Mubasher: A number of GCC insurance companies have seen recent regulation developments which have emphasised A.M. Best’s concerns surrounding the inherent weaknesses in these markets.

Many insurance firms have experienced a decline in operating performance and risk-adjusted capitalisation following the new regulations that promote minimum capital and solvency requirements, as well as incorporating actuarial based pricing and reserving, according to a recent report issued by A.M. Best.

“The new Best’s Special Report, titled, “GCC Insurance Market Regulatory Developments Promise Greater Stability and Confidence,” states A.M. Best believes that despite the immediate adverse impact, these necessary regulatory changes place the markets on the right trajectory for greater financial stability in the future.”

A.M. Best undertook an in-depth look at recent regulatory steps in KSA and the UAE which are the two largest markets in the GCC, the report said.

“Following Saudi Arabia's regulatory reforms in 2013, A.M. Best has seen that in spite of painful short-term corrections and the growing likelihood that some of the weaker players could exit the market, the longer-term prospects for the Saudi Arabian insurance industry will likely yield greater stability and profitability,” senior financial analyst and co-author of A.M. Best report Salman Siddiqui said.

“The UAE’s approach to capital modeling under the new regulations has been more comprehensive than in Saudi Arabia. It has a risk-based capital model that takes into account all classes of business and addresses the asset side of an insurer’s balance sheet in addition to its underwriting activity,” senior financial analyst and co-author of A.M. Best report Michael Dunckley noted.

It is expected that there will be winners and losers in the GCC, with the better capitalised, more advanced companies remaining and gaining market share, in line with the gap between the larger and smaller carriers widening, according to A.M. Best’s report.

“While the jury is out on whether regional regulators will opt to actively police their respective markets, over the longer term, improvements in insurance regulation within the GCC should result in greater stability and confidence, A.M. Best added.