Best’s Special Report: UAE Takaful Companies Catching Up with Conventional Peers

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,” 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.”

To access a complimentary copy of this special report, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=284669
.

AM Best is the world’s oldest and most authoritative insurance rating
and information source. For more information, visit www.ambest.com.

Copyright © 2019 by A.M. Best Rating Services, Inc. and/or its
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