UAE Takaful Companies Catching Up with Conventional Peers on Profitability in Highly Competitive Market

UAE Takaful Companies Catching Up with Conventional Peers on Profitability in Highly Competitive Market

 

Takaful operators continue to gain traction in the United Arab Emirates (UAE) insurance market as the Takaful segment’s profitability has improved significantly in recent years, according to a new special report by AM Best. In its analysis of the preliminary disclosures of the nationally-listed Takaful operators on the Abu Dhabi Securities Exchange (ADX) and the Dubai Financial Market (DFM), AM Best shows material improvements in overall performance, along with reasonable growth in gross written contributions (GWC). These improvements are in line with the increase in net earnings for the UAE market as a whole.

In the research, titled, “UAE Takaful Companies Catching Up with Conventional Peers on Profitability in Highly Competitive Market”, AM Best notes in 2018, the listed insurers in the UAE generated combined gross written premiums (GWP) of AED 21.9 billion, of which the Takaful segment contributed AED 3.7 billion. A marginal decline of 0.5% in the conventional insurers’ GWP was offset by the Takaful segment’s GWC growth of 5.8%. Consequently, the market as a whole experienced modest growth of 0.5% in overall premium.

Emily Thompson, financial analyst, said: “Despite the growth in GWC, Takaful operators still account for a modest part of the UAE’s overall insurance market, commanding a stable 17% market share in 2018. Penetration has been consistent in recent years, but whether Takaful insurers can gain a sufficient foothold in the market to challenge the conventional players remains to be seen.”

The report states that in 2018, aggregate underwriting profits for the UAE’s listed Takaful operators declined 9%, to AED 357 million (although net profits, however, grew strongly, up 4% to AED 155 million). Despite the decline, the Takaful operators’ underwriting returns continue to benefit from improvements in pricing and underwriting discipline as a result of regulatory changes in 2017 in the key business lines of motor and medical insurance. Policies underwritten in 2017 also bolstered 2018 results, favourably contributing to technical earnings.

Salman Siddiqui, associate director, analytics, said: “Historically, Takaful operators in the UAE market have struggled to match the profitability of their conventional counterparts. Lagging results may be attributable to the relatively new presence of the Takaful companies in the country’s competitive market place, as well as high start-up costs. Given the challenges establishing themselves in a fragmented market, these operators had initially focused on quickly achieving an adequate top line and scale, over performance. However, recent changes in management at a number of Takaful companies has seen the focus shift towards bottom line profitability.”