News Column

High-risk assets continue to dominate GCC insurers' investment mix

June 26, 2014

Gulf Cooperation Council (GCC) insurers continue to face investment risk given the dominance of high-risk assets

in their investment mix, says Moody's Investors Service in a new report

published today.

The report, "Gulf Cooperation Council Insurers: Investment Risks Remain a

Credit Negative in the Medium-Term", is now available on

Moody's subscribers can access this report via the link provided at the

end of this press release.

"Equity and real estate account for a material portion of GCC insurers'

total invested assets," says Mohammed Ali Londe, a Moody's Analyst.

"Because of low interest rates in the GCC region, traditional investment

options offer low returns compared with those of equity and real estate,

weakening the appeal of traditional investments."

Equities remain the key asset class for GCC insurers, accounting for over

40% of total investments in 2013. Middle Eastern equities have

historically provided volatile returns given the market's relatively

small size and the recent turbulence in the global financial markets.

Furthermore, the Middle East lacks extensive use of risk mitigation

strategies such as hedging, and a significant rise in the use of such

techniques is unlikely in the medium term.

Real estate is also a key investment class, accounting for over 20% of

total invested assets in 2013. The main risks of real-estate assets stem

from their valuation and liquidity. Specifically, real-estate assets are

often recorded in insurers' financial statements at market value,

exposing the balance sheet to volatility. In addition, liquidity of real

estate is frequently low, with a surplus of completed properties further

limiting the ability to liquidate real-estate assets quickly at

balance-sheet values.

"The current regulatory framework for GCC insurers does not fully reflect

the risk posed by material investments in high-risk assets," adds

Harshani Kotuwegedara. "However, regulatory frameworks are gradually

evolving in many countries, including limitations on investment in

high-risk assets."

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Source: EMBIN (Emerging Markets Business Information News)

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