Debt instruments have slowly been gaining acceptance in the Middle East insurance sector which has traditionally been underweight in debt since a significant portion of the investment portfolio consists of high-risk high-growth assets such as real estate and equities. Underpinning the appeal of the debt market for insurers are the high-grade instruments now available but which the region lacked before the oil price decline that began in 2014, wrote Mr Adil Abid, a Partner of Financial Services practice at KPMG Lower Gulf, in Gulf News. Several market participants are predicting a spike in bond issuances — both conventional and sukuk, as regional governments seek financing to reduce fiscal deficits. For instance, Saudi Arabia alone raised a total of $26 billion through the international sale of conventional bonds and sukuk in the past nine months. As the region rolls out ambitious plans to wean the economies off their dependence on oil, other GCC states such as the UAE, Kuwait and Oman have all issued sovereign bonds in the past few months. Currently valued at approximately $300 billion, according to a recent report by Franklin Templeton Investments, the GCC bond market will continue to evolve and attract investors, primarily driven by the high yields these bonds offer, Mr Abid said. Providing further cause for optimism is the regulatory environment, particularly in the UAE, that has evolved in the past couple of years, encouraging insurers to improve exposure to the debt market. The regulations that enforce limitations on exposure to a single asset class would undoubtedly benefit both insurers and consumers in the longer term. More specifically, these regulations are widely expected to bolster governance, compliance and risk management, simplified product structures, and international-standard regulations, among others.
The Middle East's insurance sector has gradually welcomed the introduction of debt instruments as high-grade investments become more widely available, according to an article in Gulf News by Adil Abid, a partner of financial services practice at KPMG Lower Gulf. Saudi Arabia, Kuwait, Oman and the United Arab Emirates have all issued sovereign bonds recently, following the declining oil price. In the past couple of years, Saudi Arabia alone has raised $26bn through the international sale of both conventional bonds and sukuk.