Special Reports

GCC Bourse Review

Qatar
In the central Gulf, Qatar held its course as economy with great expectations of expansion but its stock market, re-branded as Qatar Exchange in mid 2009, did not quite excite investors.

This can be said for both the Qatari general index, which appreciated 2.8 per cent and for the insurance index, whose 1.5 per cent gain showed slight underperformance versus the general index.

Dubai
Somewhat surprisingly then, after Dubai finance sector caprioles and escapades that sent many an investor off into soul-searching or loss-recovery exercises, the insurance index of the Dubai Financial Market (DFM) had the honour of being first runner-up to the SSE in the category of absolute attractiveness, with a gain of 4.7 per cent from the start of 2009.

However, the DFM insurance index exhibited weakness in relation to the Dubai benchmark index. However volatile the DFM index’s development was in the final four months of 2009, the insurance sector lagged behind its performance, at the end of the review period by more than seven percentage points.

Abu Dhabi
The worst market in the GCC from the standpoint of insurance index foot dragging in 2009 was the Abu Dhabi Securities Exchange (ADX). While the ADX overall saw a strong summer followed by turbulent times from October through to the first part of December, the trend of its insurance sub-index was both lackluster and depressed almost from the start of last year.

On December 20, the insurance sector showed a drop of 15.7 per cent for the year to date, signifying a vast under performance of more than 24.5 percentage points versus the ADX benchmark index.

Demand for shares
The party is tampering out as far as new listings of Saudi insurance companies. A handful of insurers are still going to debut in 2010 on the SSE and there is no reason for assuming that demand for their shares will be any less than for the seven Saudi insurers that conducted IPOs in 2009.

Although or perhaps because the five insurance companies that completed IPOs and started trading in 2009 accounted for less than nine per cent of the total worth of primary share offerings during the year, their performance since flotation represented gains of 220 to 595 per cent by December 20.

However, if one of the lessons of the 2008 financial crisis bears repeating, it is that past performances on equity markets are no indicator for future trends. The rise of the Saudi insurance sector, fuelled by the newness of publicly listed companies and a large number of market entrants with comparatively small stakes available at a fixed subscription price, was a singularity.

And while only one insurer traded on the SSE experienced a share price contraction for the first 51 weeks of 2009, there is a different story told by the fourth quarter in 2009 when shifts to share price selling of insurance stocks affected more than three quarters of sector companies.

For the longer-term viability of the insurance industry in the region, the year 2009 has been described as a period for concentrating on the essentials and catching up on governance and housekeeping.

Outside of the Saudi Arabian biotope of new insurance bloom, a not small number of listed insurance companies had to grapple with erosion of share prices that reached for individual firms up to 47 per cent in the UAE, 45 per cent in Qatar, more than 52 per cent in Kuwait and almost 36 per cent in Bahrain.

Underwriting results
Further signals of necessary caution came from underwriting results. Year on year, gross premiums growth of all five leading GCC-based insurance companies by market capitalisation ranged from respectable to excellent for the first nine months in 2009 and net underwriting profits developed handsomely for four out of the five, according to Zawya financials.

At the same time, four of the five top insurance companies still reported contractions in their net profits when comparing the first nine months of 2009 to the same period in 2008.

Divergent trends in net profits, stretching from recovery to continued pain in investment portfolios, also engulfed insurance companies in the second- and third-size categories across the GCC.

Market augurs have suggested that the previous trend of founding new insurance companies in the GCC has in 2009 be succeeded by hints of possible consolidation and merger activity.

Underwriting developments in the first three quarters of 2009, where gross premiums of small and mid-sized listed insurers did not grow as fast as those of market-leading players, appear to indicate that concentration of market power in the top group of providers is indeed likely to characterise the regional insurance realities going forward.

Looking ahead
Ratings agencies, both regional and international, have issued a fair number of alerts and downgrades for Middle Eastern insurance companies in 2009.

Viewed in combination, the insurance providers of the GCC and the wider Middle East seem well advised to take their competitiveness more seriously, focusing on building product strengths.

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