S&P Global Ratings expects GCC insurers' top-line growth to range between 5% and 15% in 2024, with Saudi insurers likely to expand at the fastest pace.

 

The top-line growth of insurers in Gulf Cooperation Council (GCC) countries will likely result from higher insurance demand in 2024 due to ongoing economic expansion in the region and rate increases.

 

S&P Global Ratings credit analyst, Emir Mujkic, said: “Favourable economic conditions and rate adjustments for motor and medical lines will remain key growth drivers."

 

Insurance demand

Insurance demand will benefit from ongoing investments in infrastructure projects, population growth, and regulatory initiatives, such as the extension of compulsory insurance covers. At the same time, a moderation in claims inflation for motor and other property/casualty lines will help insurers preserve margins.

 

“We expect the trend toward mergers and capital increases will continue in 2024, not least because of stricter regulations and strong competition,” Mujkic said.

 

Credit conditions for rated insurers in GCC countries will likely remain broadly stable in 2024, supported by robust capital buffers and adequate growth and earnings prospects. However, a key risk to GCC insurers' credit conditions consists of worsening geopolitical tensions in the region.

 

As insurance markets continue to grow, the gap between larger and smaller insurers will likely widen. The largest companies will expand at a faster pace than smaller companies, while generating a significant share of overall profits. In contrast, some smaller companies could struggle to remain profitable and solvent due to high competition and operating costs, S&P said.

 

Five largest insurers

The five largest of the 25 listed insurers in Saudi Arabia--the largest insurance market in the GCC region, based on insurance revenues--generated about 73% of total insurance revenues in 2023, up from 69% in 2022. 

 

Saudi Arabia's largest insurers, the Company for Cooperative Insurance (Tawuniya; A/Stable/--) and Bupa (not rated), had a combined market share of about 55% in 2023.

 

In the UAE, the five largest of the 26 listed insurers generated about 63% of total insurance revenues in 2023, compared with 61% in 2022.

 

“We expect 2024 will be another profitable year for GCC insurers, thanks to rate corrections in motor and medical lines that started in 2023 and relatively high interest rates that support investment incomes. That said, we believe rates in certain lines could resume to decline, particularly in Saudi Arabia, where insurers' earnings improved significantly in 2023. Additionally, if the Fed starts cutting interest rates in 2024--which would be followed by rate cuts by central banks in the GCC region--investment incomes on fixed and cash deposits could decline slightly,” S&P said. This could result in a more moderate earnings growth, compared with 2023.

 

Credit conditions

S&P expects credit conditions for rated insurers in GCC countries to remain broadly stable in 2024, supported by robust capital buffers and adequate growth and earnings prospects. Most rated GCC insurers, many of whom are among the largest entities in the market, remain very well capitalised, which is reflected in strong financial strength ratings.

 

A key risk to GCC insurers' credit conditions consists of worsening geopolitical tensions in the region. A full-scale conflict between states would be economically, socially, and politically destabilising for the entire region and its banking systems. Combined with slow global economic growth, this could impair GCC insurers' revenue growth and increase investment volatility. “The most significant effect of a prolonged conflict, which is not our base case, could be on insurers' investment portfolios, in our view. In such a scenario, we expect our ratings on weaker capitalised insurers or those with material exposure to high-risk assets could come under pressure.”

 

Macroeconomic conditions

Meanwhile, economic conditions in the GCC region remain favourable. S&P Global Ratings forecasts an average Brent oil price of $85 per barrel for 2024 that will support robust economic growth in GCC oil and non-oil sectors. 

 

“We project real GDP growth in the GCC region will range between 2% and 4% this year. In our view, insurance demand will benefit from ongoing investments in infrastructure projects, population growth, and regulatory initiatives, such as the extension of compulsory insurance covers.”

 

At the same time, average inflation in the region will likely decline further to 1.5%-2.5% in 2024, from over 4% in 2022. S&P therefore expects a moderation in claims inflation for motor and other property/casualty lines that will help insurers preserve margins.--TradeArabia News Service