Gulf states have started to look much more critically at their expenditures, S&P Global Ratings said Sunday. "When oil prices were at their peak, revenues from hydrocarbon products enabled governments in the Gulf Cooperation Council (GCC) region to generate fiscal surpluses while spending heavily on infrastructure development. Oil prices were above $100 per barrel for significant parts of 2011-2014, supporting this government spending and creating insurable activity that benefited both insurers and reinsurers." However, prices peaked in June 2014 and the picture has since changed markedly. "We now forecast that Brent crude oil prices will average $50 per barrel in 2017 and 2018, and $55 per barrel in 2019 and beyond." Most regional governments have taken steps to defer nonessential infrastructure spending and, where possible, to shift the burden of funding services such as health care to the private insurance sector and away from government. Some authorities are also now pushing to address uninsured motorists and private sector employers, who are evading their obligation to take out compulsory cover for liability and group health risks. Despite budgetary pressures, insurable activity remains considerable as selected infrastructure projects continue, particularly in Qatar. Moreover, the report said, to varying degrees, insurance supervisors are leading initiatives to adopt more economically justifiable, risk-based pricing, leading in practice to premium increases on most lines of business. Despite the low oil prices and modest growth levels posted in 2016, S&P believes the Saudi P/C and health sectors still offer insurers opportunities. By late 2017 or early 2018, "we expect hospitals to start charging the insurers of at-fault motorists for the medical costs of accident victims, a move that could push motor rates even higher than current levels. This step was part of a Ministry of Health proposal in late 2016 that aimed to reduce the burden of car accidents on Saudi Arabia's health budget. Moreover, the Saudi Arabian Monetary Authority, the principal insurance regulator, is expected to support the efforts of the traffic police to ensure drivers of illegally uninsured vehicles to buy motor coverage. It is estimated that 55% of vehicles are uninsured, so this step could double the covered population. Furthermore, government databases show that approximately 2.5 million Saudi nationals are working in the private sector but are not covered by their employers' group medical schemes. During 2017, the authorities will seek to prompt private employers to provide medical cover for all their staff. Saudi Arabia has been raising money on the capital markets to continue funding future projects. In October 2016, it raised $17.5 billion in a bond sale. Earlier in 2016, Prince Mohammed bin Salman, the deputy crown prince, announced that Saudi Aramco, the state-owned oil giant, may seek to float about 5% of its shares in 2018. These measures will help the Kingdom fund future projects as part of the government's Vision 2030 program, which is designed to help reduce Saudi Arabia's dependency on oil revenues. Meanwhile, UAE's In a step toward more risk-based regulations, the UAE Insurance Authority (IA) is expected to move toward actuarial pricing in 2017, meaning that policies have to be priced at a level sufficient to produce a technical profit. This should help reduce cut-price competition, especially on compulsory lines. On Jan. 1, 2017, the IA introduced a new tariff system for comprehensive and third-party liability motor insurance. The new cover, which includes higher liability coverage and compensation for replacement cars, means that insurance companies will increase premiums for these additional benefits. However, this does not guarantee increased profits. In burden of health care costs was already shifting toward the private sector, thanks to the Dubai Health Authority scheme, which required employers to provide their employees with health coverage. We understand that coverage of this scheme increased to nearly 100% during 2016 from roughly 60%, leading to material premium growth during 2016. The deadline for the third phase was extended until the end of the first quarter of 2017, and this will further support premium growth this year. In Abu Dhabi, almost all residents have medical coverage under a similar scheme introduced a couple of years ago. — SG
