UAE Insurers’ net profit hits AED1.14 billion for H1 2021
The first six months of 2021 has seen strong growth in profits for UAE-listed insurers, according to AM Best’s latest report. Net profits for the market reached AED1.14 billion, compared with AED949 million in the first six months of 2020, equivalent to growth of 19.7 percent.
Overall, the return on equity (ROE) for the market reached 12.3 percent, compared with 11.1 percent in 2020 (on an annualised basis). AM Best notes that returns generated in 2020 and year-to-date 2021 compare favourably to the aggregate market ROEs generated over recent years, which averaged around nine percent for the five-years to 2020.
The growth in operating profits over the first half of 2021 comes despite an increase in the market-wide loss ratio. The near four-point increase in the loss ratio to 61.3 percent, compared
with 57.5 percent in the first half of 2020, is partially reflective of the positive impacts of virus containment measures on underwriting performance in 2020. In particular, motor and medical classes, which account for a large part of insurers’ net underwriting portfolios, benefited from lower loss frequency. The level of aggregate market premium growth is notable in the context of persisting soft pricing conditions for core business lines. Motor and medical pricing remained under pressure going into 2021. More recently there have been indicators that rates are increasing for these classes, as loss frequency and demand increases.
The increase in loss ratio to date in 2021 incorporates an uptick in loss frequency, as economic activity has recovered, and elective and non-urgent medical procedures have resumed.
The UAE insurance market has been characterised by highly competitive conditions in recent years. The effects of the COVID-19 pandemic have served to heighten competition, due in part to insurers’ response to the strong underwriting performance experienced in 2020, and in part due to a reduction in demand for insurance in these core classes during the pandemic, for example, as vehicle sales and the number of journeys taken fell. Price competition has remained high into 2021, with motor rates in particular at levels well below the pre-pandemic benchmark.
In the context of this pricing environment, further increases in loss ratios may be observed over the second half of 2021, and AM Best expects competitively priced business written
in 2020 and 2021 to be susceptible to reduced margins as loss experience normalises and activity rebounds.
