Competition and regulations hit Oman Insurance profit

Oman Insurance Company (OIC), the biggest insurer in the UAE, is forecasting its profit this year to be slightly less that last year’s because of lower investment income, which is being hit by a slowing property market and a low interest rate environment.

Dubai-listed OIC last year posted a 7.3 per cent drop in net profit attributable to equity owners at Dh224.85 million, even as gross insurance premiums grew 11.3 per cent to Dh3.25 billion. OIC’s second-quarter net profit plunged 33 per cent to Dh38.5m, compared with Dh57.25m in the year-earlier period, because of a 46 drop in investment income.

“We expect our profit to be in line with 2014, maybe slightly less depending on investment income. The overall investment environment is quite downbeat right now,” said the chief executive Christos Adamantiadis, who joined OIC in May.

“From an underwriting perspective we expect to see similar results,” he said.

OIC’s net investment income last year dipped 13.8 per cent to Dh143.3m, while net underwriting income dropped 15.3 per cent to Dh100.9m.

“I don’t see hardening of rates in the coming years, and that is why it is important for all of us to adjust to this new flatter kind of line,” said Mr Adamantiadis.

“We are not any more living in the era of up and down cycles. That has changed. A number of reasons contribute to that: excess capacity, excess capital and improvement in underwriting risks themselves.”

The Insurance Authority issued new regulations in February that place restrictions on how companies can invest their money and how much exposure they can have to any particular asset class.

The rules require companies to have an independent investment committee and include measures aimed at strengthening corporate governance, compliance and risk management.

As of end of March, bank deposits and fixed income composed 60 per cent of OIC’s assets, with 20 per cent each invested in property and equities.

“We are moving away from property and moving away from equities, and we are moving into more stable and predictable classes of investments such as bonds, which has in many ways a negative impact on the investment returns but it improves materially the underlining asset base,” said Mr Adamantiadis.

With 60 companies operating in the market, insurers are suffering from declining premium rates as competition intensifies – particularly for motor and medical insurance.

Total written premiums rose 13.5 per cent annually to Dh33.5bn last year, according to the Insurance Authority.

“Where we see more competition and thin margins is in medical insurance. We are revisiting how we operate in the medical insurance space and taking a harder stance on non-profitable clients,” said Mr Adamantiadis.

OIC is undergoing changes as a result, particularly with what clients they take on and the insurance segments they focus on, as part of more stringent risk management and greater profitability.

“We are looking at the auto book of business,” he said. “High-value autos definitely have better performance than other types of autos or fleets of business that are not in Dubai or Abu Dhabi.”

A new law requiring compulsory health insurance for all Dubai residents, which will be implemented over two-and-a-half years, is expected to be a key driver for the industry.

“We expect the industry to continue to grow at 8 to 10 per cent because of regulation, new mandatory assets classes and medical coverage, plus healthy economic fundamentals,” said Mr Adamantiadis. “I can already see some difference in the understanding of the value of insurance and perception of insurance as a supplement to the well-being and welfare of the society as a whole.”

OIC’s medical business accounts for about 45 per cent of total premiums. The general insurance segment is another 40 to 45 per cent, and the balance is life insurance.

The company is also looking at growing more aggressively outside the UAE, which makes up 70 per cent of its income. Besides the UAE, the firm is present in Turkey, Oman, Qatar and Iraq.

Turkey, for example, is growing 20 per cent annually in terms of premiums, compared with 8 per cent in the UAE.

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