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Increasing prospects for M&As in GCC takaful industry: Moody's

Santhosh V. Perumal

Thursday، 23 September 2021 11:34 PM

The Islamic insurance sector in the Gulf Co-operation Council, or GCC, is all set to witness consolidation to enhance efficiency and comply with more demanding regulations, according to Moody's, a global credit rating agency.
Although premium growth is flat, prospects remain healthy, Moody's said, expecting growth prospects in the GCC region to remain favourable, reflecting a steady widening of mandatory medical cover and growing demand for health insurance post pandemic.
"We expect the GCC takaful operators, which currently lack scale, to accelerate their technology investment and seek out merger and acquisition (M&A) deals to build the critical mass needed to improve efficiency and comply with more demanding regulation," Moody's said in a report.
Highlighting that the takaful industry stepped up its investment in digitalisation in response to the coronavirus pandemic, which encouraged consumers to buy insurance online; it said, "We foresee that many small takaful players will seek M&A opportunities to spread the cost of this investment".
The GCC takaful sector’s premium revenue rose by just 0.5% in the first half (H1) 2021 compared with the same period last year, reflecting intense price competition in a still fragmented industry.
Outside Saudi Arabia, where all insurance is takaful, the GCC takaful operators are generally small in size, accounting collectively for between 9% and 30% of their respective markets. While 50% of the top ten GCC insurers' combined premiums are takaful, this proportion falls to 10% when Saudi Arabia is excluded.
Moody's said the GCC takaful insurers' small average size makes them prone to fierce price competition. "This is a key reason why GCC takaful premiums have grown by just 1.7% over the past five years, lagging behind the overall market growth rate of 2.8%," it said.
Takaful operators’ aggregate net income fell by 36.5% year-on-year in H1 2021, reflecting a 12.4% rise in insured losses as claims returned to normal levels after falling steeply during last year's pandemic-induced lockdown, as well as slow premium growth due to price competition.
"We expect competition to pose continued profitability challenges for the takaful sector. Other headwinds include the adverse impact of low interest rates and volatile financial markets on investment income," the rating agency said.

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