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Gulf Insurance Industry Set to Take Off

Posted on Aug 22, 2011 by Sergio Ulloa ()

A new report released this week by investment banking firm Alpen Capital LLC has highlighted the tremendous potential for growth within the Gulf insurance industry due to the relatively low insurance penetration levels, positive demographic trends and pronounced infrastructure development occurring throughout the region. According to the GCC Insurance Industry report, insurance business in the Gulf region is set to grow 20 percent annually on average over the next 5 years, moving from US$18 billion in gross premiums in 2011 to over US$37 billion by 2015. The United Arab Emirates and Saudi Arabia will continue to be the two largest insurance markets in the region, with Alpen projecting a 75 percent market share between them by 2015, however Qatar is forecast to be the biggest mover, with a 30 percent compound annual growth rate over the next 5 years. The Gulf's insurance industry is undergoing an important transitional period, according to Alpen. These countries are comprised of predominantly small, youthful populations, including in them a high proportion of expatriates, with a high per-capita income and substantial government spending and involvement throughout most business sectors. However, despite their small and relatively affluent population base, the insurance penetration and density level in the region has remained lower than that of their global peers from both emerging and mature market economies. Alpen Capital believes that the Gulf markets have now reached critical volume and the discrepancy between a rising GDP and stagnant insurance growth will correct itself quickly in the coming years. As the economies in the region mature it will then be incumbent on insurers to better prepare themselves to capitalize on this business opportunity and become competitive on a global scale. "The confluence of economic and structural factors have created an environment conducive for steady growth of the insurance sector," Alpen Capital surmised. Each GCC member was broken down and assigned a specific forecast by Alpen. Although the region at large is poised for substantial insurance growth, some countries are more prepared to expand than others. Bahrain's insurance industry covers a small, well regulated market that is forecast to expand by 16 percent from 2011-15. The penetration rate in 2010 for both life and non-life insurance policies have remained high in comparison to other GCC countries. The kingdom is also developing a mandatory national health insurance policy for all expatriates, which when completed in 2013 could play a substantial role in driving the growth of the domestic insurance sector. Unlike most other countries in the region, Bahrain has no native citizen employment quotas for business. This will give Bahrain a competitive advantage in attracting business from foreign insurers. According to the report, Kuwait's insurance sector is poised to grow by a considerable 17 percent in the next 5 years, in line with a similar double digit rise anticipated in the nation's GDP over the same period. Kuwait's insurance industry hasn't progressed as quickly as others in the region, with the lowest non-life insurance penetration recorded at 0.4 percent. However, recent moves made by the national government to promote takaful, or Shariah-compliant Islamic insurance, is expected to boost growth in this sector considerably. The growing acceptance of Islamic insurance and compulsory motor insurance laws in the country will compliment each other to facilitate demand. The life insurance sector is not expected to progress as quickly, given the extensive social security system available to citizens in Kuwait. Overall, Alpen expects the life insurance industry to grow by 13 percent in Kuwait while the non-life sector expands by 18 percent. Oman's insurance industry is the smallest in the region but is forecast to grow by 18 percent in the coming years. By 2015 the total contribution from premiums is expected to reach US$1.7 billion. In 2010 cyclone Phet hit the country's north coast and drove up awareness and demand for cover. The Oman government is now taking similar steps to others in the region to encourage insurance as a valuable savings tool for its citizens. A compulsory medical insurance scheme is being discussed for expatriates, which could further contribute to industry growth. The country's demographics also present distinct opportunities. Oman's median age is 18.8 years old, one of the lowest averages in the region, and this will be beneficial to the domestic insurance sector because a younger population will more likely become aware of and/or purchase insurance policies in the future. Saudi Arabia is the largest market in the GCC and one that has developed substantially since insurance business was first permitted in the 1990s. The total written premium in the insurance sector is forecast by Alpen to reach US$9.24 billion by 2015 at an 18 percent combined annual growth rate. Due to an ageing population and regulatory initiatives, Saudi Arabia will be the only GCC market in which sales of new life insurance policies are expected to grow faster than that for non-life products. Takaful insurance companies also have a significant presence in the country, and their continued development will help develop awareness and acceptance towards other lines of insurance in the region. Increased participation from the private sector will yield positive additional positive returns. The UAE insurance sector is already the most developed in the GCC and is forecast by Alpen to grow by 19 percent annually, totalling US$18.3 billion in combined premium by 2015. Insurance penetration and density in the UAE is at the highest levels in the gulf region, and an increase in both native and expatriate populations is expected to only improve upon this trend. Over the past few years, the local insurance and financial markets have been made more open. This has reduced the presence of entrenched national insurance companies and enabled more foreign competitors to operate in the country and rejuvenate the market. Another key factor driving the expansion of the insurance industry has been the massive UAE government-funded infrastructure projects, which were previously stalled or cancelled due to the 2008 global economic crisis. Many of those projects are now underway again and their success could boost the local economy and insurance sales along with it. Alpen Capital singled out Qatar's insurance industry as the fastest growing in the region, with total written premiums expected to grow by 30 percent in the next 5 years. This remarkable growth is being driven predominantly by the country's continued economic expansion, combined with a concerted attempt by the government to diversify Qatar's industry away from only hydrocarbon extraction and export into real estate, tourism and other commercial endeavours. In diversifying their economic activity Qatar creates a significant demand for an expanded scope of new insurance product lines in the region. Similar to other GCC countries, an increased focus on promoting takaful as well as a potential compulsory health insurance law for expatriates is thought to contribute to demand in the short term future as well. Alpen Capital also points out that Qatar GDP per capita is both the highest in the GCC region and among the highest in the world. This considerable level of consumer spending presents not only opportunity for insurers but for Qatar itself to become a leading regional hub for insurance and investment businesses. Companies Mentioned Alpen Capital Group ALPEN CAPITAL GROUP Alpen Capital Group is an investment banking firm that provides financial consulting services. The firm's advisory services focus on equity and debt capital markets, credit ratings, debt syndications, and mergers and acquisition consulting, amongst others. Alpen Capital was founded in 2008 and is based out of Dubai, United Arab Emirates.
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