The GCC has the lowest insurance penetration rates globally, ranging from 0.9 percent in Qatar to 2.9 percent in the UAE. This is significantly lagging the world’s average penetration rate of 7.0 percent, indicating substantial room for higher growth in the market.
The GCC Insurance Market, estimated at $28.5bn in premiums for 2021, is dominated by the UAE and Saudi Arabia, collectively accounting for 80 percent of total insurance premiums collected in the region. The market is fragmented, with a mixture of international and local players and, while highly regulated, has shown signs of growth in recent years.
The need for insurance protection has increased post-pandemic, due to implementation of regulatory initiatives across the GCC countries, such as the introduction of unemployment insurance. A growing population, improved consumer awareness, and increased economic activity are all factors contributing to the Middle East and North Africa region’s forecast growth of 3.1 percent in 2023 and 3.4 percent in 2024. This is expected to drive increased demand for insurance across the GCC markets.
Over the last 10 years, the United Kingdom has seen major consolidation across both life and non-life insurance markets. This has driven profitability for consolidators through enhanced scale and resulted in a landscape where few players have a dominant share in their respective markets. Consolidation as a trend is also now emerging across the Nordics and Continental Europe.
In the next two to five years, we anticipate a similar trend in the GCC – an increased M&A and consolidation activity. In 2022 alone, the Middle East and Africa insurance market witnessed 24 M&A transactions. In 2022, a merger between Watania and Dar Al Takaful was carried out in the UAE, while Salama’s board granted approval for the acquisition of Aman’s non-life portfolios.
Meanwhile, in KSA, Al Sagr agreed to a merger with Gulf Union Al Ahlia Cooperative Insurance Company, and United Cooperative Assurance Company and Saudi Enaya are currently considering the possibility of a merger.
We envisage that both regulatory changes and scale requirements will catalyse M&A and consolidation in the GCC:
- Regulatory change will underpin M&A and consolidation activity in the market
Central Bank of UAE (CBUAE) and Saudi Central Bank (SAMA), the insurance regulators in the UAE and KSA respectively, are pushing the industry for higher standards of consumer protection and better services.
Both markets are adopting IFRS17, which will bring greater transparency and consistency in reporting across the insurance market. Insurers will require significant investments to upgrade their back-office operations, finance and accounting, reporting, and technology capabilities to respond effectively to these changes.
Furthermore, insurers will be required to increase the capital they hold to be more robust financially and operationally. There is a wide spectrum of shareholder equity held by the listed insurers, but the median suggests that there is a concentration of entities with lower levels of shareholder equity.
To strengthen the sector and make it resilient to shocks, regulators could increase the capital requirement levels. For instance, if SAMA were to increase the capital requirement levels for insurance companies from SAR100m ($26.7m) to SAR500m ($133.3m), our analysis suggests that fifteen listed insurers will have insufficient capital. A review of the latest financial reports also indicate that some market participants have indicated risks in their ability to meet their obligations.
There will be a need for market participants to shore up their capital, and players will look to M&A and consolidation. - Requirements for scale will also drive consolidation in the GCC insurance market
Our analysis of the UAE market indicates that insurers with premiums of more than AED1bn ($272m)had a 100 percent lower general and administrative (G&A) ratio than those insurers with premiums of less than AED1bn. In the KSA market, insurers with premiums worth more than SAR1bn demonstrated more than a 200 percent lower G&A ratio to GWP than those insurers with premiums of less than SAR1bn.
Across both markets, the 10 largest players had a 2.5 times advantage in G&A ratio compared to the 10 smallest players. Mid-tier and small insurers lack the scale to operate profitably in the market. Consolidation and M&A will be the route to building scale. The market will also see exits and divestments as players assess their portfolios to focus on more profitable lines of business.
With growth projected in the GCC insurance industry over the coming years and in the context of a diverse, fragmented, and changing regulatory landscape, we expect a focus on consolidation. The success of both international and local players to capitalise on this opportunity will depend on a clear strategy and strong integration capabilities. But we are yet to see clear frontrunners.