Dubai compulsory health insurance boosts UAE insurers’ profits

The UAE’s insurance industry is showing signs of recovery with listed insurers in the UAE reporting aggregate profits in the first half of 2016, after posting losses in 2015.

The recovery took place despite economic pressures in the GCC from low oil prices – which have led to fiscal pressures, slower economic growth and volatile stock markets, a report by S&P Global Ratings said.

However, the UAE’s local insurance market received a big boost from the Dubai compulsory health insurance scheme, which was rolled out over three stages and came into full effect in June 2016.

Currently, both Abu Dhabi and Dubai require residents to have mandatory health insurance policies.

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On aggregate, the 29 listed insurers (out of a total of 60) in the UAE market registered a profit of Dhs573m compared with net profit of Dhs263m in the first half of 2015 – an 118 per cent growth.

“The first-half 2016 profits, if sustainable for the rest of the year, would mark a significant recovery from the overall market net loss of Dhs123m for 2015,” the report claimed.

Within the industry, conventional insurers registered a 10 per cent increase in premiums in the first six months of 2016, compared with 5 per cent for the first half of 2015, the report found.

Growth was more heavily weighted toward the larger players, although the majority of insurers registered some growth.

Oman Insurance retained its position as the largest insurer in terms of gross premium income, followed by Orient Insurance and Abu Dhabi National Insurance (ADNIC).

The top three players combined generated around 46 per cent of the total of the total listed market premiums.

“We have witnessed a period of cut-throat competition, pricing below a technically sustainable level, and concentration on less than a handful of business lines, which has ultimately resulted in overall losses and a weakened operating environment,” S&P said.

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UAE insurers are currently adopting the recent regulatory changes issued by the Emirates Insurance Authority, which includes seven key sections addressing financial, technical, investment, and accounting aspects.

“While insurers implemented the first phase, covering financial statement disclosures, with few hiccups, in 2016, the real test will be the implementation of the second phase, covering the basis of calculating the technical provisions and asset allocation limits (except real estate), and the third phase, covering solvency margin, minimum guarantee fund, and asset allocation limits for real estate,” it said.

Insurers will have to abide by the requirements of the second phase by the end of 2016 and the third phase by year-end 2017.

“We anticipate that the second phase of regulations will bring uncertainty. We think that any material strengthening in provisions could undo the improvements in profitability we have seen in the first half of 2016,” said S&P.

“While these regulations are in the best interests of the industry, we believe that the real challenge is their effective implementation by the industry and efficient monitoring by the regulator.

“While penalties for noncompliance are mentioned in the regulations, we believe the aim of the regulators should be to help, support, and guide underperforming or noncompliant companies and to take effective measures before they reach the verge of collapse.”

Also, since more than 90 per cent of medical premiums in UAE are generated within the emirates of Abu Dhabi and Dubai combined, and both emirates have now completed their medical insurance projects, it will become “increasingly difficult” for insurers to continue this pace of premium growth, unless they find innovative ideas to diversify into newer business lines, the report cautioned.