Wednesday 15, March 2017 by Georgina Enzer

Moody's: Low oil prices and competition fuel concerns of insurance CFOs in GCC

Chief financial officers (CFOs) of insurers in Gulf Cooperation Council (GCC) countries see weak oil prices and intense competition as the main threats to their companies' profitability, but remain relatively upbeat regarding profitability growth prospects, according to a Moody's Investors Service survey.

"Worries about both weak oil prices and fierce competition among GCC insurers have significantly increased compared with last year, with 20 per cent of CFOs citing oil prices as their main concern, compared with 13 per cent in 2016, and 27 per cent citing competitive pressures," says Mohammed Ali Londe, Assistant Vice President at Moody's.

However, respondents remain relatively optimistic on profitability, with more than half saying they expect operating profit growth in 2017 to be moderate (five per cent to 10 per cent) or even high (above 10 per cent).

This is in line with Moody's view, with profitability expected to improve in the medium-term as insurers benefit from industry-wide premium rate increases due to recent regulatory changes.

These include actuarial reserving requirements such as seen in Saudi Arabia and the United Arab Emirates (UAE), supportive of motor and medical premium rates. Property insurance rates have also risen following a recent spate of fires in the region, while premium volumes will receive a further boost as medical insurance continues to become mandatory in the region, as seen most recently in Dubai.

Majority of the CFOs expect industry consolidation due to stricter capital requirements whilst others anticipate that insurers will respond by ceasing to offer cover against certain risks. "We have not seen any significant mergers in the sector to date, and we expect insurers that are under pressure to either strengthen their capital base or exit certain business lines," said Ali Londe.

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