Intense competition, low penetration rates and a strong bias towards non-life products characterises Dubai’s insurance sector, with ratings agencies agreeing that there is robust medium-term growth potential for the emirate’s underwriters.
S&P Global ratings predicts 10% per annum growth in gross written premiums (GWPs) for the UAE insurance sector in 2017 and 2018, compared to anticipated GDP growth over the same period of 3-3.5%. AM Best, a US-based ratings agency, noted an improvement in earnings coupled with solid premium growth when it compared the performance of listed companies in 2016 to the previous year. Among the key drivers of premium growth have been new federal regulations on motor insurance, as well as the introduction of compulsory health insurance for all residents of the emirate.
Three regulators play an influential role in shaping the sector. Locally, the Dubai Financial Services Authority oversees foreign firms based in the Dubai International Finance Centre (DIFC), while Dubai Health Authority (DHA) supervises the provision of health insurance in the emirate.
At a federal level, the UAE Insurance Authority (UAE IA) regulates the wider industry, including national insurance companies and other entities operating in the sector. Federal Law No. 6 of 2007 established the UAE IA with financial and administrative independence. Its mandate is to regulate and supervise the sector to ensure that the industry is able to indemnify people and property against risk, while also encouraging the accumulation of national savings and investments. The UAE IA’s board of directors is chaired by Sultan bin Saeed Al Mansouri, minister of the economy. In January 2017 Al Mansouri announced that GWPs across the UAE had reached Dh40bn ($10.9bn), an 8% increase on Dh37bn ($10.1bn) the previous year. The UAE IA also forecast total written premiums would reach Dh60bn ($16.3bn) by 2020, based on annual growth expectations of 10%. According to UAE IA data, insurance investments across the country were worth Dh45.7bn ($12.4bn) in 2015, of which 60.5% was invested in stocks and bonds followed by 20.7% in deposits. Shareholders’ equity in national insurance companies reached Dh17.5bn ($4.8bn) in 2015.
While the UAE IA is responsible for regulation and supervision across the UAE, companies operating in the sector are represented by the Emirates Insurance Association (EIA). The EIA was registered by Ministerial Decree No. 62 of 1988.
The most recent data on the industry published by the EIA shows that at the end of 2015 there were 61 insurance companies in the UAE, including 34 domestic insurance firms and 27 foreign companies. Of these, 11 national firms provided both life and non-life cover, as did two foreign companies, while 20 local firms and 18 overseas providers limited their cover to property and liability insurance. There were just two national companies and seven foreign companies exclusively offering life insurance or sharia-compliant family policies. Across the UAE, 11 national insurance companies adhere to takaful (Islamic insurance) regulations.
In addition to the underwriters there were 19 insurance agencies, 143 insurance brokerage companies, of which four were foreign, 16 insurance consultants and 40 firms offering loss adjustment or damage estimation services. There were 35 actuarial experts registered in the country and 23 third-party administrators in the health insurance segment.
At the start of 2017, 29 of the 34 national insurance companies operating in the UAE were listed on either the Abu Dhabi Securities Exchange (ADX) or the Dubai Financial Market (DFM). According to AM Best, the combined written premiums of those 29 companies in 2016 amounted to Dh18.9bn ($5.1bn), a 10.2% increase from the previous year. The 12 national companies listed in Dubai had combined written premiums of Dh10.3bn ($2.8bn), equivalent to 55% of the total for the UAE. The two biggest national players on the DFM (Oman Insurance and Orient Insurance) had GWPs of Dh3.6bn ($979.9m) and Dh2.7bn ($734.9m), respectively, accounting for 60% of all premiums written in Dubai between them. Collectively, the 12 insurance companies on the DFM saw net profits before tax grow by 64% from 2015 to 2016, with combined profits increasing from Dh246.5m ($67.1m) to Dh403.5m ($109.8m) over the period.
Five of the 12 insurers listed on the DFM offer sharia-compliant policies. These are Islamic Arab Insurance (Salama), Takaful Emarat, Dubai Islamic Insurance and Reinsurance (AMAN), Dar Al Takaful and Arabian Scandinavian Insurance (ASCANA). Of these, Dar Al Takaful and Takaful Emarat are among the five listed national insurers on Dubai Health Authority’s list of the 12 firms permitted to provide the compulsory Essential Benefits Plan insurance coverage, along with conventional insurers Oman Insurance, Orient Insurance and National General. The other approved providers are domestic companies listed on the ADX.
Established in 1970, Dubai Insurance is the oldest insurance company listed in the emirate. An additional five local insurers were founded in that decade, followed by two companies in the 1980s, one in the 1990s and three in the first decade of the 21st century, with Dar Al Takaful being the most recently established firm. Dubai Insurance was also one of the first local insurers to list on the exchange in 2000, along with Dubai National Insurance and Reinsurance. Many of the insurance companies listed in the emirate have close links to successful family businesses or to ruling families.
Although nine of the 12 listed domestic insurers saw an improvement in their profitability in 2016, there were some exceptions. Oman Insurance, the biggest insurer by GWPs, saw its profits slide from Dh81.2m ($22.1m) to Dh78.9m ($21.5m), and AMAN, the UAE’s 12th-largest underwriter, saw a Dh1.8m ($489,960) profit in 2015 turn to a Dh37m ($10.1m) loss in 2016. “Dubai has become a highly competitive insurance market, with the presence of national, regional and multinational players,” Michael Jensen, managing director of MENA for AIG Property Casualty, told OBG. “This high level of competitiveness has driven down premiums and therefore profit margins.”
However, these losses were dwarfed by those of the emirate’s third-largest insurer by GWPs, Salama, which fell from Dh163m ($44.4m) in the red in 2015 to Dh180m ($49m) a year later, while its return on revenue declined by 23.1%. In its 2016 annual report, Salama’s directors said it had seen an underwriting profit of Dh56m ($15.2m) in 2015 turn to a loss of Dh80m ($21.8m) in 2016, though income from investments grew from Dh18.9m ($5.1m) to Dh50m ($13.6m) over the same period. The report noted, “we are confident that after drastically reducing our UAE motor business, we will be able to improve its temporary situation and yield better results”.
Salama’s first-quarter results for 2017 appeared to reflect this sentiment, with the company reporting an underwriting income of Dh37m ($10.1m), up from a loss of Dh69m ($18.8m) in the same quarter a year before. Net profit before tax was Dh21.4m ($5.8m) in March 2017, compared to a loss of Dh84m ($22.9m) in the first three months of 2016.
However, this uptick in performance was not experienced by all of Dubai’s listed insurers. AMAN recorded a net loss from takaful activities of Dh6.7m ($1.8m) in the first three months of 2017, following a loss of Dh3m ($817,000) in the same period a year before. In April 2017 the company’s board approved a proposal to write off Dh37.5m ($10.2m) in accumulated losses through reserves, thereby reducing accumulated losses to Dh80.6m ($21.9m).
Second-ranked Orient Insurance’s profits rose from Dh278m ($75.7m) in 2015 to Dh316m ($86m) in 2016, with return on revenue growing by 11.8%. In its annual report Orient noted that it had achieved an increase of 15% in premiums and a similar rise in net profitability, despite having to absorb a cost of almost Dh20m ($5.4m) as a result of the fire at Dubai’s Address Downtown Hotel in 2015. The company was anticipating growth of between 10% and 15% in premiums and profits in 2017 due to increases in motor and property rates and the success of its online sales channels. In the first quarter of 2017 Orient’s GWPs totalled Dh935m ($254.5m) compared to Dh692m ($188.4m) a year before, up 35%, while profit after tax grew from just under Dh130m ($35.4m) to Dh150m ($40.8m), a boost of 15%.
Another firm that had a positive 2016 compared to the year before was Al Sagr National Insurance Company (ASNIC). The company was able to record a Dh20.7m ($5.6m) profit in 2016, compared to losses of Dh105m ($28.6m) in the previous year. However, investment losses continued to weigh on ASNIC’s performance in the first quarter of 2017, when losses from investments grew to Dh1.9m ($517,000) compared to Dh1.6m ($436,000) in the first quarter of 2016 so that profit for the period fell from Dh17m ($4.6m) in 2016 to Dh5m ($1.4m) in 2017 despite an increase in underwriting income from Dh15m ($4.1m) to Dh17m ($4.6m).
In a competitive market for general insurance the five national companies approved to provide basic health cover for DHA all had positive results in 2016. In January 2014 Takaful Emarat became DHA’s first approved takaful insurer, and restructured its management team in the same year. The result was clear to see in its financial performance, with a Dh17.3m ($4.7m) loss in 2013 followed by a profit of Dh7.2m ($2m) in 2014. In 2015 profits grew to Dh10.2m ($2.8m), expanding even further to Dh15m ($4.1m) in 2016. In November 2016 Takaful Emarat’s CEO Wael Al Sharif told local media the company was interested in mergers or acquisitions to push up margins even further in a highly competitive market. The report noted the company’s customer base had quadrupled since it began offering cover for DHA from less than 100,000 clients in 2013 to more than 400,000 by the end of 2016.
The newest insurer in Dubai, Dar Al Takaful, which was formed in 2008, also received a welcome boost to its financial standing after winning DHA approval in June 2015. It saw a loss of Dh7m ($1.9m) in 2015 as a whole, but returned a Dh5m ($1.4m) profit in 2016. By the first quarter of 2017 shareholders’ assets had grown to Dh483m ($131.5m) from Dh244m ($66.4m) in 2014. At the end of its first year of operations in 2009, the company had assets of Dh109m ($29.7m).
National General Insurance (NGI) is also DHA-approved, but its financial performance has been more of a balancing act between earnings from investments and underwriting activities in recent years. NGI’s underwriting profits increased from Dh2m ($544,000) in 2014 to Dh21.4m ($5.8m) in 2015, but dipped to Dh17.6m ($4.8m) in 2016. Over the same period, the company saw profits from its investment portfolio fall by 83% from Dh73.7m ($20.1m) in 2014 to Dh12.8m ($3.5m) in 2015, and then climb by 84% in 2016 to Dh23.6m ($6.4m). From 2015 to 2016 the company, which had GWPs of over Dh550m ($149.7m) in 2016, saw its net profit before tax grow from Dh23.5m ($6.4m) to Dh28.5m ($7.8m).
In June 2017 a new insurance company was listed on the DFM. Orient UNB Takaful will offer sharia-compliant general insurance. The firm was formed as a result of the partnership between Union National Bank (UNB) of Abu Dhabi and Dubai’s conventional insurer Orient, which collectively own 70% of the business. Shares in the new company were oversubscribed by 13 times, when 30% of the equity, or 600,000 shares, was initially offered for Dh100 ($27.22) plus a Dh1 ($0.27) handling fee in November and December 2016. The company has start-up capital of Dh200m ($54.4m), and its chairman and director is Omar Abdulla Al Futtaim, while UNB’s Mohamed Al Khawajah is vice-chairman. The initial public offering was the first for an insurance company in the UAE for more than five years. Speaking at the launch in June 2017, Hassan Al Serkal, COO and head of operations division at the DFM, told attendees that the listing of Orient UNB Takaful represented an important addition to the takaful sector on the DFM, as it would enable investors to benefit from the growth of one of the key drivers of the Islamic finance industry (see Capital Markets chapter).
Other National Insurers
Although the national companies listed on the DFM represent a significant segment of Dubai’s insurance sector, their combined GWPs amounted to just a quarter of the total in the UAE, at Dh10.3m ($2.8m) out of Dh40m ($10.9m), according to the EIA. This is down to a number of government, or largely government-owned, providers operating in the country.
In Dubai the DHA’s Enaya health insurance programme, which was created in 2009, gives a broad range of cover to 90,000 beneficiaries. The scheme for Emiratis covers employees of 39 government agencies or departments and their dependants. In 2009 Noor Takaful Family and Noor Takaful General were created as private companies and subsidiaries of Noor Investment Group, which is 50% owned by Dubai Ventures Group and Investment Corporation of Dubai, and 50% owned by private individuals including members of Emirati ruling families.
In Abu Dhabi the National Health Insurance Company (Daman) was established in 2006, with the Abu Dhabi government owning 80% of the equity and Munich Re holding the remaining 20%. It provides thiqa (trust) health insurance for Abu Dhabi’s citizens and the basic plan for expatriates, as well as offering policies for private individuals and corporate clients. Both Daman and Noor Takaful are among the approved suppliers for DHA basic cover. Hilal Takaful in Abu Dhabi is part of Hilal Bank, which is fully owned by the government.
Of the 27 foreign insurance companies listed on the EIA’s website, all but two are based in Dubai. The Dubai International Financial Centre (DIFC) offers a high-quality regulatory environment for both conventional insurance and takaful. With regulation provided by the Dubai Financial Services Authority, insurance and reinsurance companies are able to operate with transparent rules on compliance, reporting and supervision.
In addition, companies in the DIFC are governed by a legal framework based on English commercial law, placing them outside the jurisdiction of the UAE’s courts. The DIFC operates its own courts, where proceedings are conducted in English. As part of its insurance offering, the DIFC styles itself as a centre for captives, allowing regional firms to explore the potential benefits of self-insurance to write off some or all of their risks. The DIFC also offers what it describes as a “captive-like” opportunity for smaller business in the form of protective cell companies with lower formation costs and capital requirements than traditional captive companies.
The international insurance companies operating in Dubai reflect, to some extent, the nationalities of foreign workers residing in the emirate, with companies from India, Pakistan, Lebanon, Bahrain, the UK, US, Japan, France, Switzerland and Italy all represented. Among the new businesses operating from the DIFC in 2016 was HDFC Life of India, which formed a wholly owned subsidiary, HDFC International Life and Re Company. One of the new company’s first agreements was a reinsurance partnership with Orient Insurance.
In 2015 Zurich Insurance announced it was closing its general insurance operations in the UAE, but keeping its life business in the country. According to international media reports, the company felt the competition for products such as property and casualty insurance has resulted in lower margins on premiums and it saw limited prospects for improved trading conditions in the immediate future.
However, French insurer AXA announced plans to expand its presence in the UAE in 2016 by launching life and savings policies through new business AXA Green Crescent. AXA had acquired a stake in Green Crescent Insurance Company the previous year. AXA Gulf offers property and casualty insurance, and is one of three international companies on DHA’s approved list for medical insurance, along with Metlife and the American Life Insurance Company.
A clearer indication of the respective roles played by international firms and national companies in the UAE’s insurance sector was provided by the UAE IA in its annual report for 2015, published in September 2016. This showed that while national companies underwrote 74.1% of property and liability classes, their share of personal cover and fund accumulation – known as the life segment – amounted to just 20.6%. Conversely, foreign company branches are providing almost 80% of life cover in the country and just over a quarter of non-life policies. GWPs for life, family and investment policies were valued at Dh9.5bn ($2.6bn) in 2015, while premiums for property, casualty and other classes of non-life insurance amounted to Dh27.5bn ($7.5bn). This puts the ratio of life to non-life in the UAE at approximately 25:75.
Closer inspection of non-life lines shows medical insurance accounted for 47.8% of written premiums, followed by accidents and liability with 34.3%. Fire coverage represented 8.4% of premiums, while transportation by land, sea and air made up a further 6%, with other risks accounting for the remaining 3.5%. Collectively, premiums for property and liability insurance classes grew by 10.4% from Dh24.9bn ($6.8bn) in 2014, and in 2015 the overall premium retention ratio for those classes amounted to 52.4%. The retention ratios for each class were: medical with 59.1%; accidents and liability with 62.4%; fire with 15.8%; land, sea and air transportation with 20.9%; and other risks with 40.2%.
According to UAE IA data, gross earned premiums for property and liability insurance were Dh26.4bn ($7.2bn), while gross incurred losses for the same classes before deduction of the reinsurers’ share came to Dh20.7bn ($5.6bn). By class, the gross loss ratios before the reinsurers’ share were 91.9% for medical insurance; 73.1% in accidents and liability; 90.2% for fire; 42.5% in land, sea and air transportation; and 6.9% for other risks.
At the start of 2017 new UAE IA rules on motor insurance were introduced that were expected to boost premium growth. The unified motor policy provides enhanced liability cover and it also includes minimum and maximum tariffs. Minimum premiums of Dh1300 ($354) and Dh2000 ($544) were set for saloon cars and sports utility vehicles (SUVs), respectively, while maximum rates were also introduced with a ceiling of 5% of the value of a saloon car and 7% of the value of an SUV.
The introduction of the minimum rate was expected to boost the revenues of insurance companies which had seen premiums driven down in a cost war, but one price comparison site estimated 35% of drivers in the UAE would pay more. Yallacompare, a UAE-based firm, estimated that more than 30% of drivers had been paying below the new minimum price for saloon cars, and that more than 43% of SUV drivers had been paying less than Dh2000 ($544). S&P Global predicted the new regulations would lead to a 15% increase in rates in 2017.
In many ways Dubai’s insurance sector shows considerable potential for growth, but a closer examination of the market when seen in a regional and global context suggest there may also be stumbling blocks. According to EY’s 2017 report “Insurance Opportunities in the Middle East”, the life market in most markets worldwide is larger than, or at least equal to, non-life. The report suggests that the diminished contribution made by life policies in markets in the MENA region – particularly Iran, Saudi Arabia and the UAE – may be due to generous social welfare payments and retirement packages for citizens, lack of public awareness for mortality-based products and cultural beliefs that are at odds with the concept of life insurance. There is also a distinct difference between the markets for citizens and expatriates in Dubai.
According to Dubai Statistics Centre, there were an estimated 233,430 Emiratis living in the emirate in 2016, alongside 2.5m expatriates, which suggests citizens account for 8.6% of the population. While Emirati citizens are entitled to free health care and generous government pension schemes, many of the expatriate workers in Dubai are in low-paid jobs motivated by the opportunity to send money to their families in the form of remittances, while others may be in well-paid white-collar jobs, but reluctant to invest in schemes away from their home countries.
The EY report did detect growth in penetration levels – premiums as a percentage of GDP – for both life and non-life in the UAE, but from a low base. In 2011 the penetration rates for non-life and life were 1.5% and 0.3%, respectively, and by 2016 they had risen to 1.8% for non-life and 0.6% for life.
A legal change revealed in local media reports in July 2017 may pave the way for some growth in overall penetration levels, and in the life market in particular. In a move welcomed by experts, Ibrahim Obaid Al Zaabi, the UAE IA’s director-general, announced that the UAE Cabinet had lifted the ceiling on foreign involvement in locally incorporated insurance companies from 25% to 49%.
Al Zaabi said the move had been suggested by the UAE IA to enhance the sector’s growth prospects and strengthen the national economy by enabling local insurers to establish firmer links with international companies. “I think the new move announced by the regulator could result in new expertise being attracted to Dubai, and that could benefit and energise the market,” Emir Mujkic, associate director for S&P Global Ratings, told OBG.
The impact of UAE IA rule changes announced in 2015 have also been absorbed by the emirate’s insurers. By January 2018 the grace period for the implementation of stricter investment regulations will be over. These rules are designed to prevent insurance companies becoming overexposed to risk in a particular asset class, such as real estate. In addition, insurers are required to appoint an independent investment committee and take measures to strengthen corporate governance, compliance and risk management. While implementation has been reasonably straightforward for larger businesses, the costs for smaller national insurance companies have been more onerous.
Another layer of complexity will be added to the administration of some insurance firms with the introduction of a value-added tax (VAT). According to a briefing issued by EY in March 2017, life policies will be exempt, but non-life premiums will have VAT added at the standard rate from January 2018.
Mandatory Health Cover
The introduction of mandatory health insurance (see analysis) is designed to ensure hospitals and other medical facilities are not left out of pocket when treating patients who have no insurance coverage. The Dubai Corporation for Ambulance Services (DCAS) is also planning to bill insurance firms for its services as part of its bid to become self-financing. DCAS is working with private company AccuMed Practice Management, which will provide billing and collection services for DCAS from September 2017, and will liaise directly with insurers.
Although there may be challenges ahead, particularly for smaller companies operating in a competitive market, the UAE IA’s forecast of 10% annual growth in the UAE’s insurance market to 2020 suggests Dubai’s insurance sector may be well ahead of some of its global peers.
In its 2017 annual report on global insurance, Swiss Re predicted non-life growth of 1.3% and 1.9% in 2017 and 2018, while in emerging markets its forecast was for growth of 5.7% and 6.7%. In life insurance, where Dubai has more ground to make up, Swiss Re’s growth forecasts for 2017 and 2018 were 2.1% in each year for advanced markets, and 14.9% and 10.9% in emerging markets.
For some industry observers the challenge for Dubai is to match the pattern of insurance in economies such as Malaysia, where life insurance is worth half of the market or more. “You need a quantum leap of concentrated effort to educate the population on the benefits of takaful insurance to change the operating environment,” Bashar Al Natoor, global head of Islamic Finance at Fitch Ratings, told OBG.
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