Paul Thomen

Tuesday, 30 October 2012

Insurance Market in (Bahrain, Oman and Saudi Arabia) Report Q4 2012

Bahrain Insurance Report Q4 2012 : 

The Bahrain Insurance Report considers the prospects for life and non-life insurers in the country. The latest results and comments indicate that 2011 was a highly challenging, but not universally disastrous,year for Bahrain’s insurance sector. We calculate that premiums in the non-life segment contracted. This was partly the result of the Arab Spring in the first half of last year. It was also the consequence of a lacklustre economic environment (and the slump in the real estate and construction sectors). Further, price competition in what is, by any standard, a small and fragmented segment has been fairly intense. If this were not enough, some companies experienced increased claims because of damage relating to the unrest or other problems. Reports published by Bahrain National Holdings and other local operators suggest the problems persisted through to H112.

Nevertheless, there are grounds for optimism. The government of Bahrain and its institutions have long been proponents of Islamic finance and takaful. The reports from the leading takaful (and retakaful) players suggest this part of the market has been growing reasonably quickly. The Central Bank of Bahrain (CBB) has also shown itself to be a first-class regulator and agency for the general promotion and development of financial services.

Oman Insurance Report Q4 2012:

The Oman Insurance Report considers the prospects for both life and non-life insurers in the country. As of August 2012, it is clear that conditions have been mixed for the major players in both segments. In the non-life segment, it appears that al-Ahlia, the local subsidiary of RSA, has been gaining market share at the expense of the other companies. In the life segment, National Life & General Insurance, the main subsidiary of ONIC Holding has achieved substantial growth in Q112 relative to Q111: this has been thanks to greater sales of health insurance products, both in Oman and the UAE. Other companies have reported declining premiums – in some instances as a result of a deliberate policy to focus on profitability rather than growth. Meanwhile, earnings from investments – for most companies at least – appear to have improved dramatically in comparison with the very difficult period that was Q111.

Overall, though, nothing has happened to change BMI’s view that Oman will likely remain home to an
insurance sector that is small, fragmented and highly competitive. Over recent years, premiums in both segments have been growing at low double-digit rates. Retention rates are low (often well below 50%). Over the last year or so, motor-related claims have been unacceptably high. The insurers remain vulnerable to volatility in the underdeveloped financial markets of Oman and other countries in the region.

Saudi Arabia Insurance Report Q4 2012

The Saudi Arabia Insurance Report considers the prospects for both life and non-life insurers in the country. As of late 2012, the latest results from Saudi Arabia’s listed insurance companies (in relation to 2011 and H112 ) highlight the weaknesses rather than the strength of the sector. Although insurance is very underdeveloped by most metrics, top-line growth in premiums has been mixed. Companies have had to deal with surging claims expenses, which in some cases have been exacerbated by a deliberate policy of increasing the retention ratio. Generally, though, retention ratios remain low. Investment earnings have been mixed. Worst of all, prices and margins have been compressed by cut-throat competition. This appears to be the consequence of a desperate bid by too many companies, particularly the recent entrants to the market, to boost market shares regardless of profitability.

Previously, we had had some confidence that non-life penetration would rise quite sharply thanks to the growing acceptance of insurance. Over the last five years, the main catalyst for the development of the sector has been the rise in (compulsory) health insurance premiums, which have had a positive impact on both segments. As is the case with our other insurance reports, we include health insurance in the non-life segment. More recently, though, it has become obvious that density is not growing. Meanwhile, there is no obvious catalyst for a substantial rise in life density – from what remains a very low level – in a country where social security (or government benevolence) for locals is extremely generous.

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