Union National Bank, the Abu Dhabi-based lender, today said it has teamed up with Orient Insurance Company to form an Islamic insurance joint venture that will be listed on the Dubai Financial Market.
Banks and insurance companies in recent years have formed similar partnership as lenders look for high-margin products and services to offer clients beyond their traditional business of taking deposits and giving out loans.
It also comes at a time when many insurance companies are struggling amid intense competition and risky investments made by companies in the industry, but analysts say these are short-term problems and that in the long run there is room for growth.
“UNB and Orient will own a 70 per cent stake in Orient UNB Takaful and the remaining 30 per cent will be offered to public through an initial public offering,” the bank said in a statement to the Abu Dhabi stock exchange.
The joint venture has the initial approval of the Insurance Authority, the Securities and Commodities Authority and the Department of Economic Development in Dubai, the statement added.
Insurance has been targeted by banks as margins from loans get tighter amid record low interest rates to diversify sources of income. That trend has heaped further pressure on an already saturated market.
Many insurers have joined the industry in recent years, making it difficult for some to stay afloat, especially those that made risky investments in the stock market.
There are 91 registered insurance companies in the UAE, according to the Insurance Authority. While this has been good for consumers, it has led to losses among many insurers. Some have quit the non-life insurance business altogether in the UAE, such as Zurich Insurance, which exited in November 2015.
Still, industry reforms are improving the outlook for the sector.
Alpen Capital, a Dubai-based investment bank, said in a report published in October that the Insurance Authority, which was established in 2010, was reforming the laws in line with international standards to restore profitability and address industry challenges.
The consultancy firm PwC is also upbeat. It has said that the insurance market in the Middle East has significant growth potential, with an average insurance take-up of just 0.3 per cent in life insurance and 1.1 per cent in non-life insurance.
PwC said that life insurance was particularly underdeveloped in the UAE and Saudi Arabia, and predicted that the insurance sector would experience a wave of mergers and acquisitions.
mkassem@thenational.ae
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