Premium growth slows as insurers face headwinds

February 28, 2017

Comprehensive motor insurance witnessed a 9.6 per cent decline in 2016 (Muscat Daily)

As Oman’s insurance market continues to face headwinds amid a challenging economic environment, the growth in gross insurance premiums sharply declined to 1.9 per cent for 2016 against a ten per cent growth rate achieved by the industry in the previous year.

The growth of the insurance sector in 2016 decreased due to the economic situation resulting from the fall in oil prices and the reduction in Oman’s budget expenditure, the Capital Market Authority (CMA) said in its insurance market report released on Tuesday. Total premiums in Oman’s insurance market rose to RO454.64mn at the end of 2016 from RO446.24mn in the previous year.

‘Low oil prices are a headwind for the GCC insurance market in the short to medium term, as they slow economic growth and weigh on government spending’, Moody’s Investor Service said in its GCC Insurance Market report released on Tuesday.

The ratings agency said that the risk is greatest for insurers in Oman, Bahrain and Saudi Arabia, reflecting these countries’ oil dependence and high break-even oil prices.

The CMA report said the reduction of premiums was mostly concentrated in engineering insurance which dropped by 21 per cent. Engineering insurance premiums are largely linked to projects and risk of contractors, it said.

Premiums in group health

insurance also fell nearly 20 per cent, while comprehensive motor insurance witnessed a 9.6 per cent decline.

‘The subdued economic expansion due to weak oil prices will moderate the insurance sector’s growth potential. We expect a reduction in personal income to hold back personal lines business, while lower

government spending to adversely affect commercial lines’, Moody’s said.

The growth in total premiums was mostly contributed by individual life insurance which jumped by 213.4 per cent. Health insurance premiums also grew by 12.5 per cent last year.

The sharp rise in individual life insurance was due to options granted by banks to borrowers to select their insurer rather than being obligated by the group insurance schemes offered by the banks, the CMA report said.

According to the CMA, the increase in the gross underwritten premiums in 2016 reflected positively on net retained premiums of the insurers after deductions for reinsurance. Net collected premiums increased by four per cent in 2016.

Gross retention ratio for insurance companies in 2016 stood at 57 per cent, a sharp decline from the 2015 ratio of 85 per cent.

The retention ratios in properties, engineering and transport insurance were the lowest compared to other classes of insurance as the portfolios of these products are exposed to higher risks and therefore the insurance companies resort to reinsurance.

Moody’s said insurers in Oman are 80 per cent invested in cash, deposits and fixed income due to regulatory guidelines and it sees investment risk as moderate.