GCC takaful profit dips amid rising claims and stiff competition, finds Moody's

The profits of the Islamic insurance (takaful) providers in the Gulf Cooperation Council (GCC) countries deteriorated in the first half of 2021 as claims returned to normal levels after last year's pandemic-induced lockdowns and prices are held back by competition, but growth prospects for the industry remain favourable, according to  Moody's Investors Service.

"The GCC takaful sector's 2021 performance reflects rising claims and stiff competition in a still fragmented industry," said Mohammed Ali Londe, vice president - senior analyst at Moody's. "Competition will continue to pose profitability challenges for the industry, while low-interest rates and volatile financial markets will also weigh on their investment income."

Moody's expects that takaful players will accelerate their technology investment and smaller players will seek M&A deals to improve efficiency and comply with more demanding regulatory requirements, particularly in Kuwait, Saudi Arabia and the United Arab Emirates.

According to the report, the GCC takaful sector's combined premium revenue rose by just 0.5 percent in the first half of the year, compared with the same period of 2020, held back by intense price competition. However, even if takaful insurance' premium growth is currently flat, its prospects remain healthy, Moody's noted.

GCC takaful operators, which focus on retail lines, will continue to benefit from the widening of compulsory retail covers, such as for medical, as well as from growing demand for health insurance post-pandemic.

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