UAE regulatory credit changes positive for insurers: Moody’s

Profitability for UAE insurers remains under short-term pressure as new actuarial reserve-setting and reporting requirements will drive continued technical reserve strengthening in 2016 and 2017. (Reuters)
Updated 01 March 2017
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UAE regulatory credit changes positive for insurers: Moody’s

JEDDAH: UAE insurers will likely see a medium-term improvement in their credit profiles as the sector adjusts to financial regulations introduced in February 2015 and overcomes initial compliance hurdles, says Moody’s Investors Service in a report issued Wednesday.
The “UAE’s new financial regulations should, in the medium term, underpin insurers’ profitability as well as their capitalization, asset quality and reserve adequacy,” said Mohammed Ali Londe, assistant vice president — analyst at Moody’s.
“At the same time, price competition may ease as increased regulatory costs trigger industry consolidation and price hardening,” he said.
Industry consolidation is likely as a result of the new regulatory landscape.
“Additional costs associated with the new regulations may prompt consolidation of smaller insurers, or encourage them to focus on business lines that yield adequate returns,” explained Londe.
Profitability for UAE insurers remains under short-term pressure as new actuarial reserve-setting and reporting requirements will drive continued technical reserve strengthening in 2016 and 2017. Over the medium term, however, stricter reserving requirements will likely encourage adequate premium rate-setting market-wide, supporting profitability.
According to the report, asset quality will also likely improve for insurers, as the new rules will over time limit insurers’ traditionally high exposure to riskier assets such as equities and property.
In addition, Moody’s expects solvency to improve overall as the regulations set capital requirements tailored to the specific risks borne by each company.
Initial reserve strengthening has partially eroded equity of several UAE insurers due to the higher losses incurred, for example the UAE listed insurers’ total equity declined from $4.5 billion to $4.3 billion between 2014 and 2016.


Another surprise fall in UK inflation muddies Bank of England rates message

Updated 5 min 6 sec ago
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Another surprise fall in UK inflation muddies Bank of England rates message

LONDON: British inflation fell unexpectedly in April, according to figures on Wednesday that added to doubts about when the Bank of England will raise interest rates again and pushed sterling to its lowest level against the dollar this year.
Consumer price inflation cooled to 2.4 percent last month, its weakest increase since March 2017, and down from 2.5 percent this March.
The figure was below economists’ average expectation in a Reuters poll for it to hold steady at 2.5 percent and represented the second surprise fall in a row after a drop in March’s figures. “It’s a conundrum for the Bank of England which has struggled to read the direction of price changes recently,” Ed Monk, associate director for personal investing at fund manager Fidelity International, said.
“With inflation trending lower, it only makes it harder for the Bank of England to raise rates.” Investors were now pricing in a one-in-three chance of a BoE rate hike in August — the next time it updates its forecasts on the economy — down from 50/50 before Tuesday’s data.
High inflation, caused by the pound’s drop after the 2016 Brexit vote, squeezed British consumers through last year, and although it has receded from its December peak of 3.1 percent, the BoE is keeping a close eye on price pressures.
PIPELINE PRESSURE
Wednesday’s data pointed to some signs of inflation pressure still in the pipeline. Prices of goods leaving British factories increased at a faster rate than expected last month. And while consumer price inflation cooled again, the timing of the Easter holidays and their impact on air fare prices was a big contributor.
On Tuesday Bank of England Governor Mark Carney cited a new sugar tax on soft drinks, as well as higher utility bills and petrol prices, as reasons why inflation “probably tips up a bit” in the coming months before resuming a decline. The ONS said soft drink prices increased sharply over the last couple of months but the overall impact on inflation was minimal.
The latest data on prices in British factories, which eventually feed through onto the high street, were stronger than anticipated. Manufacturers increased the prices they charged by 2.7 percent year-on-year, matching March’s increase. Economists had expected a fall to 2.3 percent. Among manufacturers, the cost of raw materials — many of them imported such as oil — was 5.3 percent higher than in April 2017, up sharply from an increase of 4.4 percent in March and suggesting a long run of weakening price growth has ended.
A surprise drop in consumer price inflation in March, along weak economic growth figures for early 2018, had called into question whether the BoE would raise interest rates more than once before the end of the year.
Earlier this month it refrained from an interest rate hike that had at one point been widely expected. The BoE’s latest forecasts show inflation dropping to 2.1 percent in a year’s time, and returning to its 2.0 percent target a year later — but only if interest rates rise by 25 basis points about three times over three years.
The latest Reuters poll of economists suggests the BoE is most likely to raise interest rates at its August meeting.