Insurance Stocks Provide Haven in Stormy Year for Dubai Equities

(Bloomberg) -- Insurance stocks traded in Dubai are proving a haven in an unforgiving market as investors increase their bets on mergers and acquisitions in the industry after recent reforms.

Just six of the 37 members of the emirate’s benchmark equities index have gained this year, and four of those are insurers. They have all advanced by at least 4.9 percent, while the DFM General Index has slumped 19 percent, under pressure from weak real-estate developers.

The prospects of mergers and acquisitions are increasing after Dubai gave the industry a boost by making health insurance mandatory among foreign employees, including their dependents and domestic workers, under changes that started in 2014. Foreigners make up more than 80 percent of the population in the United Arab Emirates, last measured at 9.1 million in 2016.

Closely held investment firm Abu Dhabi Financial Group LLC and its Goldilocks fund last month acquired a stake of almost 30 percent in Islamic Arab Insurance Co., known as Salama. It’s the best-performing stock on Dubai’s main index this year, up 37 percent as of Sunday. The transaction is reflective of an industry that’s experiencing “a positive transformation,” ADFG said in an emailed response to questions.

The DFM Financial Insurance Index is alone among the Dubai market’s nine sector gauges in generating a positive performance for 2018. The U.A.E. had 35 local insurance companies and 27 foreign ones by the end of 2017, according to data from the country’s Insurance Authority. Last year, insurers racked up their fastest growth in written premiums in three years at 12 percent.

“As the industry matures over time, we expect consolidation and industry-wide economies of scale to improve the sector productivity, which will ultimately result in higher service quality at lower cost,” ADFG said.

--With assistance from Dana El Baltaji.

To contact the reporters on this story: Filipe Pacheco in Dubai at fpacheco4@bloomberg.net;Abeer Abu Omar in Dubai at aabuomar@bloomberg.net

To contact the editors responsible for this story: Celeste Perri at cperri@bloomberg.net, John Viljoen, Jon Menon

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