Zurich, the Swiss insurer is quitting the non-life insurance business in the Middle East because it does not see enough potential for growth.
The announcement comes at a time when financial services firms and banks in the region are coming under pressure as a year of depressed oil prices slows economic growth.
FGB, one of the biggest banks by assets in the UAE, said this month that it had let go up to 100 employees.
Zurich said a number of jobs would change or cease to exist, but that it was unclear at this stage how many positions would be affected.
A Zurich spokeswoman said 200 people were employed at the company’s non-life insurance business in the Middle East.
“This has been a difficult decision for Zurich, reflecting the challenges of building a strong and profitable franchise across multiple markets in the region in the current economic environment,” said Brian Reilly, the chief executive of Zurich’s general insurance business in the Middle East.
“Zurich deeply regrets the impact on our employees and the inconvenience to our general insurance customers across the region.”
The Swiss company said it was committed to maintaining existing policies in the general insurance business for the remainder of their duration but that from Monday it would begin closing to retail and small business customers in its general Middle East insurance business. It will continue its life insurance business in the region.
Insurance has been one of the sectors that banks have been expanding aggressively into as margins from loans get tighter amid record low interest rates but it has been wading into an extremely competitive market.
Many insurers have joined the industry in recent years, making it difficult for some to stay afloat, especially those that made risky investments in the stock market.
The price of oil, which fires up economic growth in the Middle East, has shed more than half its value since mid-2014. The UAE is the sixth-largest producer of oil in the world and uses revenue from crude sales to fund more than 60 per cent of the federal budget.
As a result of an expected slowdown in government spending, loan growth is expected to cool next year as economic growth begins to slow and banks become more risk-averse when choosing who to give loans to. And that is starting to be reflected in bank earnings, prompting some lenders such as FGB to start shedding people from the payroll, analysts say.
“Almost all government and private sector organisations are approaching this situation cautiously,” said Rajiv Ramanathan, an associate partner, Aon Hewitt Middle East, a specialist in workforce planning.
“However, headcount reductions are likely to be more visible in the non-productive jobs, compared to productive, revenue-generating positions.”
Not everyone is downbeat about the prospects for insurance in the region.
A report from the consultancy PwC last year said that the insurance market in the Middle East had significant growth potential, with an average insurance take-up of just 0.3 per cent in life insurance and 1.1 per cent in non-life insurance in 2012.
The report said life insurance was particularly underdeveloped in the UAE and Saudi Arabia, and predicted that the insurance sector would experience a wave of mergers and acquisitions.
mkassem@thenational.ae
