Amidst a backdrop of dynamic market conditions and strategic shifts, the GCC insurance sector has demonstrated noteworthy growth in the first quarter of 2024. With a significant boost in investment income, the earnings of listed insurers have seen remarkable improvement, underscoring the evolving landscape of the regional insurance industry.

In this blog, we delve into the key highlights of the GCC insurance market in Q1 2024, examining the drivers behind the earnings surge, the emerging challenges, and the strategic manoeuvres shaping the sector, based on the latest GCC Performance Periodical by Insurance Monitor and Lux Actuaries and Consultants.

Robust Earnings Boosted by Investments

The first quarter of 2024 has been marked by a substantial increase in the earnings of 77 listed insurers across the GCC, driven primarily by higher investment income. The quarterly return on investment (ROI) rose to 1.7%, up from 1.3% in Q1 2023, reflecting the sector's adeptness at capitalizing on favourable market conditions.

Overall, Net Profit After Tax for the GCC insurers surged by 22.1%. However, this impressive growth moderates to 10.3% when excluding the exceptional earnings growth of 47.8% reported in Saudi Arabia (KSA). Notably, the introduction of corporate tax in the UAE has had a tangible impact, consuming about a tenth of the pre-tax earnings, despite the UAE's strong pre-tax earnings growth of 29.2%.

Underwriting Challenges and Regional Disparities

While investment income has buoyed overall profitability, underwriting performance has shown signs of strain across the region. Excluding KSA, the GCC insurers' underwriting performance weakened by 1.5%, with combined ratios edging up to 99.2% and surpassing 100% in the UAE and Oman. The adverse weather conditions experienced in April 2024 are expected to further strain underwriting results in the coming quarters, with the full impact still unfolding.

Solvency Concerns and Regulatory Pressures

Solvency margins continue to be a point of concern, particularly for several UAE insurers. Compared to the end of 2023, a number of insurers are now in breach of regulatory requirements, collectively accounting for at least 12% of the insurance revenue in Q1 2024. Except for Takaful Emarat-Insurance (P.S.C)-EM, which has announced steps to address its solvency position, no other concrete measures have been disclosed.

Conversely, KSA's insurance sector has maintained more stable combined ratios around 99%, with notable improvements in the motor business, which saw a performance enhancement of 8 percentage points, bringing the combined ratio down to 93% in Q1 2024. Strong earnings growth has bolstered the solvency positions of some KSA insurers, with SALAMA Cooperative Insurance Co. standing out. Additionally, United Cooperative Assurance (UCA) is exploring merger opportunities alongside preparing for a capital increase, pending approval.

Nevertheless, the new minimum capital requirement of SAR 300 million by the end of 2024 is putting pressure on at least five other KSA insurers, highlighting the ongoing regulatory challenges.

Growth Dynamics and Market Trends

While the overall earnings growth remains positive, Gross Written Premium (GWP) and revenue growth in KSA have decelerated to 14.3% and 20.2% in Q1 2024, respectively, down from the robust figures of 30.8% and 27.2% in Q1 2023. This slowdown is largely attributed to the personal lines of business.

The mergers and acquisitions (M&A) pipeline has also experienced a slowdown following the completion of two major transactions. However, ratings developments have been encouraging, with upgrades for Dubai Insurance Co. and Wataniya Insurance Company, and new ratings assignments for Arabian Shield Cooperative Insurance Company and GIG Saudi.

The first quarter of 2024 has underscored the resilience and adaptability of the GCC insurance sector. While investment gains have driven impressive earnings growth, underwriting challenges and solvency concerns persist, necessitating strategic focus and regulatory compliance. As the sector navigates these dynamics, staying attuned to emerging trends and leveraging strategic insights will be crucial for sustained growth and stability in the competitive GCC insurance market.

For a comprehensive analysis of the Q1 2024 performance, we invite you to explore the full Q1 2024 – GCC Performance Periodical by Insurance Monitor and Lux Actuaries and Consultants.

Click here to access the report and gain further insights into the industry's evolution.