Gaining ground: As the market rebounds, new segments and offerings are providing fresh potential

In 2012 Abu Dhabi’s insurance sector posted continued growth on the back of increased spending from consumers, corporations and the government. Across the UAE, gross written premiums (GWPs) reached Dh26.3bn ($7.16bn) in 2012, up 9.5% from 2011, according to the 2012 report from the UAE’s Insurance Authority (IA). The federation retained its position as the largest insurance market in the Gulf, with UAE insurers underwriting around half of all GCC premiums in 2012.

Major Figures

The property and liability segment totalled Dh20.3bn ($5.5bn) in 2012, up 6.8% from Dh19bn ($5.17bn) in 2011. However, since the emirate made health insurance compulsory in Abu Dhabi in 2006, the line has been a key growth segment. Dubai’s approval of the Health Insurance Law in November 2013 is the latest development in this field. The value of medical GWPs has more than doubled in the last five years, and with Dubai planning to fully enact compulsory health insurance in 2014, the medical market is set to see continued expansion. Additionally, major infrastructure spending by the government is forecast to drive local insurance demand in coming years, according to a report released in May 2013 by credit ratings and financial data firm AM Best.

The UAE market overall remains underpenetrated, though total premiums did see a slight increase from 1.9% in 2011 to 2% in 2012. However, this is still below the US and the UK, where premiums as a per cent of GDP topped 8% and 11%, respectively, according to a September 2013 report by ratings agency Moody’s. The market for life insurance, which accounted for Dh4.7bn ($1.3bn) in 2011, expanded at a rate of 25.5% in 2012 to reach Dh5.9bn ($1.6bn). Along with continued growth, however, has come fierce competition for market share, which in recent years has pushed down premiums and led analysts to question underwriting tactics. “Growth hasn’t stopped,” Sven Rohte, chief commercial officer at Abu Dhabi-based National Health Insurance Company – Daman, told OBG, “But you need to look not just at the top line, but at the bottom line.”

Until the 2008-09 financial crisis, many local insurers could rely on income from property and equity assets rather than technical profits. Even as asset prices rebound from recent lows, market volatility continues to threaten some smaller firms. As the market matures, the regulator and industry stakeholders are committed to addressing key challenges, including national insurers’ heavy dependence on reinsurance and investment income, along with limited technical expertise.

In October 2013 Fareed Lutfi, the secretary-general of the Emirates Insurance Association, reiterated his call for consolidation to the local press – a move which is already anticipated by key players from insurers and brokers to ratings agencies. “We expect to see mergers and acquisitions in the coming year,” said Rasha Moukayed, manager at Guardian Insurance Brokers.

Market Structure

The UAE’s insurance sector operates as a national market regulated by the IA, which is based in Abu Dhabi. Liability and property insurance dominate the sector, comprising around three-fourths of total premiums written. The segment is further divided by product lines, with accident and medical coverage comprising 32% and 39.3%, respectively, of total GWPs in 2012. The remaining share is divided among marine, aviation and transport insurance (11.9%), fire (11.4%) and other risks (5.3%). Abu Dhabi insurers wrote Dh6.9bn ($1.87bn) in 2012, and the local market is dominated by compulsory medical and motor lines.

A total of 34 national insurers and 27 foreign subsidiaries operate across the UAE. Only 11 national and two foreign firms compete in both the life and the non-life segments, while the remaining insurers specialise in other segments. National firms dominate the property and liability market, accounting for 72.4% of GWPs in 2012, according to the IA’s 2012 annual report. On the life insurance and fund formation side, the proportions are reversed and foreign firms made up 69.7% of GWPs in that year. There are a total of 10 local firms that offer takaful, or sharia-compliant insurance. Increasing competition and low-margin premiums have been difficult for some of these firms, which tend to have higher operating costs than conventional insurers.


Across the GCC, some local players are still developing the capacity and appetite to hold on to the riskiest of premiums, and many cede a high proportion of risk to international reinsurance firms. UAE insurers retained 55.3% of premiums in 2012, according to the IA. Retention ratios were higher for the less profitable lines of health and accident, where local firms retained 67.6% and 64.6%, respectively, compared to aviation, marine and transport insurance, where an average of 22.6% was retained, followed by fire (27.9%) and other risks (25.4%).

Higher retention ratios in medical and motor were, in part, a product of a reduced willingness on the part of reinsurers to buy up premiums driven low by price wars. “Most of motor has higher retention ratios because reinsurers keep squeezing the rates,” Lutfi told OBG. Moving forward, local insurers could reap greater profits by retaining a higher share of the risk from the nation’s larger commercial projects, he said.


Federal Law No. 6 of 2007 established the IA as the industry regulator, replacing a regime that had last been updated in the 1980s. In 2012 the IA released draft legislation to prevent life and non-life insurers from trading as composite companies, increase capital requirements and set asset class limits. Implementation of the first two regulations was postponed until 2015, and implementation of the third has been postponed indefinitely for fear of disruptions to the market caused by a sell-off in equities and property, classes where insurance company assets are concentrated.

An additional reform package will require higher capital requirements and stricter staff qualifications from insurance intermediaries (see analysis). The IA is seeking input from stakeholders, and amended regulations are likely to take effect in 2014. Since restrictions limited the number of new entrants to the UAE insurance market in 2009, the IA has licensed only one new firm, the Insurance House, Ibrahim Al Zaabi, acting director-general of the IA, told local media in September 2013.

Foreign insurers can enter the market either through acquisition or by setting up shop in the Dubai International Financial Centre (DIFC), which is regulated by the Dubai Financial Services Authority. Free-zone insurers, of which there are nearly 50, lose access to the local consumer market but can offer reinsurance services.

The General Secretariat of the Abu Dhabi Executive Council also released plans in June 2013 to develop the Abu Dhabi Global Marketplace on Al Maryah Island, which will operate under a separate regulatory structure much like the DIFC. AM Best noted the development, but stated that insurance was unlikely to become the marketplace’s core business line as many international insurers seeking to compete regionally are likely to establish in the DIFC, or another GCC free zone.

Key Players

The IA requires all national insurers to list on one of two local stock exchanges, ensuring that all financial data remains public. The country’s 21 conventional insurers wrote Dh6.28bn ($1.7bn) in the first half of 2013, up 10% from Dh5.7bn ($1.5bn) in the same period of 2012. However, despite the large number of operators, the market is dominated by a handful of firms. “About 70% of premiums are written by six companies,” Lutfi told OBG.

The nation’s largest insurer by both assets and GWPs, Oman Insurance Company (OIC), had assets totalling Dh5.08bn ($1.38bn) in June 2013. New underwriting income for the Dubai-based firm declined in 2012 to Dh188m ($51.1m) from Dh336m ($91.45m) in 2011, largely due to decreasing profits in the non-life segment. However, investment income increased. Citing the firm’s reduced exposure to high-risk investments, reduced financial leverage and strong capital adequacy ratio, Standard & Poor’s (S&P) raised its long-term rating of the OIC in 2012 from “BBB+” to “A-”, and in July 2013 reaffirmed the company’s rating and raised its outlook from stable to positive.

The Abu Dhabi government owns a 23.8% stake in the nation’s second-largest insurer, the Abu Dhabi National Insurance Company (ADNIC). The firm’s assets totalled Dh4.48bn ($1.2bn) in June 2013, and ADNIC’s total GWPs reached Dh1.2bn ($326.6m) in the first half of 2013, a 2% increase over Dh1.18bn ($321.1m) in the same period the previous year. Net profit rose 23% to Dh88.7m ($24.1m) compared to Dh72.2m ($19.65m) in the first half of 2012. ADNIC’s net underwriting income, a key measure of sustainability, rose 8% to Dh148.4m ($40.4m), from Dh137.6m ($37.4m). The firm has also maintained strong “A” and “A-” grades from rating agencies AM Best and S&P, respectively.

Orient Insurance is the UAE’s third-largest player, with Dh3.18bn ($867.5m) in assets as of June 2013. In the first half of 2013 Orient’s GWPs reached Dh843m ($229m), a 10% increase from the Dh765m ($208.2m) underwritten in the same period a year earlier. While insurance premium revenue rose nearly 8% from Dh738.9m ($201.1m) in the first half of 2012 to Dh797.5m ($217.07m) in the first half of 2013, net underwriting income decreased by 1.7% from $86m ($23.4m) in the first half of 2012 to Dh84.5m ($23m) in the same period in 2013. However, by the third quarter of 2013 assets were up Dh3.25bn ($884.6m) and net underwriting income increased to Dh120.9m ($32.9m), up 6% over the same period in 2012. Orient maintains “A” ratings from both S&P and AM Best, and both ratings agencies reaffirmed the firm’s grade in the first half of 2013, pegging Orient’s outlook at stable. Other leading conventional players with assets ranging from Dh1.5bn-2bn ($408.3m-544.4m) include Al Buhaira National Insurance Company, Emirates Insurance Company and Al Ain Ahlia Insurance Company.

The Abu Dhabi-based National Health Insurance Company – Daman provides insurance to more than 2.4m people across the UAE. Established in 2005, the firm is a public joint-stock company that is 80% owned by the Abu Dhabi government and 20% owned by Munich Re. The firm administers the Basic plan and Thiqa plan on behalf of the Abu Dhabi government.


The Islamic Arab Insurance Company ( Salama) dominates the nation’s takaful sector. With international subsidiaries in locations like Senegal, Malaysia and Egypt, among other places, Salama held assets of Dh4.66bn ($1.27bn) as of September 2013, compared to Dh4.8bn ($1.31bn) in the same month in 2012. Salama posted an underwriting loss of Dh264m ($71.8m) in 2012 due to liabilities incurred from heavy flooding in Thailand. Despite the loss, S&P reaffirmed Salama’s “A-” rating based on fundamentals. The firm’s net underwriting income increased from Dh37.78m ($10.2m) in September 2012 to Dh41.8m ($11.3m) in September 2013. Salama’s closest local competitor, the Dubai Islamic Insurance and Reinsurance Company (Aman), recorded assets of Dh503.6m ($137.09m) in 2012, a 7.4% increase over Dh468.9m ($127.5m) in 2011. In terms of net underwriting income, Aman saw a decrease from Dh28.7m ($7.8m) in September 2012 to Dh11.9m ($3.2m) in the same month in 2013.

The UAE’s smaller takaful firms have not translated recent growth into profits. While Islamic insurers’ GWPs rose over 15% in 2012, none of the UAE’s takaful firms made a profit for its fund, according to a statement released by S&P in July 2013. In the first quarter of 2013 fund deficits rose by more than 70% from the end of December 2012, following a rise of 40% in 2011. This compares to conventional insurers, which saw smaller growth in premiums but still increased total shareholder funds 5% in 2012, before any new capital injections.

The sector is “overpopulated,” S&P said, “giving rise to overcapacity with the predictable and expected response of price competition in the insurance market”. The drive to grow market share has put downward pressure on premiums, particularly in high-volume segments. S&P wrote in its July 2013 report, “In the motor and medical insurance lines that predominate in the GCC markets, under-pricing will become evident very quickly, and we believe this is in part evidenced by the poor technical results of the takaful sector.”

Takaful firms are more sensitive to falling premiums because of the higher overhead operation costs required, Oussama Kaissi, the CEO of Abu Dhabi-based takaful firm Watania, told OBG. A particular challenge for UAE takaful firms is the absence of regulation or even consensus on sharia compliance. “You can take the same product that was approved by scholars at one firm and it will not pass at another,” said Kaissi. “We need a centralised sharia-compliance council.”

Rising wakala fees (management fees) were also significant, S&P said in its report. According to the ratings agency, “Wakala fees charged on takaful funds have risen from 13% of gross contributions in 2011, to 18% in 2012 and to 22% in the first quarter of 2013.”

Medical Lines

The UAE’s health insurance line received a major boost when Abu Dhabi made medical coverage compulsory for all residents of the emirate. The plan to require health insurance across the nation has offered providers the next big bump. Since passing the 2006 health insurance requirement, Abu Dhabi has seen medical coverage dominate the sector. Of the Dh6.5bn ($1.77bn) in premiums underwritten in Abu Dhabi in 2012, more than half, or Dh3.6bn ($979.9m), was for health insurance, according to the IA.

The emirate’s health insurance programme, which is regulated by the Health Authority - Abu Dhabi, divides coverage into three distinct segments. The government subsidises the Basic plan for expatriates and fully funds the Thiqa plan for nationals, both of which are provided by Daman. The country’s providers compete with Daman in the third segment – enhanced coverage for expatriate residents and top-up plans for nationals under the Thiqa plan. The emirate’s coverage programme has already seen promising developments. Dr Michael Bitzer, the CEO of Daman, told OBG, “We have seen a growing rate of employers topping up their national employees’ Thiqa plan to include international coverage. This has been encouraging for national employees and cost-effective for the employers, proving beneficial for all parties.” However, competition has had a negative effect on pricing. “The pressure on the price of premiums or premium rates is not sustainable,” Mahdi Attya, Abu Dhabi branch manager for AXA Insurance, told OBG. “For the small players, rates have remained far from what should be technical levels and this trend is reversing as the market corrects itself.” Loss ratios for medical insurance rose to 85.2% in 2012, according to the IA, up from 81.3% in 2011 and 78.2% in 2010. For overall non-life, loss ratios stood at 68.1% in 2012, up from 55.7% in 2011. As Attya said, firms are already attempting to correct this. Faced with falling margins, some insurers have reduced volumes in the medical line, AM Best noted in its 2012 report. In addition, the approval of legislation to make health coverage mandatory in 2014 in Dubai will offer a welcome outlet for the competition. “There are still growth drivers available,” said Kaissi. “When Dubai makes health insurance fully mandatory in 2014, the segment could grow 15-20%.” Indeed, GWPs in Dubai’s health business totalled Dh2.4bn ($653.2m) in 2012, compared to the Dh3.6bn ($979.9m) in Abu Dhabi, despite Dubai’s larger population.

Growth Opportunities

With increased competition and rising fees in the medical and motor segments, the UAE’s insurers are looking for new growth opportunities both at home and abroad. OIC, the largest insurer in the UAE by assets and GWPs, began to expand beyond the GCC in 2012 by launching a joint venture in Turkey. In 2014 it plans to open an office in Iraq. Currently 90% of the firm’s profits come from the UAE, with the rest divided between Qatar and Kuwait. ADNIC is also looking to provide a more comprehensive product range to small and medium-sized enterprises (SMEs), an underserved market segment, Walid Sidani, ADNIC’s CEO, told OBG. “There is strong potential for new business in the retail and SME sector,” Sidani said. “Despite the challenges associated with this aspect of the industry, such as a need to invest in customer relations management systems, there is ample opportunity for a good return.”

Mega - Projects

Continued GDP growth and planned government spending on large-scale infrastructure projects will increase Abu Dhabi’s stock of insurable assets in the coming year and provide investment opportunities for national and foreign insurers alike. Planned projects include the $11bn Etihad Rail project, the $20bn nuclear power plant in Abu Dhabi and the $37bn Nibras Al Ain Aerospace Park. “There is a lot of growth in project insurance, but not many local companies have the assets to underwrite projects of that size,” said Lutfi. “They cannot take on the risk.” Smaller than their international competitors, local firms can insure only a piece of a government project and then must pass the risk on to a reinsurance firm. The push toward consolidation of companies and capital could increase retention rates in this lucrative segment.

There could be additional opportunities in smaller segments of the market, as more capacity comes on-line. “An increase in the number of hospitals opening soon could run the risk of creating overcapacity, despite trends depicting a growing number of inpatients and outpatients in the health care sector,” Dr Bitzer told OBG. “At the same time, there are other segments of the health care market that remain underserved and would welcome private sector involvement.”

Trade Credit Insurance

With the UAE’s Ministry of Foreign Trade estimating that trade value will increase 10-15% in 2013, some insurers anticipate a growing market for trade credit insurance, a development that might help support the expansion of trade. The segment is currently growing in popularity across the GCC. In September 2013 Neil Ross, a regional trade credit manager for AIG, told local media, “The increased demand for trade credit insurance as a means to grow businesses is vastly established in the region, particularly through the recent introduction of excess of loss credit insurance, which provides a more sophisticated solution for companies with sound credit management.”

Life Insurance

While the life insurance market has grown rapidly in the past five years, the segment remains small in global terms. In 2012 the UAE’s life insurance penetration rate stood at 0.4%, up from 0.2% in 2008, according to a 2013 report from Alpen Capital. In the GCC, life premiums contributed just 13-14% to overall premiums, the reverse of the trend in developed markets where life insurance dominates. Life insurance has been a tough sell in the UAE and across the GCC due to a combination of cultural and demographic factors. Some see the low penetration rate as an opportunity for future expansion, however. Indeed, in its 2013 report Alpen Capital stated, “Development and acceptance of life insurance products compliant with Islamic principals and increasing awareness about the benefits of insurance have gradually brought about change in the market dynamics in the region.”


 Before the 2008-09 financial crisis, insurers, which were heavily vested in equities and property, benefitted from high growth in investment income. The volatility of these assets in the wake of the economic downturn has spurred insurers to diversify their portfolios and improve technical underwriting. Along with adopting more rigorous actuarial practices, insurers will need to diversify their asset portfolio moving forward. AM Best expressed concern in its 2012 report over the high concentration in equities and private equity investments. While the local market remains among the more developed in the region, the size of positions held by some insurers would make liquidation difficult. In 2012 the IA issued new rules to guide insurer investments by asset class, a move viewed positively by the market. There is no deadline for enactment, however, as a sector-wide reduction in equity investments would have wide-ranging consequences.

Competition & Consolidation

 The IA has introduced new regulations to rationalise the sector, and the call by the authority’s secretary-general for consolidation echoes the general sentiment that the country is unlikely to support the current number of firms. The IA stopped issuing new insurance licences in 2006, but with 61 firms operating already, profitability declined from 34% of GWP in 2007 to 6% in 2011, according to Alpen Capital. “In this challenging pricing environment, I would not be surprised to see some insurance players in difficulty and this could create consolidation in the market. For sure, 61 insurers for the UAE market is not sustainable in the long term,” Attya told OBG.

Premiums have fallen due, in part, to clients favouring policies that only create short-term revenues for companies. “The risk approach in the UAE is not yet there.

Clients should be more careful when choosing their insurance solution to ensure it fits their expectations both in terms of product and reliability of the insurer rather than just focus on the price,” said Attya. Despite AXA’s success in the market – the firm grew 46% in 2012 and forecasts double-digit growth for 2013 – Attya sees a need for increased market discipline.

Guardian, which has a large health and life insurance practice, seeks to educate clients about their coverage choices.“ But some consumers take advantage of that,” said Moukayed. “They look at the options as though it’s a tender process. They choose the cheapest option and not the sustainable medical insurance scheme that members can benefit from.”

Thus, the market remains segmented between those who compete on price and those who compete on quality. “But even if you’re in the price-based market, you need solid underwriting of risk,” Rohte told OBG.


 Improved technical underwriting, increasingly diverse assets and new regulations all signal positive growth and maturation in the insurance sector.

In addition, the move to make health insurance compulsory in Dubai is likely to drive competition across the UAE as a whole, and in the medical insurance segment in particular. Future consolidation may ease pressure on medical and motor premiums, while projects and life insurance offer continued room for expansion.


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