After an extremely challenging year of underwriting and investment losses for many market participants during 2015, the United Arab Emirates (UAE) insurance market has swung back into the black in 2016.
The market has also endured regulatory upheaval as it seeks greater nancial stability, and economic volatility mainly arising from the low oil price environment. Preliminary disclosures of UAE national insurers listed on the Abu Dhabi Securities Exchange (ADX) and the Dubai Financial Market (DFM) have shown a notable improvement in earnings coupled with solid premium growth. Whilst the results show a shift towards greater market discipline, A.M. Best notes that the weak market performance for 2015 was severely impacted by investment losses and regulatory driven reserve strengthening. These were largely absorbed during 2015 (and to some extent in 2014, with companies restating nancial year-end statements). Additionally, results for 2016 are based on preliminary disclosures and nal audited statements could present additional adjustments once actuarial reviews for all companies are nalised.
Profit Returns aggregate results for 2016 show a healthy pro t of AED 926 million (USD 252 million), in stark contrast to the market loss of AED 145 million (USD 39 million) in 2015. A key driver for the improved market performance is the turnaround in Abu Dhabi National Insurance Company (ADNIC), which saw its operating earnings swing from a loss of AED 335 million to a healthy pro t of AED 205 million. Of the 29 listed insurers in the UAE, a total of 24 companies generated an operating pro t in 2016 (see Exhibit 2), compared to 16 in the previous year, indicating that whilst the market as whole has returned to pro tability, individual insurers too have experienced a recovery.
Despite the market’s improved earnings, the country’s takaful market continues to generate negative returns. Although the eight listed takaful companies produced a marginally reduced operating loss of AED 113 million in 2016 (2015: AED 155 million), continued poor technical performance points towards concerning underlying issues in the development of the takaful sector. Having said this, two notable exceptions in this sector include Abu Dhabi National Takaful Company and Takaful Emarat, which continued to generate strong technical and overall earnings in 2016. Additional information released in the preliminary disclosures indicate that increases in operating pro tability largely stem from the core insurance operations of companies. In the absence of further signi cant reserve strengthening in 2016, underwriting pro ts (de ned as net earned premiums, less net commission expense less claims incurred) have doubled to AED 1.2 billion in 2016. Moreover, contributing to the improved underwriting results are price increases on a number of key business lines, in particular motor, in addition to continued strong inward reinsurance commissions on corporate risks. However, whilst loss ratios on the mandatory health insurance scheme introduced by the Dubai Health Authority (DHA) appear to be strong so far, performance could deteriorate in the future as a higher claims frequency could be driven by increased consumer awareness.
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