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Countries in the Gulf Cooperation Council (GCC) region will be hit particularly hard in 2020 as they face the dual economic shock of falling commodity prices and slowing domestic activities caused by the COVID-19 pandemic.According to the new the best The report pointed out that the global recovery is expected to accelerate economic activity in 2021, although the varying degrees of political, economic and financial system risks faced by the region and its members have brought great risks and uncertainties.
new Best Special Report“The flooding has increased the risks of the Gulf Cooperation Council member states”, emphasizing how national risk factors are included in all AM’s best ratings. As part of assessing country risk, AM Best identifies various factors that may directly or indirectly affect insurance companies in a country. According to the report, by the end of the first quarter of 2021, the surge of the COVID-19 virus has complicated the economic recovery in the region, especially for countries with low vaccination rates. With the increase in the number of cases, many governments have gradually tightened business restrictions, which will have a negative impact.
As a result of fiscal stimulus plans to mitigate the negative economic and health effects of the pandemic, government spending has increased. During the pandemic, the debt of the Gulf Cooperation Council region increased significantly, and the proportion of GDP in the GCC region rose from 9% of the previous year to more than 13% by 2020, thereby increasing the financing needs of the region. In order to meet these needs, as of October 2020, the total amount of GCC government bond issuance is nearly 60 billion U.S. dollars, which is much higher than the previous annual estimate of 44 billion U.S. dollars. From 2021 to 2025, more than 100 billion US dollars of debt will mature, so financing needs will remain urgent. The region also faces long-term challenges. Despite long-term efforts to diversify the economy of the Gulf Cooperation Council, progress has been relatively limited.
Of the six Gulf Cooperation Council countries, oil and natural gas production in four countries is still the main contributor to GDP. With the exception of Saudi Arabia and the UAE, the energy revenues of all countries/regions in the region also account for more than 70% of the government revenues of the Gulf Cooperation Council. In the short term, these non-diversified economies will remain vulnerable to external events that limit energy demand. In addition, attention to climate change and the development of more environmentally friendly energy sources will play a role in the demand.
COVID-19 has also exacerbated labor market problems, and unemployment has risen. The region relies heavily on foreign workers because most of its nationals are employed in the public sector. However, large numbers of foreign workers who tend to work in the private sector migrate from the region and may further challenge diversification efforts.
The report stated that the political characteristics of the Gulf Cooperation Council countries also have an impact on operational risks in the region. Although trade protectionist measures taken (for example in Saudi Arabia) may weaken the company’s ability to operate effectively in the Gulf Cooperation Council (GCC) region, other members may compete to reduce the regulatory burden on the company. Ultimately, GCC member states may try to face competing economic interests in attracting investment in non-oil sectors.
The growth of insurance premiums in the Gulf Cooperation Council countries has stagnated for several years. It remains to be seen whether the current economic uncertainty and possible lower government expenditure/revenue will continue to affect premiums.
To access the full copy of this segment report, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=308856.
AM Best is a global credit rating agency, news publisher and data analysis provider specializing in the insurance industry. The company is headquartered in the United States, has operations in more than 100 countries, and has regional offices in London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City.For more information, please visit www.ambest.com.
Copyright © 2021 AM Best Rating Services, Inc. and/or its affiliates. all rights reserved.
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