AM Best keeps stable outlook for GCC insurance markets

AM Best has maintained its stable outlook for the insurance markets of the Gulf Cooperation Council, citing healthy risk-adjusted capitalisation, growth opportunities and continued consolidation.

However, the rating agency warned that insurers remain vulnerable to the secondary effects of conflict in the Middle East, including inflation, energy price volatility and potentially more restrictive reinsurance conditions.

The outlook covers Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the UAE.

“Strong performance and healthy risk-adjusted capitalisation leave many GCC insurers well positioned to withstand geopolitical headwinds,” AM Best said.

It added that an extended regional conflict could nevertheless pose “significant challenges” for the sector.

The rating agency said relatively few local insurers had reported direct conflict-related losses at the time of writing.

War risks are generally excluded from standard policies, while most political violence and war exposures written locally are transferred to international reinsurers, including the Lloyd’s market.

However, AM Best cautioned that the indirect consequences of a prolonged conflict and disruption to shipping through the Strait of Hormuz should not be underestimated.

“Inflationary pressures will have an impact on the future cost of claims, including the cost of spare parts,” the report said.

Higher living costs could also constrain discretionary spending and delay purchases of non-mandatory insurance products.

The International Monetary Fund has forecast GCC economic growth of 2% for 2026, representing a 2.3 percentage point reduction from its October 2025 estimate.

Bahrain, Kuwait and Qatar are expected to contract, with Qatar’s economy forecast to shrink by 8.6%.

Saudi Arabia, the UAE and Oman are expected to be less severely affected, partly because their energy exports are less exposed to the closure of the Strait of Hormuz and could benefit from higher energy prices.

AM Best said premium growth across the region remained closely linked to economic expansion and government funding for large infrastructure projects.

“A prolonged conflict that continues to squeeze fiscal reserves could challenge insurers’ growth plans,” the report added.

Reinsurance renewals in focus

GCC insurers remain heavily dependent on reinsurance for speciality, commercial property and engineering risks, leaving their margins exposed to changes in capacity, pricing and terms.

AM Best said unsuccessful attempts to de-escalate the conflict could make upcoming renewals “a critical inflexion point for the sector”.

Reinsurers could reassess their regional appetites, the ratings firm said, potentially reducing available capacity and increasing pricing.

Changes could also include tighter terms and conditions, additional exclusions, lower event limits and reduced commission rates, increasing pressure on primary insurers to retain more risk.

Capacity currently remained plentiful, AM Best said, although rates had increased for some speciality classes, including war and political violence.

“In AM Best’s view, the conflict re-emphasises the importance of stress testing in general and conducting bespoke stress testing in particular,” the briefing paper said.

Consolidation to continue

AM Best identified increasing insurable risks, mandatory coverage schemes and cross-border mergers and acquisitions as positive drivers for the regional market.

The GCC remains highly fragmented, with numerous insurers competing for limited premium and many portfolios concentrated in motor and medical business.

More than 65% of listed Saudi insurers reported technical losses during 2025, according to the report, as inadequate motor and medical pricing weighed particularly heavily on smaller and mid-sized companies.

AM Best expects further consolidation as firms contend with greater capital and regulatory requirements, higher operating costs and tighter margins.

“Consolidation within the GCC is viewed by AM Best as a tailwind for these markets,” it said, pointing to the potential benefits of greater scale, geographical diversification and improved market discipline.

Regulatory scrutiny is also increasing, including new Own Risk and Solvency Assessment reporting requirements in the UAE and tighter governance and rating requirements in Kuwait.

While these measures should improve transparency and capital standards, AM Best warned that compliance costs could place a disproportionate burden on smaller insurers.

Nevertheless, stronger 2025 results and robust balance sheets mean the sector enters the current period of volatility from a relatively resilient position.

“Anticipating the impact on capital and solvency stemming from volatility and extreme scenarios such as these is critical to the resilience of an insurer,” AM Best added.