesday.

Faisal Abbas, vice-president at insurer The Continental Group, added: “The insurance industry will inevitably grapple with low profitability in the near term and understandably increase premiums to offset losses.

“However, it may not end at that. There is a strong likelihood of changes to underwriting processes to reduce exposure to such risks going forward.”

Of the UAE’s 60 licensed insurers, about one-fifth have capital and liquidity buffers that are only slightly above, or even lower than, the regulatory minimums, S&P Global estimates.

“We anticipate that the capital and liquidity buffers of some insurers with weak capital positions could become strained, potentially leading to some delays in claim payments,” S&P noted in a report published this week.

It added that most Gulf insurers that S&P rates benefit from robust capital and liquidity buffers and “should be able to absorb related claims” from the UAE floods.

Source: Trade Finance