In the first quarter of 2023, a significant transition took place among listed insurers in the Gulf Cooperation Council (GCC) region. 78% of insurers successfully adopted the International Financial Reporting Standard 17 (IFRS 17). This regulatory change has brought about various impacts on the financial performance of these insurers. In this blog post, we delve deeper into the consequences of this transition and analyze the effects it had on equity, the combined ratio, net profit, overall performance, and solvency deficits.

Negligible Impact on Equity, but Entity-Level Variations:

Despite the widespread adoption of IFRS 17, the transition had a negligible overall impact on equity for GCC insurers. However, it is important to note that at the entity level, positive and negative impacts were observed, reaching as high as 9% and 24% respectively.

Favorable Impact on Combined Ratio and Net Profit

The transition to IFRS 17 had a favorable impact on the combined ratio and net profit for the comparable period of the first quarter of 2022. This indicates improved operational efficiency and increased profitability among GCC insurers. The adoption of the new standard seemingly contributed to a more accurate assessment of risks and liabilities, resulting in a more favorable financial performance in Q1 2023.

Overall Performance in Q1 2023

The overall performance of GCC insurers in the first quarter of 2023 appears to be favorable. Strong top-line growth, with approximately ~27% growth in the Kingdom of Saudi Arabia (KSA) and ~7% for the rest of the region, indicates a healthy market. However, underwriting performance varied across the region, with profits often cushioned by an increase in investment income. Notably, at the entity level, at least 14 insurers reported net losses in Q1 2023, including eight insurers in the United Arab Emirates (UAE).

Solvency Deficits and Downgrades

One crucial aspect that came to the forefront with the adoption of IFRS 17 is solvency deficits. During the Q1 2023 period, at least four downgrades were announced, including the third consecutive lowered rating for MEDGULF (KSA) in under nine months and three others in the UAE. These downgrades indicate challenges in maintaining adequate capital to cover potential risks. Consequently, remedial plans are expected to be prioritized following recent administrative sanctions faced by an insurer in the UAE.

The transition to IFRS 17 among listed insurers in the GCC region during Q1 2023 had both positive and negative implications. While the overall impact on equity was negligible, entity-level variations were observed. The combined ratio and net profit experienced favorable improvements, highlighting the operational efficiencies achieved through the new reporting standard. Despite strong top-line growth, some insurers faced net losses, and solvency deficits emerged as a prominent concern, leading to downgrades and a need for remedial plans. As the industry adapts to the new regulatory landscape, insurers must carefully navigate these challenges to ensure long-term stability and growth in the region.

To explore a comprehensive analysis of Q1 2023's GCC performance, we invite you to read the full Q1 2023 - GCC Performance Periodical by Insurance Monitor and Lux Actuaries and Consultants. Click here to access the report and gain further insights into the industry's evolution.