"The Gulf Cooperation Council (GCC) insurance markets are now overpopulated with insurers, Standard & Poor’s Ratings Services said. This is giving rise to overcapacity with the predictable, and expected, response of price competition in the insurance market. Insurance companies require considerable capital investment to become established, and new, usually small, companies are under pressure to deliver healthy returns to their investors.
In the short-tail lines of motor and medical insurance that predominate in GCC markets, underpricing will become evident very quickly and S&P believes this is in part evidenced by the poor technical results of the takaful sector.
S&P estimates that in 2012, the takaful combined ratio (loss ratio plus wakala fee expense ratio) in the UAE rose to 115 percent from 109 percent in 2011. In the first quarter of 2013, this deteriorated markedly to 143 percent. Net claims costs are not so out of line with the market norms as represented by the conventional sector. "
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