UAE Islamic insurance providers issue warning as losses pile high

UAE Islamic insurance firms are struggling to generate surpluses amid cut-throat competition and overcapacity, a top ratings agency warned yesterday.

Green Crescent Insurance, an Abu Dhabi-listed firm, in November last year won shareholder approval to reduce its capital to Dh100m from Dh250m. Ben Job / Reuters

The country's Islamic insurance providers are struggling to generate surpluses amid cut-throat competition and overcapacity, a top ratings agency warned yesterday.

Standard & Poor's yesterday said that no Islamic insurer in the UAE made a surplus for its fund last year. In fact, they recorded a widening deficit of 70 per cent from the end of last year.

The industry, also known as takaful, "must compete directly with conventional insurance companies that benefit from established economies of scale, have longer service track records and have more established distribution mechanisms to the marketplace", the report said.

The sector is "now overpopulated with insurers. This is giving rise to overcapacity with the predictable, and expected, response of price competition in the insurance market. Insurance companies require considerable capital investment to become established, and new, usually small, companies are under pressure to deliver healthy returns to their investors," it added.

The report is the latest indication of the pressure building in the regional insurance market after years of insurers offering low premiums across several sectors in a bid to capture market share. Growing populations and rising waves of claims are straining bottom lines.

"Each company has its own factors to its earning reports," said Marwan Shurrab, the fund manager at Vision Investments & Holdings in Dubai. "Salama Insurance, for example, has been reporting negative earnings in the last couple of quarters, mainly due to losses from claims in Asia."

Salama fell into red last year as its core subsidiary Best RE was hit by floods in Thailand.

In Salama's financial report, the company said "it was the worst flooding in the last five decades with an economic loss of US$45.7 billion and hence considered one of the top-five costliest natural disasters in modern history".

Green Crescent Insurance, another UAE-listed firm, in November last year won shareholder approval to reduce its capital to Dh100m from Dh250m to comply with regulations that state losses cannot exceed 50 per cent of paid in capital.

The move followed a decision to approve the company's continuation as a "going concern", an accounting term that is used to describe a business that can maintain its activities without the threat of bankruptcy.

Insurance companies are the most represented on the UAE stock markets, with 23 of the almost 100 publicly listed companies coming from the sector, but they are also some of the least traded stocks.