Skip to content Skip to Search
Skip navigation

Islamic insurers face a turbulent year

While growth prospects of Islamic insurers in the GCC remain favourable, weak profitability has been an issue for the sector

Several takaful insurers in the Gulf report a decline in earnings this year
Several takaful insurers in the Gulf report a decline in earnings this year

Although growth prospects of Islamic insurers (takaful) in the GCC remain favourable in 2022 and 2023, they are preparing to adopt new accounting standards that will weigh on earnings of many players in the industry.

They are supported by an uptick in economic activity, ongoing infrastructure spending and new mandatory medical covers, but contending with intense competition, volatility in capital markets and an increase in costs.

The overall industry had a strong start to 2022 with Islamic insurers in Saudi Arabia – which contribute slightly more than 85 percent of total premiums for all GCC Islamic insurers – recording premium growth of almost 24 percent in the first half of the year compared with the same period in 2021.

However, growth in other markets has been more modest and the second largest market, the UAE, even reported a year-on-year decline in premium income of about 9 percent in the first half of the year.

Despite a premium decline and slower growth in other markets in the region, we anticipate that the overall Islamic insurance industry will expand about 10–15 percent in 2022, with Saudi Arabia remaining the key driver for growth and the region’s largest market.

The bad news is that relatively weak profitability has been a key issue for the sector in most markets.

Qatar’s comparatively small takaful sector enjoys fairly modest competition, and therefore remains the region’s most profitable market.

Saudi Arabia reported a significant decline in earnings in 2021 and in the first half of 2022, with about two-thirds of insurers recording underwriting losses. 

Intense competition and an increase in claims frequency will continue to weigh on earnings of the sector in Saudi Arabia this year, before we see a modest recovery in 2023, thanks to anticipated rate adjustments in loss-making lines.

In addition, higher interest rates should boost investment returns and overall earnings. 

Ongoing pressure on earnings and capital has already resulted in some capital raising and consolidation in Saudi Arabia and the UAE in recent years and this trend is expected to continue in 2022 and 2023.

Additionally, upcoming regulatory and accounting-related changes will likely lead to rising operational costs, requiring insurers to upgrade their IT systems and other internal processes.

This will also reinforce the need for capital raising and mergers.

The Saudi Central Bank’s new minimum capital requirement of SAR300 million ($79.8 million) – an increase from from SAR100 million – over the next three years is designed to encourage consolidation and result in fewer but stronger companies to meet the country’s Vision 2030 objectives.

Over the past five to six years, the number of active insurers in the kingdom has reduced almost 20 percent to 28 from 34.

Following some merger announcements within the industry in the UAE this year, we could see a decline in listed takaful players to six from nine entities. 

Increased scale could help dilute insurers’ fixed costs, while also reducing top and bottom line volatility.

Further capital raising and consolidation would also support capital buffers.

Emir Mujkic‎ is director and lead analyst, insurance ratings, S&P Global Ratings

Latest articles

Turkey foreign property sales

Foreigners turning back on Turkish real estate

Foreign buyers are increasingly shunning the Turkish property market, wary of high prices, the expensive cost of living and a less welcoming environment for overseas real estate investors. There were only 2,064 residential units sold to foreign buyers in May, 35 percent down on the same month last year, data issued by the state statistics […]

2KEY8G1 Emirates Airline Airbus A380 aircraft landing. Aerial view of Emirates Airlines A380-800 airplane. An Emirates plane coming in to land at LAX; a spokesperson for Emirates said the contraventions were for safety reasons

US fines Emirates for operating in prohibited airspace

Emirates has been fined $1.5 million by the US Transportation Department for operating flights carrying JetBlue Airways’ JBLU.O designator code in prohibited airspace. The transportation department said that between December 2021 and August 2022, Emirates operated a significant number of flights carrying the JetBlue Airways code between the United Arab Emirates and the United States […]

Egypt will use the US funding across a range of sectors including agriculture

US allocates $130m development funding to Egypt

The US has allocated funding of $130 million for a range of developmental projects in Egypt, it was announced on Thursday. In a press release published by the US Embassy in Cairo, ambassador Herro Mustafa Garg said that the money would go towards “advancing Egyptian efforts to achieve a brighter, healthier, and more prosperous future […]

Hollywood actor Leonardo DiCaprio. A US VC fund backed by him plans to invest $50m in Mena climate tech startups

US firm to invest $50m in Mena climate tech

A US venture capital firm backed by Hollywood actor Leonardo DiCaprio plans to invest $50 million in Mena climate tech startups over the next five years. Princeville Capital is targeting mature startups with strong growth potential, facilitating quick exits and a clear path to profitability, its co-founder Joaquin Rodriguez Torres told AGBI. The firm has […]