More consolidation expected among Gulf's Islamic insurers – S&P Global Ratings

There will be more consolidation among the Islamic insurers based in Gulf Cooperation Council (GCC) countries, according to S&P Global Ratings.

On a Sept. 24 webinar hosted by the ratings agency, Emir Mujkic, director and lead analyst for insurance ratings in the GCC region at S&P Global Ratings, said that [they] will see some further consolidation in the industry as well as some additional capital raising. While there may not be as much merger and acquisition activity as there has been in the past two to three years "definitely, there is a case for consolidation in the different markets in the GCC," Mujkic said.

The GCC is an alliance comprising Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates (UAE). Islamic insurers, known as takaful companies, offer sharia-compliant coverage. Roughly half of the insurance premium in the GCC region is written by takaful companies, Mujkic said.

The Islamic insurance market is still relatively young, with some insurers being between 10 and 20 years old, Mujkic said. "We have seen a trend toward the bigger companies getting bigger and stronger, whereas the smaller companies and medium-sized companies are seeking to consolidate," he said. He noted that some of the smaller companies "have been struggling for a number of years."

Consolidation and capital raising have already been big topics in the region. In Saudi Arabia, the region's largest market, there are now 20% to 25% fewer companies than there were 10 years ago, while in the UAE, the second largest market, roughly a third of the takaful companies have seen consolidation through a combination of exits, ownership changes and mergers, Mujkic said.

In Saudi Arabia, financial, competitive and regulatory pressures have fueled consolidation. Saudi's regulator has been encouraging mergers through increased minimum capital requirements and providing benefits to companies that have been through a merger, Mujkic said.

In the UAE, while there has not yet been an increase in minimum capital requirements and it is not clear if or when this will happen, "I wouldn't be surprised if it does. So that could obviously prompt quite a few more mergers in the market," Mujkic said.

The GCC's Islamic insurance market has seen "quite exceptional growth," with premium volume nearly doubling over the past five years, according to Mujkic. This has been driven by a combination of economic expansion, the implementation of mandatory covers and other regulatory initiatives, he said, adding that [they were] expecting that trend to continue at a slightly slower pace.