The future of Green Crescent Insurance, a top five UAE insurer, hangs in the balance after it said it might stop operations.
Green Crescent's shares fell 9.4 per cent to 29 fils on Thursday following the release of a statement on the Abu Dhabi stock exchange website saying it would hold a shareholder meeting next month or December to decide whether to dissolve the company or continue operating on a reduced capital.
The company has reported annual losses since 2009 and a Dh13.7 million (US$3.73m) loss in the first half of this year.
Its plight reflects the challenges afflicting the country's healthcare insurance industry as insurers struggle to put a stop to years of providing premiums below market rates.
"There are too many companies and it's a cut-throat industry," said Fareed Lutfi, the secretary general of Emirates Insurance Association, the body representing the interests of UAE insurers. "Many have been selling insurance too cheaply to compete, rather than looking at their bottom line."
Mr Lutfi estimates that global healthcare insurance premiums have been rising by an average of 15 to 20 per cent every year, squeezing margins to 2 to 3 per cent for even well-performing local insurers.
Healthcare officials in the capital have launched a range of recent initiatives to try to control costs including a mandatory tariff for medical procedures.
Hazem Al Madi, the chief executive of Green Crescent, said last month that the company was facing growing numbers of inquiries from customers seeking to control premium costs or reduce benefits for employees. Nobody was available to comment from the company yesterday.
Mr Lutfi said that Mr Al Madi was doing his best to turn around the company since his appointment last November but that the process would take time. Green Crescent's overall losses and operating costs shrank and the company posted a underwriting profit in the second quarter of this year from a year earlier.
Green Crescent floated on the Abu Dhabi bourse in June 2008 amid a wave of optimism about opportunities in an industry being transformed by a surge in government spending and rules requiring employees to provide health benefits to staff. Its initial public offering, which was 70 times oversubscribed, netted the company Dh250m.
But shares have fallen 24 per cent this year. They fell 50 per cent last year and 15 per cent the year before.
Green Crescent's capital will be reduced by 150 million shares with a nominal value of Dh1 per share, if shareholders opt to continue the company's operations, Thursday's statement said.
If shareholders decide to dissolve the company, the liquidation process may provide a test for the country's bankruptcy legislation. The commercial companies law of 1984 sets out a procedure leading to the dissolution of a business. "The most relevant trigger for this procedure relates to a substantial loss of capital," the law firm Latham & Watkins wrote in a research note last year.
The rising costs facing healthcare insurers in the UAE mirror pressures squeezing the industry across the world.
Nearly three quarters of those in the industry believed insurance costs would rise in the next five years, according to a survey by the professional services firm Towers Watson last year. Costs from new medical technology and the overuse of care were main reasons cited for the increase.
Healthcare spending per capita in the Arabian Gulf is growing at more than 5 per cent per year, according to the World Health Organisation, at $1,224 in 2010, up from $843 in 2000.