Mergers likely to continue in GCC's Islamic insurance market
More consolidation is likely to occur among smaller and midsize Islamic insurers in the GCC as they continue to report relatively weak earnings, a new report has revealed.
S&P Global Ratings predicts that mergers, mainly in Saudi Arabia, the UAE and Kuwait, will continue as several Islamic insurers still fail to meet the requirement solvency capital requirements.
Consolidation is particularly prevalent among smaller and midsize players in Saudi Arabia and the UAE.
One in five Islamic insurers in Saudi Arabia and about one-third in the UAE merged in recent years, with the number of listed Saudi insurers declining 20% - from 34 to 27 - over the past half decade.
Takaful is a type of Islamic insurance wherein members contribute money into a pool system to guarantee each other against loss or damage.
"While we expect overall credit conditions for Islamic insurers will remain stable over the next 6-12 months, consolidation will likely remain a hot topic among smaller and midsize players," Emir Mujkic, a credit analyst at S&P Global Ratings, said.
Net profits in 2023 had already reached a record of almost $1 billion mainly due to rate adjustments in previously underperforming lines and higher investment returns. The year 2024 set to be another profitable year for the sector, too, the ratings agency said in a report.
“We expect competition will pick up in some markets. This - together with anticipated interest rate cuts starting from September and potentially more volatile capital markets - could lead to a sharp decline in earnings in 2025 if Islamic insurers fail to maintain their underwriting discipline,” it added.
S&P Global predicts that the Islamic insurance sector in the GCC region will expand by about 15%-20% in 2024, with revenues exceeding $20 billion.
Saudi Arabia remains the largest Islamic insurance market, owning 91% of gross written premiums. The agency predicts the kingdom to be the main driver of topline growth in the GCC region.
Outside of the kingdom, revenues of Islamic insurers in the GCC cumulatively declined by almost 3% in 2023, primarily due to a decline in premium income in the UAE, the region's second-largest Takaful market, primarily due to consolidation in the industry and rate pressure affecting motor and other lines.
“We expect the Takaful sector in the UAE will expand by 15%-20% in 2024 as motor rates increased substantially over the past 12 months, particularly following this year's major floods in Dubai and other parts of the UAE,” the agency added.
Islamic Arab Insurance Company, the UAE’s largest Takaful solutions provider, has reported a net profit of AED 20.53 million, compared to AED 12.26 million during the same period in 2023.
Takaful players in Bahrain, Kuwait, Oman, and Qatar will report more moderate growth rates of about 5%-
