Credit conditions set to remain stable for Gulf insurers in 2017

Credit conditions for rated insurers in Saudi Arabia will remain broadly stable in 2017, despite slow economic conditions in the Gulf due to low oil and gas prices, S&P Global Ratings said in a report earlier this week.

Rated insurers in the United Arab Emirates (UAE), Qatar, and Kuwait are also expected to see stable credit conditions this year, S&P added.

"We forecast that gross premiums in the four largest GCC insurance markets will continue to increase in 2017, by around 30 percent in Kuwait, and by up to 10 percent in the other three markets,” Emir Mujkic, an analyst at S&P, said in a statement on Wednesday.

"Our growth assumptions are based on the planned privatization of medical insurance schemes and ongoing government spending on infrastructure projects, which will lead to a larger number of insurable risks,” Mujkic added.

Premium growth is likely to exceed expectations for real GDP growth in the four insurance markets in 2017, the agency said, forecasting that GDP growth will range between 1.5 percent for Kuwait and about 3.5 percent for Qatar.

Insurers in the four countries are also likely to remain profitable in 2017, although there are potential risks in the short term.

“There is a risk that, in addition to further reserving requirements following the adoption of new regulations in the UAE, the enforcement of mandatory insurance cover in Saudi Arabia, and the privatization of medical insurance in Qatar and Kuwait, could strain insurers' technical performance, as they lack sufficient data to price the new business appropriately,” the report noted.

Competition will also widen the gap between large and small insurers, the agency said. The regulators might seek to bridge the gap through industry consolidation over the next one or two years, particularly in Saudi Arabia.