The oversight body in charge of regulating the insurance industry is the Insurance Authority (IA), an institution established per Federal Law No. 6 of 2007. The IA is responsible for fostering an environment that promotes the development and awareness of insurance in the UAE. As part of this mission it is authorized to regulate and supervise all activity within the insurance sector, promote the insurance sector in a responsible way, encourage national savings and invest those savings in a prudent manner, promote fair competition, and ensure that the best products are being sold at reasonable rates.
In an effort to maintain stability in the market, in 2015 the IA approved new regulations that would restrict the types of assets firms were allowed to invest in. Exposure to asset classes with too much volatility is a major concern of the IA, and the new regulations are aimed at ensuring that prudence and stability reign king. According to the IA and Gulf News, insurance company investments reached AED39.2 billion in 2014, with 64.1% invested in shares and bonds, 22.3% in banks deposits, and 12.7% in real estate. This represents a more than 7% increase in assets invested and in shares and bonds.
Bright prospects for the region
Based on the latest report from the ratings agency Moody’s, the GCC is growing at a blistering rate; the region has the fastest-growing insurance market with top-line growth rates of almost 15%. This growth has attracted insurance agencies from across the world, spurring competition throughout the industry. From 2006-2014, insurance premiums increased from USD6.4 billion to USD22.2 billion. Based on the most recent data from the IA, there are 60 registered insurance companies operating in the UAE, 34 of which are Emirati, whereas 26 are foreign. Of these 60, 11 domestic and two foreign companies provide insurance across all categories; 20 domestic and 17 foreign companies specialize in property and liability insurance only; and two domestic and eight foreign companies specialize in life insurance and operations of fund formation only. Additionally, 11 domestic companies handle takaful insurance, a type of cooperative pooled fund insurance that complies with Islamic law and tradition. In fact, demand for banking and insurance products that comply with Islamic law is growing in Sharjah and the GCC. Ahmed Saad Ibrahim, Deputy CEO of Sharjah Islamic Bank, sat down with TBY and discussed this burgeoning opportunity. “There is high demand for Islamic products and Islamic banks are growing rapidly around the world,” said Ibrahim. “It does away with speculation, and so it adds stability to the market and global economy.” According to the IA, takaful insurance investments in the UAE approach AED4 billion, representing growth of nearly 135% in 2015. Between 2008 and 2015, the number of takaful insurance companies operating in the UAE grew by 57% and underwriting grew by 33%. The UAE’s handling of takaful insurance is a global model for how Islamic financial transactions can be appropriately defined, implemented, and regulated, according to the IA.
While premiums have gone down as insurers flock to the UAE, bringing low rates to customers, profitability has also been pinched as increased competition continues to push rates down. Despite this, strong capitalization rates are a key feature of the industry and credit strength is not likely to be a concern in the medium term. Additionally, compulsory medical insurance requirements for Dubai residents, which will add 2.5 million individuals to insurance rolls, is expected to spur premium growth across the Emirates. With similar legislation expected in the Northern Emirates in the near future, medical insurance premiums have serious upward potential. Additionally, enhanced regulation and stricter requirements in areas like capital adequacy, reserve adequacy, and asset quality is likely to spur industry consolidation, thereby reducing fragmentation and competition and bolstering profits.
Compound annual growth rates in the GCC’s insurance industry averaged 16.8% between 2006 and 2014, and much of that growth occurred in the UAE. The UAE’s insurance industry is by far the largest single market in the GCC, accounting for nearly 41% of premiums written and generating more than USD9.1 billion in revenue. With insurance penetration rates hovering near 2%, the UAE’s insurance industry still has room to grow.
According to the latest available statistics from the IA, underwritten premiums for property and liability insurance totaled AED24.9 billion, with domestic companies writing 74.4% of premiums and foreign companies writing 25.6% of premiums. As a percentage of total premiums, accident and liability insurance accounted for 33%, fire insurance for 9%, land, sea, and air transport insurance for 6.7%, and medical insurance for 44.5%. Life insurance premiums totaled more than AED8.5 billion, with domestic companies generating 18.6% of the total and foreign firms generating 81.4%.
Total retention for domestic insurance companies totaled 54.9%. When broken down by type, retention rates for accident and liability insurance was 66%, fire insurance was 16.5%, land, sea and air transport insurance was 26.8%, medical insurance was 62.5%, and other risk insurances were 20.2%. The total loss ratio of property and liability insurance was 75.3%. When broken down by type, the loss ratio for accident and liability insurance was 63%, fire insurance was 85.7%, land, sea and air transport insurance was 46.2%, medical insurance was 87.8%, and other risk insurance was 69.1%. Insurance companies in the UAE also employ a sizable number of personnel; insurance firms employ 9,269 people, of which 8%, or 742, are UAE nationals.
In recent years, Sharjah has hosted a number of awareness campaigns and conferences relating to insurance. In February of 2016, Sharjah hosted a campaign by the IA that focused on raising insurance awareness among policyholders, students, and the public. With seminars and forums ranging across a broad swath of insurance topics including insurance for the judiciary, the legal principles of insurance coverage, leadership risks, and innovation insurance, the IA works to ensure that the UAE remains at the forefront of the insurance industry.
Established in 1970 as the first insurance company in the Emirate, the Sharjah Insurance Company is one of the most venerable firms in Sharjah. According to the most recently available statistics, the Sharjah Insurance Company had total current assets of almost AED182 million, total liabilities of AED195.5 million, net insurance premiums of more than AED 10.1 million, and a net underwriting loss of AED 2.1 million. Despite some recent fiscal hiccups, the Sharjah Insurance Company remains an industry cornerstone.
As economic growth returns to a normal pace and compulsory coverage requirements begin to take affect, Sharjah’s insurance industry will continue to make strides in quality and profitability.