Al Habtoor head sees continuing challenges within UAE insurance

Insurers to continue to face cut-throat competition, says Khalaf Al Habtoor.

Increasing economic activity in the UAE, particularly in the construction sector, will have a positive impact on the local insurance sector, Khalaf Al Habtoor says. Antonie Robertson / The National

Cut-throat competition for market share and tight margins will continue to make life challenging for UAE insurers, in spite of attractive growth opportunities in the country, according to Khalaf Al Habtoor, the Al Habtoor Group chairman.

Increasing economic activity in the UAE, particularly in the construction sector, will have a positive impact on the local insurance sector, especially after Dubai's Expo 2020 win last year, said Mr Al Habtoor.

“High demand for medical insurance and accident insurance promises huge growth prospects for the industry due to the emergence of low premium or customised insurance products in these segments,” he said in a statement in his capacity as chairman of the board of directors for Dubai National Insurance and Reinsurance (DNIR).

“However vicious price wars among insurers, [a] hardening reinsurance market and over-reliance on investment profits rather than technical underwriting profits are pitfalls which insurance companies should steer clear of in the forthcoming years,” he continued.

Mr Al Habtoor’s comments prefaced DNIR’s results for 2013. The insurer reported profits of Dh30.2 million for 2013, an year on year increase of 3.8 per cent.

Insurance density in the UAE stands at $893 per head, compared with $3,600 in North America and $1,800 in Europe, indicating that there is plenty of room for growth in sector, said Taher Safieddine, a research analyst with Shuaa Capital.

But a wealth of insurance providers and brokers meant that competition was fierce and margins were wafer-thin, he said.

Faced with such competition over premiums, insurance companies have had to rely increasingly on their investment portfolios to generate profits.

At Oman Insurance Company, Dubai’s largest listed insurance company by assets, 58 per cent of gross income for 2013 came from investment income, compared with just 15 per cent in 2012.

DNIR’s income from investments and investment property accounted for 32.9 per cent of the insurer’s gross income for the year, in line with figures for 2012.

However, Salama Insurance bucked the trend, with income from investments dropping last year to Dh37.2 million compared to Dh48.2m in 2012, and its underwriting business bouncing back to profit in 2013 with earnings of Dh41.8m against a Dh37.8m loss in 2012.

Insurance companies invested heavily in real estate and equity markets before Dubai’s real estate crash in late 2008, realising heavy losses as a result, said Mr Safieddine.

“After realising huge losses in 2008-09, insurance providers moved into less risky asset classes like fixed income. But now that the market’s improved we’ve seen a number of them moving back into equities and real estate,” he said.

Any market correction – which a number of influential figures have voiced concerns about – would severely insurers' bottom lines, he said.