Takaful insurers operating across the Gulf Cooperation Council (GCC) are primed to continue a favorable growth path in 2023, underpinned by higher insurance prices and demand, a new report by S&P Global Ratings, has suggested.
However, the adoption of the International Financial Reporting Standard 17 (IFRS 17) does require Takaful insurers to update their internal processes and IT systems, which could translate into extra costs, time constraints, and operational challenges. This may potentially stress smaller, under-resourced players, the 'IFRS 17 Adoption Will Test GCC Islamic Insurers' report, has revealed.
Islamic insurers in Saudi Arabia, the largest Arab economy, and those operating out of other GCC countries adopted the aforementioned reporting standard from January 1, this year. Remaining insurers are likely to follow suit on the same date next year.
“Although we anticipate the adoption [of IFRS 17] will improve detailed published financials as companies enhance their data and processes, many insurers that have already implemented the new standard have experienced reporting delays and other setbacks," the S&P report read.
"In Saudi Arabia and the UAE, regulators extended reporting timelines in the first quarter to provide insurers, auditors, and other industry participants more time to complete the first financial returns under the new standard. Across the GCC region, we still see substantial differences in insurers' level of preparedness for IFRS 17. Many smaller and midsize Islamic insurers yet to implement will likely encounter difficulties given the lack of resources. This is because IFRS 17 requires internal process and IT system updates, resulting in additional costs and time constraints,” the S&P report read.
The GCC’s Takaful sector has ventured on a stable growth trajectory over the past five years, not least in 2022, when the overall gross written premium/contribution (GWP/C) among listed companies rose by about 23%.
The same year, Saudi Arabia recorded premium growth of almost 27%, despite a nearly 5% dip in GWP/C across other GCC countries over the same period. Some smaller Takaful markets, such as Qatar, stood to gain more as opposed to other Islamic markets in the region.