Room to grow: Premium growth is forecast to continue, with a boost expected from the introduction of mandatory medical coverage

In 2012 UAE insurers underwrote Dh26.3bn ($7.2bn) in premiums, nearly half of the total gross written premiums (GWP) in the GCC region, making it the largest insurance market in the Gulf, followed by Saudi Arabia. Collectively, the two countries accounted for nearly 80% of the $16.3bn in GWP in the Gulf in 2012, according to a report on the regional insurance sector published by Alpen Capital in July 2013.

By The Numbers

Between 2008 and 2012 the UAE’s insurance industry grew from $5.5bn to $7.2bn at an average annual rate of 9.6%, according to the sector regulator, the Insurance Authority (IA), and was on track to expand by 10% in 2013. Dubai accounted for Dh10.1bn ($2.75bn) of this total, the largest share of GWP of all the emirates in 2012. Though the sector contributes an average of 1% annually to GDP in the UAE, the government has announced its aim to expand that to 3% by 2020. According to Moody’s, insurance penetration (total premiums as a share of GDP) in the UAE was 1.9% in 2012, above the 1.1% average in the GCC region, but far below the rates in countries with more developed insurance markets, like the UK and US, where penetration was over 11% and 8%, respectively.


Despite the impressive growth the sector has seen in the past five years, the industry is considered overcrowded by some, including multiple ratings agencies and the International Monetary Fund (IMF), and calls for consolidation among the 61 licensed insurers have increased markedly in 2013. While the top five to 10 insurers have traditionally shown healthy levels of underwriting profitability – with combined ratios typically in the 80% to low 90% range, according to Moody’s — the same is not true of the smaller players. Fierce price competition for a limited customer base usually squeezes profits among the lower ranks of the industry. If the top five insurers are removed, the rest of the market underwrote around $83m of the UAE’s total GWP of $7.2bn in 2012, according to Moody’s.

During the recent financial crisis, the volatile performance of equities and real estate investments of many UAE insurers took a toll on profits across the market, underscoring the need to diversify their investment mix. Though the threat of toxic investments has receded lately due to the broad rebound in asset quality in 2013, ratings agencies have warned that many UAE insurers remain exposed to volatility in local equities and real estate in 2014. Moreover, even the most profitable and dominant insurers in the market are disproportionately dependent on international reinsurance firms to underwrite the most lucrative, non-life categories of risk. The UAE retained just 55% of non-life premiums in 2011. This is an issue throughout the Gulf region: insurers in the GCC retained an average of 57% of the non-life risk they underwrote in 2011, according to an IMF report, while the average retention rate of OECD countries was 83%. The introduction of compulsory medical insurance for expatriates in Dubai, a move announced in late 2013 and set to be rolled out in phases until 2016, is expected to drive further growth in the underpenetrated life segment of the market – which includes health insurance — a segment that has traditionally been dominated by foreign insurers.

The Market

A total of 34 national and 27 international insurance firms were registered in the UAE at the end of 2012, according to the IA’s 2012 annual report. The most competitive segment of the market is property and liability insurance, with 37 companies focusing exclusively on these lines of business. Only 13 of these companies offer all insurance lines, including life and property and liability, as well as fund formation and investment, while 10 focus exclusively on life assurance and fund formation, and one carries out credit export insurance. Out of the 61 insurers in the UAE, 10 offer sharia-compliant insurance, or takaful, services.

In 2012 the average GWP per person, or insurance density rate, in the UAE was nearly $1300, an increase of more than 8% year-on-year (y-o-y), and well above the 2012 regional average of $367.30, according to a report on the GCC insurance industry by Alpen Capital. UAE insurers saw total GWP rise by 9.5% y-o-y in 2012 to Dh26.3bn ($7.2bn), according to the IA, after increasing 9% y-o-y the previous year, from Dh22bn ($6bn) in 2010 to Dh24bn ($6.5bn) in 2011.

Meanwhile, funds invested in the sector increased from Dh25.6bn ($7bn) in 2011 to Dh28.7bn ($7.8bn) in 2012, making up for losses since 2010, when the total funds invested amounted to Dh27.6bn ($7.5bn). Investments in shares and bonds accounted for 48% of the 2012 total, while deposits were another 32.4%. Earned premiums in the property and liability segment increased by 6.6% y-o-y from Dh19bn ($5.2bn) in 2011 to Dh20.3bn ($5.5bn) in 2012, 73% of which were underwritten by Emirati insurers. Between 2009 and 2010, non-life premiums grew by 7.2% to just under Dh20bn ($5.4bn). Accident and liability insurance accounted for 39.3% of non-life GWP in 2012, making it the largest non-life segment, with Dh7.9bn ($2.15bn).


Accident and liability remains the leading segment of the overall insurance market as well, with life insurance penetration estimated at just 0.4% in 2012. However, lately this line has grown at a much faster rate than non-life, indicating that the traditional resistance to life products in the Gulf may be beginning to change. “In general, the use of life and pension products among GCC populations remains low, with nationals often relying on family or state resources for life cover and oldage care,” Mohammed Ali Londe, an insurance analyst at Moody’s, told OBG. “Although the significant expatriate population may be expected to consider life and pensions insurance products, these individuals often prefer to have long-term savings and pension plans with their home-based insurers,” Londe added.

The introduction of compulsory health insurance for expatriates in Abu Dhabi in 2008 caused life premiums to jump 23% in both 2009 and 2010, albeit from a low base rate, according to a 2013 review by A.M. Best. Though 2011 saw the growth in the life segment slow to 16.4% y-o-y to Dh4.7bn ($1.3bn), Dubai is expected to witness a similar jump when mandatory health coverage is introduced. In 2012 GWP in the life segment rose by 31% y-o-y to Dh5.9bn ($1.6bn), according to the IA. Nearly 70% of this volume was underwritten by global insurers, which dominate what is expected to be the major driver of growth in the UAE’s insurance market in the years ahead. In the GCC overall, life insurance density was $260.70 in 2012, according to Alpen Capital, compared to $1298.80 in the non-life segment.

Growth Potential

 The substantial expansion of expatriate communities in parts of the GCC could drive growth in the life segment of the insurance market, especially in the UAE, Kuwait and Qatar, where foreigners now make up 70-90% of the population, Alpen Capital’s report noted. This would require a significant shift in consumer behaviour, however. “Further penetration into the expatriate community would entail a change in market preference from insurers in home countries to those in the resident countries,” the report stated.

Foreign Firms

 Since 2009 the IA has imposed restrictions to limit the entry of new global insurance firms to the market, effectively preventing them from setting up branch operations in the UAE, including requiring them to take on a local partner and demonstrate a need for their products. These regulations have resulted in two main routes into the market. Overseas insurers can either acquire a stake of up to 25% in local companies or establish offices within the Dubai International Financial Centre (DIFC) and operate as an offshore entity, regulated by the Dubai Financial Services Authority, which permits 100% foreign ownership within the free zone. Though this limits international players from retailing insurance products outside the free zone, it has allowed them to underwrite commercial reinsurance risk within the DIFC and establish a regional footprint to market products elsewhere in the GCC.

In 2013 there were nearly 50 international insurance and reinsurance firms operating within the DIFC, including Takaful Re, ACR ReTakaful Holdings, specialty insurer International General Insurance Holdings, AIG, Allianz, Gulf Reinsurance, Swiss Re, Zurich Insurance, Royal & Sun Alliance Insurance, and Standard Life International. In April 2013 Asia Capital Re also received regulatory approval to open a branch office in the DIFC.

The Players

With an estimated 15% market share, Dubai-based Oman Insurance Company (OIC) is the leading national insurer in the UAE as measured by both GWP and assets under management. As of June 2013, OIC had assets valued at Dh5.1bn ($1.4bn), nearly one-fifth of the total assets controlled by all conventional insurers in the UAE. Though OIC saw profits decrease from Dh336m ($91.5m) in 2011 to Dh188m ($51.2m) in 2012, due largely to technical losses in its non-life lines of business, it also saw investment income rise, prompting Standard & Poor’s to raise its rating from “BBB+” to “A-” in November 2013.

The government of Abu Dhabi owns a 23.8% stake in the UAE’s second-largest insurer, Abu Dhabi National Insurance Company, which reported assets totalling Dh4.5bn ($1.2bn) in June 2013. The third-largest player in the market in terms of GWP in 2012 and the only takaful insurer in the ranks of the top five was Salama, despite reporting a substantial drop in GWP to $515m, as compared to $618m in 2011, according to Moody’s.

Dubai-based Orient Insurance, owned by the Al Futtaim Group, was the UAE’s fourth-largest insurer by GWP in 2012. Orient offers general and life insurance services, as well as reinsurance. The latter accounted for 8.1% of the premiums underwritten in 2012, while general insurance was responsible for 91.9%. The firm recorded $381m in GWP in 2012, compared to $345m the previous year. In the first half of 2013, Orient’s GWP increased by 10% y-o-y, from Dh765m ($208.2m) to Dh843m ($229.5m), while its net underwriting income rose by 8%. As of the first half of 2013, Orient reported Dh3.2bn ($871m) in assets. Coming in fifth in terms of GWP was Emirates Insurance with $176m in 2012, up $1m from the previous year.


Like the rest of the Gulf, the investments of UAE insurers are heavily concentrated in equities and real estate assets — a fact underscored by the decline in profits many experienced during the recent financial crisis. However, a review of the investments of insurance firms in the UAE and Saudi Arabia since 2007 by Alpen Capital clearly shows a shift from equity markets in both countries. Investments in shares and bonds by UAE insurers dropped from an average of 57% in 2007 to 45% in 2011, according to Alpen, while real estate investment increased from 13% to 20% during the same period. Meanwhile, investment in deposits rose from 30% to 35% during this period. Despite these efforts and the rebound of asset quality in 2013, a recent report on GCC insurance by Moody’s indicates that Dubai is not yet in the clear.

“In our view, such exposure to volatile, albeit growing, local equity and real estate markets can represent a substantial credit challenge for many insurers, notwithstanding the significant increases in their asset valuations in 2013 year-to-date. However, the continued development of the UAE’s capital markets, including, growth in fixed income markets, should lead to wider asset choice and reduced asset volatility over time,” Harshani Kotuwegedara, associate analyst at Moody’s, told local media in a recent interview.


 Another potential challenge is competition from neighbouring GCC markets. “The UAE has positioned itself as an insurance hub over the past five years so all the major multinationals that wanted to tap into the GCC set up regional hubs in the UAE and expanded from there,” Londe said. “This high competition, which drives pricing competition as well, has pushed other countries to open their markets and create new financial centres.” While the UAE insurance sector is now the regional leader, its market share in the GCC is expected to drop from 44.1% in 2012 to 36.9% in 2017, due largely to increased competition from Saudi Arabia, which is forecast to grow by a compound annual growth rate (CAGR) of 26.5% during this period, according to Alpen Capital. The UAE, by comparison, is expected to grow at a CAGR of 14% until 2017.

Entreprise Risk Management

 Weak enterprise risk management (ERM) is also an issue many ratings agencies have highlighted. A.M. Best wrote in its report that some larger insurers have experienced management teams in place, but overall insurers’ ERM function is “developing” and in some instances, ERM levels are “basic”. “Some insurance firms do not define risk appetite, perform any capital or catastrophe modelling, or seek third-party assessment of general reserves,” A.M. Best’s report noted. “While there are several firms that own economic capital models, their use is sparse. It is important for the industry to move from utilising mechanical models towards adopting proper ERM practices to benefit and enhance existing operations.”


 Most local insurers in the GCC lack the capacity to retain a significant portion of the riskiest, and most lucrative, premiums they underwrite, and consequently cede over 40% of their risk on average to multinational reinsurers, according to Alpen Capital. The UAE is no exception in this regard, and in 2011 local insurers retained some 55.6% of the risks they underwrote. Retention ratios were particularly high in the least-profitable lines in 2011, when local insurance firms retained just over 64% of medical and property and liability, compared to around 30% for marine, aviation and transport, according to the IA. Rates were generally stable across all lines in 2012, though local firms retained a slightly higher portion of medical risks (67.6%). Though the dependence on reinsurers is partially a product of limited domestic capacity, stringent regulations limiting foreign insurers within the DIFC to reinsurance may also play a role.


In May 2012 the IA issued a consultation draft of proposed new regulations governing insurance intermediaries. The regulations would increase the minimum paid-up capital requirement to obtain a brokerage licence from Dh1m ($272,200) to Dh5m ($1.4m) for UAE nationals and from Dh1m ($272,200) to Dh10m ($2.8m) for global brokerages, and maintain the 51% share capital ownership requirement for local brokerages. It would also raise the financial guarantees and professional indemnity insurance levels required to establish new insurance operations in the UAE and impose new educational and technical requirements.

In January 2013 the Dubai Health Authority (DHA) announced it would regulate health insurance service providers in the emirate. In an effort to crack down on medical inflation, which has resulted in mounting losses on health premiums — since 2009, the gross loss ratio on medical premiums has risen from 60.5% to 83% — the DHA recently intervened in a tariff dispute between local insurers and hospital and clinic operator Mediclinic Middle East, according to A.M. Best. “A.M. Best believes the DHA’s actions, while favourable for insurers, will only gain some respite for the insurance sector and will not be able to reduce medical inflation, unless the measures apply to all medical providers.” In August 2012, the IA also released new rules prohibiting composite insurance firms and requiring them to obtain separate licences for life and non-life activities, but implementation of the new regulations was delayed by three years for composite insurers so that they could determine the cost of unwinding their portfolios.

As of November 2013, few of the new regulations were in force, though Michael Kortbawi, a partner at Bin Shabib & Associates law firm, which was appointed to assist the IA in drafting the legislation, hinted that insurers should do their housekeeping because the IA will become more reactive to breaches in regulations in the future. In an article published in November 2013 in MENA Insurance Review, Kortbawi said that he was in the process of drafting a new law that would create a more active regulator, helping to unify regulation, and standardise supervision and enforcement. “What is important to keep in mind is that the IA is taking a cooperative approach to this reform,” he said.


Though overcrowded, the UAE’s insurance market is underpenetrated by Western standards and there is ample room for growth. Driven by an expanded expatriate population, the market is projected to grow 10% in 2014 and anticipated regulatory changes could further boost premium growth in the medium term.

Whether or not the IA pushes the insurance sector to consolidate in the near future, the December 2013 introduction of compulsory health insurance in Dubai is widely expected to drive life premium growth. In the interim, national insurers would be well served by diversifying their health and life offerings to better compete with the foreign players that have traditionally dominated this segment. The anticipated introduction of a unified motor insurance policy would also help rationalise one of the most competitive segments of the market in terms of price. Although the threat of toxic equities has not quite disappeared, the continued development of the UAE’s capital markets is expected to boost the availability of fixed-income offerings and ultimately lead national insurance companies towards a more diverse investment mix. While the size of the market remains limited, there is still much potential for insurance growth in the UAE. The market leaders are the best equipped to capitalise on future demand, but with some more prudent regulation many of the smaller players in the field may also be able to benefit from premium growth without compromising their profits.


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