According to a recent report by Dubai-based Badri Management Consultancy, published in the Middle East Insurance Review, the insurance industry has seen a de-globalisation trend globally, with the United Arab Emirates (UAE) being no exception. This has led to listed local insurers in the UAE capturing more market share. Avinash Babur, CEO of InsuranceMarket.ae, points out that these companies still face challenges in terms of underwriting sophistication and over-reliance on reinsurers to genuinely contribute meaningfully to the economy.
The report, titled “Year End 2022 – UAE Listed Insurance Companies – Performance Analysis,” highlights an 11% increase in premiums written by listed insurance companies in the UAE, totaling AED 29 billion ($7.9 billion) in 2022. This growth was primarily driven by conventional insurers, while takaful insurers experienced a decline in contributions.
Despite the increase in revenue, the report shows a significant decrease in profits for insurance companies. Profits dropped to AED 1.5 billion in 2022, a 22% decline from AED 1.9 billion in 2021. Excluding the top three companies in terms of profitability, the rest of the listed insurers saw a substantial 56% plunge in profits, raising concerns.
The industry’s Return on Equity (ROE) also declined from 11% in 2021 to 8% in 2022, and the Earnings Ratio dropped to 15% in 2022, the lowest in the past four years. Out of the 28 insurance companies analyzed, eight had solvency ratios greater than 200%, while five had solvency ratios below 100%. Two companies did not disclose their solvency position, and three received a qualified opinion on their financial statements concerning their ability to continue operating and remain solvent.
Badri Management Consultancy identified challenges faced by the insurance industry in 2022, including global market turmoil, rising inflation, subdued investment performance, and a highly competitive market with claims inflation and rising expenses. To ensure long-term sustainability and profitability, insurers must shift their focus from competing solely on price to adopting a more holistic approach, concentrating on underwriting, risk selection, better claims management, and operational efficiency.
As the insurance industry faces these challenges, Avinash Babur emphasizes that UAE-based insurers must overcome hurdles to truly support the local economy and thrive in an increasingly competitive market.