A dose of reality for UAE insurers as profits fall

After years of stellar profits, insurance companies in the Emirates are coming back down to earth.

Three of the country's listed insurers yesterday posted results that showed declining premium revenue or profits caused by the slowdown in insurance.

"Premiums over the last four years were going up at a phenomenal rate, sometimes as much as 30 to 40 per cent," said Muneef Tarmoom, the president and chief executive of ISAT Consulting in Abu Dhabi and an investor in insurance companies.

"Now, premiums are flat or declining. They are correcting and suffering because of their exposure to construction and real estate." Of the three companies that disclosed financial statements yesterday Emirates Insurance Company (EIC) posted an increase in profits but after a one-off sale of a private equity investment. EIC posted net income of Dh26 million (US$7m) for the third quarter, compared with Dh6.9m in the same quarter last year. Without the Dh20m from selling investments, it would have declined slightly from last year.

Meanwhile, Al Buhaira National Insurance of Sharjah's net profit declined to Dh12.9m in the third quarter from Dh15.8m in the same period last year.

And Dubai Insurance Company had its profits decline to Dh3.9m from Dh5.6m in the same period a year earlier.

EIC said its premium income dropped after its largest agent decided to stop issuing medical insurance. It also cited slow payment from customers and provisions for the value of its investments as affecting its results.

Executives in the industry have said one of the largest declines in insurance over the past two years had been in personal, medical and accident insurance. "One thing that people reduce when the economy goes down is personal insurance," said Abdul Muttalib al Jaidi, the chief executive of Oman Insurance Company, the largest insurer in the country. On the other hand, there is thought to be a major growth potential in property insurance. Mr al Jaidi has said as many as 80 per cent of properties in Dubai alone were under-insured.

The enactment of the strata law, which governs how homeowners take care of jointly owned property, is also to likely spur greater purchases of insurance premiums. The law was implemented on October 13.

Insurance premiums for property in Dubai would rise by Dh4.5 billion as the strata law led to more owners taking out insurance, said Fareed Lutfi, the secretary general of Emirates Insurance Association's co-ordination commission.

But one obstacle to future growth will be the investments insurance companies have made in the past. Like many companies in the UAE, insurers invested their profits heavily in equities and property during the five-year economic boom that caused asset prices to rise significantly.

At the time, the companies enjoyed dramatic increases in profits thanks to gains in the value of those investments.

Many of those gains, however, were not realised because the companies did not sell before the property bubble burst and stock markets began plummeting in late 2008. Now their balance sheets are saddled with investments that have declined steeply in value.

Insurance companies are the most represented on the UAE stock markets, with 23 of the almost 100 publicly listed companies being from the sector, but they are also some of the least traded stocks.

* with additional reporting by Tom Arnold

bhope@thenational.ae