More mergers likely in GCC Islamic insurance market

Reuters/Amr Alfiky

• Small companies suffering
• Overall net profits hit $1bn
• Sector expected to expand 20%

More consolidation is likely among small and medium-sized Islamic insurers in the UAE and Saudi Arabia for the rest of the year, as they continue to struggle with weak earnings, according to analysts.

One in five Islamic insurers in Saudi Arabia and one in three of those in the UAE merged in recent years, in an environment of increased competition and stricter regulations on solvency capital requirements.

Although net profits in the sector reached a record $1 billion, competition and regulations, expected interest rate cuts from September and increasingly volatile capital markets could hurt 2025 earnings, said Emir Mujkic, a credit analyst at S&P Global Ratings.

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“While we expect overall credit conditions for Islamic insurers will remain stable over the next six to 12 months, consolidation will likely remain a hot topic among smaller and midsize players,” he said.

Mujkic predicted mergers would be most prevalent in Saudi Arabia, the UAE and Kuwait, where several Islamic insurers are still failing to meet the required solvency capital requirements.

• Mergers drive growth in Bahrain’s Islamic finance sector

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• Growth doubts over Islamic finance despite trillions in assets

Faisal Abbas, a Dubai-based vice-president at the insurer Continental Group, agreed that solvency is the major reason, along with increased competition in the sector.

“Consolidation is definitely on the cards for a few insurers,” Abbas said. “It is good for the insurance market if these consolidations happen soon, which would mean less insurers and less brokers.”

S&P Global predicts the Islamic insurance sector in the GCC will expand by up to 20 percent in 2024, with revenues passing $20 billion.

It also forecasts that the increase in revenue will be driven by Saudi Arabia, the GCC’s largest Islamic insurance market, which continues to benefit from higher economic growth.

Outside the kingdom, however, the rest of the region has been struggling. Islamic insurance providers in the five remaining GCC countries experienced a 3 percent drop in their gross revenues in 2023.

This was attributed to a decline in premium income in the UAE, the second largest Takaful market in the region, as a result of industry consolidation and rate pressures hitting motor insurance and other products.

Takaful is a type of Islamic insurance where members contribute money into a pool system to guarantee each other

The Takaful sector in the UAE is predicted to bounce back by up to 20 percent this year due to increases in motor insurance rates after April’s floods.

Flood losses

On Thursday the Dubai Financial market-listed Islamic Arab Insurance Company reported a net profit of AED20.5 million ($6 million), up from AED2.3 million during the same period in 2023.

Insurance premiums for properties in the UAE increased by as much as 30 percent in the second quarter of the year as the sector reeled from hundreds of millions of dollars of losses stemming from the record-breaking April floods.

Manik Kak, from the professional services firm Marsh McLennan in Dubai, said it would take at least two years for the industry to recover from the floods.

The average increase in property insurance rates across India, the Middle East and Africa was 6 percent.

Takaful players in Bahrain, Kuwait, Oman and Qatar are expected to report more moderate growth rates of between 5 percent and 10 percent.