(Editor's Note: S&P Global Ratings believes there is a high degree of unpredictability around policy implementation by the U.S. administration and possible responses--specifically with regard to tariffs--and the potential effect on economies, supply chains, and credit conditions around the world. As a result, our baseline forecasts carry a significant amount of uncertainty. As situations evolve, we will gauge the macro and credit materiality of potential and actual policy shifts and reassess our guidance accordingly [see our research here: spglobal.com/ratings].)
This report does not constitute a rating action.
Key Takeaways
- The Trump administration's announcement of new tariffs has triggered significant volatility in global capital markets, including in the Gulf Cooperation Council (GCC) region.
- Even so, we maintain our base case that insurance markets in the GCC region will continue to expand and remain profitable in 2025.
- Although equity markets have recovered to some extent, we anticipate that the ongoing volatility in equity prices could impair some GCC insurers' investment returns.
- Lower oil prices will weigh on GCC insurers' business growth in 2025 because they will likely slow economic activity and consumer spending.
On April 2, 2025, the Trump administration announced new tariffs on imports from several countries, which triggered significant volatility in global capital markets. Although Mr. Trump announced a 90-day pause on April 9, volatility persists and affects markets worldwide, including the GCC region.
While we anticipate that most GCC insurers will remain profitable in 2025, we expect global trade disputes could weigh on investment returns, top-line growth, and claim costs, at least over the short term. However, most insurers that we rate maintain capital buffers that are robust enough to withstand the current volatility in capital markets.
Volatility Could Reduce Investment Returns
We think the ongoing volatility in capital markets has the most significant effect on insurers. Over the past few years, several GCC insurers have made efforts to de-risk their asset portfolios by shifting from equities and illiquid real estate investments to cash deposits and highly rated bonds.
Yet many insurers--particularly in the United Arab Emirates (UAE), Kuwait, and Qatar--still have relatively high exposures to high-risk assets, namely equities, real estate, and speculative-grade bonds.
Although global and regional equity markets have somewhat recovered from the steep declines that followed the tariff announcements in early April, most markets in the GCC region are still in loss territory. A further or prolonged decline in equity markets could particularly affect the investment returns and asset values of insurers with higher equity exposures.
Volatility in equity markets could potentially spill over to other high-risk assets, such as real estate, and trigger more interest rate cuts if current trade tensions were to escalate further. The current volatile investment environment places even more importance on prudent underwriting, as investment returns could be less favorable in 2025 than they were over 2022-2024.
Expansion Of Insurance Markets Is Slowing
Considering potentially weaker economic conditions, we anticipate that insurance revenues in most GCC markets will increase at a slightly slower pace in 2025 than in previous years. For example, markets in Saudi Arabia and the UAE expanded by 15%-20% in 2024.
Market benchmarks for crude oil and futures prices declined in response to the tariff implementations and the announcement of some OPEC+ countries that they would increase output from May 2025. To reflect a potential oversupply, we have revised downward our price forecasts for West Texas Intermediate and Brent oil by $5 per barrel (/bbl) to $65/bbl for the remainder of 2025.
Our revised oil price assumptions | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|
New prices | Old prices | |||||||||
WTI ($/bbl) | Brent ($/bbl) | WTI ($/bbl) | Brent ($/bbl) | |||||||
2025 | 60 | 65 | 65 | 70 | ||||||
2026 | 65 | 70 | 65 | 70 | ||||||
2027 | 65 | 70 | 65 | 70 | ||||||
bbl--Barrel. WTI--West Texas Intermediate. Source: S&P Global Ratings. |
In our view, a deterioration in oil prices and economic conditions may delay government-sponsored infrastructure projects and cause consumers to postpone purchases of non-essential items. This could slow top-line growth, which we project will be about 5%-10% in most GCC insurance markets in 2025.
Rate increases after the floods in the UAE in April 2024 could increase top-line growth to 10%-15% in 2025, while the insurance market in Kuwait will likely shrink after the discontinuation of a large medical scheme.
The U.S. dollar has decreased by about 3%-5% against major currencies, which could have several secondary effects. For example, a weaker U.S. dollar may increase the cost of imported car parts and spare parts, which could increase repair costs. Consequently, insurers might face challenges in maintaining underwriting results if they cannot adjust premiums accordingly.
Most Rated Insurers' Capitalization Remains Robust
The rating outlook on most rated insurers in our portfolio is stable and benefits from relatively strong earnings and robust capitalization levels. Approximately 90% of rated insurers maintain capital at the highest levels, according to our risk-based capital adequacy model.
Therefore, we do not anticipate any significant rating actions, despite the recent tariff announcements and their effects. If asset values continue to decline, however--particularly for insurers with small capital buffers and significant exposures to equities and other high-risk assets--we could take negative rating actions.
Related Research
- S&P Global Ratings Lowers Its Oil Price Assumptions On Potential Oversupply; Natural Gas Price Assumptions Unchanged, April 10, 2025
- Tariffs Put European Re/Insurance Ratings To The Test, April 9, 2025
- GCC Insurers' Growth Prospects Could Slow In Some Markets, March 3, 2025
Primary Contact: | Emir Mujkic, Dubai 971-43727179; emir.mujkic@spglobal.com |
Secondary Contacts: | Mario Chakar, Dubai 971-4-372-7195; mario.chakar@spglobal.com |
Sachin Sahni, Dubai 971-4-372-7190; sachin.sahni@spglobal.com | |
Liesl Saldanha, London 44-20-7176-0489; liesl.saldanha@spglobal.com |
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