Bahrain Insurance Industry On the Rise

Posted on Nov 01, 2011 by Sergio Ulloa (G+)

A new report issued by The Central Bank of Bahrain (CBB) in October has detailed the considerable progress the small Gulf country's insurance sector has made in the past ten years. In the Insurance Decennial Report 2010, the CBB revealed that the gross premium volume generated in the Bahrain insurance market has increased steadily over the past decade, moving from BD 58.6 million (US$ 155 million) in premiums in 2001 at a compound annual growth rate (CAGR) of around 15 percent to BD 210.5 million (US$ 558 million) in 2010. The CBB, who serve as Bahrain's chief insurance and financial services oversight body, attribute the kingdom's sustained industry development to favorable economic indicators and an improved regulatory framework, consistent with the best international standards. Bahrain's insurance market now features 27 domestically incorporated companies and 11 foreign-backed ventures (subsidiaries of multinational insurers), who each compete across insurance, reinsurance, takaful, retakaful and captive business lines in the kingdom. The CBB study showed that the combined asset value of these insurance firms has grown by 19 percent annually over the past five years, and now stands at a considerable BD 1.36 billion (US$3.62 billion). This solid industry-wide performance has enabled the insurance sector to take on greater socioeconomic responsibility in Bahrain, with local firms employing 1,726 people in 2010 (60 percent of whom were Bahraini nationals) compared to just 854 in 2001. According to CBB Executive Director, Abdul Rahman Al Baker, the continued development of the country's insurance market will create greater opportunities for both local and international insurers. "The insurance sector in Bahrain holds tremendous promise for growth, as demonstrated by the industry's strong performance not only during 2010 but over the last decade. Bahrain is fast becoming a hub for major regional and international reinsurance and retakaful firms as evidenced by the increasing number of such firms getting licensed in the Kingdom," said Mr. Al Baker. The expansion of the insurance business in Bahrain has corresponded with the overall growth in the kingdom's economy, with national GDP growing at a similar 12 percent CAGR from 2001 to 2010. As this has happened, insurance penetration has grown in the Kingdom from 1.95 percent of GDP in 2001 to 2.55 percent in 2010. In a similar fashion, insurance density, which measures average per capita insurance premium expenditure, has increased with a CAGR of 7.5 percent over the same period. According to IMF projections, Bahrain's GDP will expand 16.9 percent during 2011 and at a CAGR of 6 percent from 2012-15. According to the Central Bank's report, the rise in medical insurance participation has been a key contributor towards the insurance industry's overall growth and development in the Kingdom of Bahrain over the past ten years. During this period, health lines have been the fastest growing traditional insurance business sector by far, with gross premium volume moving from BD 1.76 million (US$4.68 million) in 2001 to BD 31.75 million (US$84.44 million) in 2010 at a staggering 38 percent compound annual growth rate. By 2010, health insurance business comprised about 15 percent of the total premiums underwritten in Bahrain's insurance market. The sale of long-term life insurance and savings products has also seen considerable progress over the past decade, with combined premiums rising from BD 13 million (US$34.5 million) in 2001 to BD 51.36 million (US$ 136 million) in 2010, and now comprising almost a quarter of the gross premiums written in the kingdom. As public awareness about the importance of health and life insurance planning improves, in conjunction with innovative product development by domestic insurers, premium levels will continue to rise. The CCB study shows that motor insurance has remained the dominant business line in Bahrain, accounting for over 27 percent of the market with over BD 57.47 million (US$ 152 million) in premiums for 2010. Fire, Property & Liability insurance meanwhile represents 17 percent of the kingdom's total protection market, with BD 35.66 million (US$ 95 million) worth of premiums in 2010. As per capita incomes and lifestyle expectations across the Gulf region continue to rise, more residents are realizing the necessity of protecting themselves and are demanding more insurance and investment plans for their growing families and property portfolios. One final growth driver of further insurance industry success in Bahrain will be the performance of the Kingdom's takaful sector. Takaful, or Sharia-compliant insurance, has emerged as a powerful niche securities market in the region. Takaful products are mutually beneficial coverage policies that cater specifically to Middle Eastern and Asian Islamic communities. The takaful insurance industry is projected by industry analysts to grow at 15 percent annually over the next 5 years and generate more than US$7 billion in premium income worldwide. In Bahrain, the takaful industry has already demonstrated considerable growth potential. Over the past ten years, gross contributions have gone up from BD 1.89 million (US$5 million) in 2001 to BD 38.55 million (US$102.53 million) in 2010, demonstrating a CAGR of almost 40 percent for the period. While Bahrain's insurance industry is a small, tightly regulated market, it is expected to witness sizeable growth in the near future. According to the recent GCC Insurance Industry report issued by Alpen Capital, the country's insurance market is forecast to expand by 16 percent from 2011-15. The kingdom is developing a mandatory national health insurance policy for all expatriates, which when finalized in 2013 could play a substantial role in driving the growth of the domestic insurance sector. However, while the penetration rate for both life and non-life insurance policies in Bahrain is high in comparison to other GCC countries, at 0.8 and 1.9 percent respectively, much work still needs to be done to match global peers from other emerging and mature market economies. Overall there is tremendous potential for growth within the Gulf insurance industry due to relatively low insurance penetration levels, positive demographic/economic trends and pronounced infrastructure development occurring throughout the region.