Consolidation will be prevalent among smaller and mid-size Islamic insurance players in Saudi Arabia and the UAE as they continue to report relatively weak earnings, according to S&P Global Ratings.

Over the past five to six years, the number of listed Saudi insurers declined by about 20 percent to 27 from 34, it said.

“We forecast that mergers, mainly in Saudi Arabia, the UAE, and Kuwait will continue as several Islamic insurers still fail to meet the required solvency capital requirements,” S&P Global Ratings said in a report. 

However, credit conditions for Islamic insurers are expected to remain stable over the next 6-12 months. Similar to the past two years, the Saudi market will be the main driver of topline growth in the GCC region as the Kingdom continues to benefit from higher economic growth.

The top line of Islamic insurers in GCC countries outside Saudi Arabia cumulatively declined by 3% in 2023. The main reason was a decline in premium income in the UAE, the region’s second-largest Takaful market, primarily due to industry consolidation and rate pressure affecting motor and other lines.

The Saudi market’s top line growth expanded by about 27% in 2022 and another 23% in 2023. 

S&P expects the takaful sector in the UAE to expand by 15-20% in 2024 as motor rates have increased substantially over the past 12 months, particularly following this year’s major floods in Dubai and other parts of the UAE.

“At the same time, we anticipate that Takaful players in Bahrain, Kuwait, Oman, and Qatar will report more moderate growth rates of about 5-10%,” the report said.

(Editing by Seban Scaria seban.scaria@lseg.com)