Medical insurance premiums in the Gulf are set to rise 20 to 30 per cent annually, Mahesh Mistry, Director of Analytics at AM Best, a global insurance industry credit rating agency, told MEED.

“Very few medical insurers are making profit. They will have to raise premiums, mainly as the result of high claims,” he said. “For other lines of insurance, I expect the increase to be no more than 5 per cent following a combination of high claims and renegotiated reinsurance terms.”

The financial prosperity of insurers in the Gulf is heavily linked to reinsurers. The latter recently started increasing the prices they charge for taking on a share of insurers’ risk and premiums.

With medical insurance, insurers tend to retain the majority of risk and rely on other sources of income, mainly from investments in equity and real estate. But in recent years these investments have had low interest returns, limiting the capital reserves of insurers as well as their ability to offset the burden of high claims.

“In some cases, medical insurance premiums will have to go up more than 100 per cent. The question is – who blinks first?,” said Michael Gertsch, CEO of Gulf Re, a reinsurance company catering to the region.

“Property construction and energy have already started to level out since the middle of last year. We saw no price reductions, but did notice some increases by [insurance] companies that had made losses.”

Motor and health insurance represent the largest volumes in the Gulf, accounting for 70 to 80 per cent of net written premiums.

Over 65 companies compete in the UAE for about $6.5bn worth of business in premiums. Gulf insurers looking to grow – about half of the total amount of insurers – in recent years slashed prices to gain market share, driven by a need to increase their volumes and meet shareholder expectations.

“New players are feeling the need to establish themselves. Particularly in the UAE and Saudi Arabia many run on loss-driving premiums,” said AM Best’s Mistry. “They can’t continue like this. On the other hand, large companies that are already established continue to do well.”

Reinsurers, prioritising the growth of their companies as well, did not increase prices while taking on risk for unprofitable premiums until recently.

There has been a “change of mindset” when it comes to risk retention strategies (the amount of risk that is held by insurance companies, with the rest transferred to reinsurers), according to Atish Suri, Executive Director – Head of Mena at Willis Re, a global insurance broker, pointing out that reinsurers are becoming more selective in the business they pick.

“They have started taking corrective measures [when renewals came up, most recently on 1 January] If reinsurers demand that insurers’ retention ratios increase from for instance 0.5 per cent to 5 per cent or even 4 per cent, that will have an effect. Insurance companies will want to make sure they aren’t wiping off their capital reserves and will have to shift premium prices if they aren’t getting the returns they’re after.”
Suri estimates it will take one or two renewal cycles until rises in premiums will come into effect.
Compared to the rest of the world, insurance companies in the Gulf operate on very low retention ratios. In the most extreme cases, companies transfer up to 99.5 per cent of the risk to reinsurers, said Suri.