Oman Insurance Company profit drops despite premium increases

Oman Insurance Company has become the latest major UAE underwriter to report lower profit for the first quarter of the year, with rising premium income being undercut by fierce competition across the sector.

The Dubai-listed insurer, the country’s largest by market share, said yesterday that its profit attributable to owners of the company for the first three months of the year fell 25 per cent year-on-year to Dh44.5 million.

The fall in profit came despite a 5.4 per cent rise in net earned insurance premiums to Dh359.6 million for the period.

OIC’s results came a day after the country’s third-largest insurer, Abu Dhabi National Insurance Company (Adnic), reported a 90 per cent year-on-year drop in profit to Dh5.1m for the quarter.

However, this represented a return to profitability for Adnic, which reported an annual loss of Dh280.4m for last year, brought on by aggressive discounts during the year in an attempt to boost market share.

Adnic subsequently raised prices across its health and motor insurance lines, resulting in a return to profitability.

“We are confident in the corrective actions taken, as the newly written portfolio has seen a marked improvement,” said Adnic’s chief executive, Ahmad Idris.

“Together with prudent and selective underwriting, I am confident that our strategy will ensure Adnic’s sustainable profitability in 2015 and beyond.”

The ratings agency Standard & Poor’s predicts that other large insurers may be forced to follow in Adnic’s footsteps this year and increase premiums to shore up profitability.

The main reason last year’s earnings sagged was the fiercely competitive market for high-volume medical and motor lines,” S&P said last month.

“We believe that insurers will stop reducing prices in these lines of business, which should help earnings start to recover by the end of 2015.”

Motor insurers have already begun to take action, raising premiums on hitherto unprofitable lines, including saloons worth less than Dh100,000.

Yet as the middle of the year approaches, competition appears as fierce as ever, as manifested in OIC and Adnic’s lower first-quarter profits.

“Sure, the big insurers are seeing a growth in premiums, but the reality of competition in the market is that you typically have to offer heavy discounts to secure them, which has a large impact on margins,” said one UAE-based insurance professional.

Yesterday the Abu Dhabi-based health insurer Green Crescent reported a 46.3 per cent fall in net earned premiums for the first quarter.

Green Crescent, which received a Dh100m investment in September from the French insurer Axa, reported a loss of Dh2.2m for the first three months of the year compared with a profit of Dh6.3m a year ago.

Insurers are also likely to be affected by new rules introduced in February by the UAE Insurance Authority placing restrictions on how companies can invest their money and how much exposure they can have in a particular asset class.

The new rules also require them to have an independent investment committee as well as a series of changes that strengthen corporate governance, compliance and risk management.

The new regulations had little impact on first-quarter numbers and are only likely to affect bottom lines towards the end of the year, said the insurance professional.

Follow The National's Business section on Twitter