Enhanced regulations in Gulf Cooperation Council fuel concerns of weaknesses in markets: AM Best
New regulations in a number of markets in the Gulf Cooperation Council (GCC) enhancing minimum capital and solvency requirements as well as incorporating actuarial based pricing and reserving have impacted profitability of many insurance companies, said AM Best.
Regulation has resulted in companies experiencing a drastic decline in operating performance and risk-adjusted capitalisation, according to the ratings agency, raising concerns surrounding the inherent weaknesses in these markets.
AM best believes that despite the immediate adverse impact, these necessary regulatory changes place the markets on the right trajectory for greater financial stability in the future.
To assess the overall impact of the regulations on insurers, the ratings agency analysed recent regulatory developments in Saudi Arabia and the United Arab Emirates (UAE), the two largest markets in the GCC.
Salman Siddiqui, senior financial analyst, and one of the authors of the report, said: “Following Saudi Arabia's regulatory reforms in 2013, AM Best has seen that in spite of painful short-term corrections and the growing likelihood that some of the weaker players could exit the market, the longer-term prospects for the Saudi Arabian insurance industry will likely yield greater stability and profitability.”
The UAE had taken a similar road to regulatory reform, but it is at an earlier stage.
Michael Dunckley, senior financial analyst, and co-author of the report, added: “The UAE’s approach to capital modelling under the new regulations has been more comprehensive than in Saudi Arabia. It has a risk-based capital model that takes into account all classes of business and addresses the asset side of an insurer’s balance sheet in addition to its underwriting activity.”
AM Best commented: “It is inevitable that there will be winners and losers in the region, with the better capitalised, more sophisticated companies remaining and gaining market share, and the gap between the larger and smaller carriers widening.
“While the jury is out on whether regional regulators will opt to actively police their respective markets, over the longer term, improvements in insurance regulation within the GCC should result in greater stability and confidence.”
