Economic conditions in the GCC region remain favorable. S&P Global Ratings forecasts an average Brent oil price of $85 per barrel for 2024 that will support robust economic growth in GCC oil and non-oil sectors. We project real GDP growth in the GCC region will range between 2% and 4% this year (see chart 1). In our view, insurance demand will benefit from ongoing investments in infrastructure projects, population growth, and regulatory initiatives, such as the extension of compulsory insurance covers.

Chart 1

At the same time, average inflation in the region will likely decline further to 1.5%-2.5% in 2024, from over 4% in 2022 (see chart 2). We therefore expect a moderation in claims inflation for motor and other property/casualty lines that will help insurers preserve margins.

Chart 2

Insurance Markets In The GCC Region Are Set To Expand

We expect GCC insurers' top-line growth will range between 5% and 15% in 2024, with Saudi insurers likely to expand at the fastest pace again (see chart 3). Favorable economic conditions and rate adjustments for motor and medical lines will remain key growth drivers.

Chart 3

The international financial reporting standard 17 (IFRS 17), which was introduced on Jan. 1, 2023, led to a change in the quantification of insurers' top-line growth. Instead of gross premiums written, insurers now report insurance revenues, which mirror gross earned premiums minus expected credit losses. Although most insurers have already adopted IFRS 17, smaller and midsize companies in Qatar and Kuwait that provide Shariah-compliant insurance products (takaful) still need to implement the new standards.

Despite the change in accounting standards, we note that GCC insurers' top-line growth was substantial in 2023, particularly in Saudi Arabia and the UAE. However, we anticipate a more moderate top-line growth in 2024 as we do not expect that rate increases--particularly in the motor business--will be similar to those in 2023. Instead, we anticipate motor and medical rates in Saudi Arabia and the UAE could start to decline in the second half of the year as policyholders and authorities could demand lower rates and competition intensifies.

Markets Are Becoming Increasingly Concentrated

As insurance markets continue to grow, the gap between larger and smaller insurers will likely widen. The largest companies will expand at a faster pace than smaller companies, while generating a significant share of overall profits. In contrast, some smaller companies could struggle to remain profitable and solvent due to high competition and operating costs.

The five largest of the 25 listed insurers in Saudi Arabia--the largest insurance market in the GCC region, based on insurance revenues--generated about 73% of total insurance revenues in 2023, up from 69% in 2022. Saudi Arabia's largest insurers, the Company for Cooperative Insurance (Tawuniya; A/Stable/--) and Bupa (not rated), had a combined market share of about 55% in 2023. In the UAE, the five largest of the 26 listed insurers generated about 63% of total insurance revenues in 2023, compared with 61% in 2022 (see chart 4).

Chart 4

Earnings are similarly concentrated, with the five largest insurers generating about 81% of total profits in Saudi Arabia and 72% in the UAE in 2023. We also see concentration in other markets in the GCC region. In our view, these market concentrations will persist as the largest insurers increasingly benefit from economies of scale and tend to have better access to resources and expertise than smaller ones.

Rate Adjustments And Investment Returns Will Support Earnings

We expect 2024 will be another profitable year for GCC insurers, thanks to rate corrections in motor and medical lines that started in 2023 and relatively high interest rates that support investment incomes. That said, we believe rates in certain lines could resume to decline, particularly in Saudi Arabia, where insurers' earnings improved significantly in 2023. Additionally, if the Fed starts cutting interest rates in 2024--which would be followed by rate cuts by central banks in the GCC region--investment incomes on fixed and cash deposits could decline slightly. This could result in a more moderate earnings growth, compared with 2023.

Saudi Arabia

2023 was an exceptional year for Saudi insurers. The Saudi insurance market expanded by about 27% and, for the first time, all 25 insurers reported a net profit. This followed a tough 2022 when more than half of Saudi insurers reported a net loss. Saudi insurers reported a net profit of about Saudi riyal (SAR) 3.2 billion in 2023, compared with only about SAR0.3 billion in 2022.

Qatar

Qatari insurers' net profits also increased significantly to Qatari riyal (QAR) 1.1 billion in 2023, compared with a net deficit of about QAR800 million in 2022. The latter mainly resulted from a Qatari insurer's loss of about QAR1.2 million. 2023 net profits exclude data from Qatar General Insurance (not rated), which reported significant losses in recent years mainly due to property price revaluations.

UAE

In 2023, listed insurers in the UAE reported a 19% year-on-year increase in net profits to UAE dirham (AED) 1.8 billion, from about AED1.5 billion in 2022. The increase mainly resulted from higher investment returns. We forecast the sector will remain profitable in 2024, thanks to adjustments in motor insurance rates. Although the UAE have seen some very heavy rainfalls in early 2024, we do not think that insured losses will materially affect local insurers. This is because many losses are either not insured or ceded to global reinsurers. We also expect insurers will continue to benefit from higher interest rates, which will increase their investment returns. That said, we note that the 9% corporate tax on net profits, which was introduced on June 1, 2023, will weigh on insurers' earnings.

Other GCC countries

Insurers in Bahrain, Kuwait, and Oman also reported stronger earnings in 2023, compared with 2022. We expect 2024 will be another profitable year in these markets.

Ratings will remain stable

We expect credit conditions for rated insurers in GCC countries will remain broadly stable in 2024, supported by robust capital buffers and adequate growth and earnings prospects. Most rated GCC insurers, many of whom are among the largest entities in the market, remain very well capitalized, which is reflected in strong financial strength ratings (see charts 5 and 6).

A key risk to GCC insurers' credit conditions consists of worsening geopolitical tensions in the region. A full-scale conflict between states would be economically, socially, and politically destabilizing for the entire region and its banking systems. Combined with slow global economic growth, this could impair GCC insurers' revenue growth and increase investment volatility. The most significant effect of a prolonged conflict, which is not our base case, could be on insurers' investment portfolios, in our view. In such a scenario, we expect our ratings on weaker capitalized insurers or those with material exposure to high-risk assets could come under pressure.

Chart 5

Chart 6

More Mergers Ahead

Insurers' size, capitalization, and profitability differ significantly across the GCC region, with several companies--mainly in the UAE, Kuwait, and Saudi Arabia--still failing to meet the required solvency capital requirements. A stricter enforcement of regulations could increase the pressure on less capitalized and underperforming insurers, in our view. Stricter regulations and strong competition have already led to several mergers and capital increases, which we expect will continue in 2024.

Related Research

• Risks For The EMEA Insurance Industry From The Iran-Israel Conflict Remain, April 17, 2024
• Global Credit Conditions Update: Geopolitical Risks Rise On Iran-Israel Conflict Expansion Despite Immediate Reprieve, April 15, 2024
• Economic Research: EMEA Insurance Outlook 2024: Navigating the way home, Nov. 21, 2023