Kuwait Insurance Market Progress

Posted on Dec 08, 2011 by Sergio Ulloa (G+)

A new report released this week by global market research firm Business Monitor International (BMI) has provided some insight into recent developments involving the Kuwait insurance industry. While the insurance industry in Kuwait has grown considerably over the past decade, with gross premiums written expanding by about 11.9 percent annually since 1999, there is still much work to be done. Premiums currently amount to less than 1 percent of GDP in Kuwait, among the lowest in the region. This development has attracted multiple new players to the market and improved the overall competitive landscape of the industry. The total number of insurance companies in Kuwait now stands at 31, with 20 local Kuwaiti companies, 7 Arabian companies and 4 foreign insurers. Similar to other Gulf Cooperation Council (GCC) countries, the insurance market in Kuwait has been dominated by the general insurance sector, which has been driven by the increase in oil prices and government infrastructure development plans. In addition, a law that mandates that local drivers acquire motor insurance has led to the growth of non-life insurance premiums in personal lines. The Kuwait Insurance Report asserts that while country's insurance sector will continue to grow overall, this will be due the continued expansion of the economy and population, and not from any particular developments, innovation, or upswing of demand in the local insurance market. By most measurements, the study found that the Kuwait insurance sector will remain stagnant, in comparison to neighboring markets, through the next decade and serves as an example of a country where the prospects for sustained premium growth appear brighter than the reality at present. "There are no obvious catalysts for development of non-life penetration or life density," BMI explains, adding that several industry insiders are beginning to reduce their exposure to the local insurance sector. Widespread social unrest has also brought about a decline in investor confidence throughout much of the region. This decline in foreign investment has however been somewhat offset in oil producing nations like Kuwait by the continued rise in oil prices. According to the most recent data published by listed Kuwait insurance companies, the industry's overall growth rate in gross written premiums has slowed down quite significantly during the second half of 2011, especially in relation to last year's performance. In 2010, Kuwait insurers reported that gross premiums rose by around 22 percent over 2009's figures, while net premiums during this period increased by a less significant rate of 14 percent. Through the first half of 2011, by contrast, gross premiums have only appeared to grow by around 3 percent. According to BMI's prospectus, only one listed insurance company, Al-Ahleia, has been able to post double-digit growth in gross written premiums so far this year. Despite this slowdown in business however, Kuwaiti insurers have generally remained well capitalized in 2011, and have been able to maintain sound investment earnings despite persistent global financial market volatility. BMI notes that in Kuwait, as in much of the Middle East and North Africa, local insurers are highly dependent on reinsurance companies to absorb their risks. Because of this, net premiums usually report to be a lot lower than gross premiums. Looking at corporate transactions though 2010, BMI observed how the country's business community have reacted to the market downturn. Gulf Insurance, Kuwait's largest insurance company with over half of all local premiums written, has spent the last few years steadily increasing its investments in insurance subsidiaries in other Middle East and North African countries. KIPCO Group, Gulf Insurance's largest investor, meanwhile sold almost half of its holding to a Canadian firm, Fairfax Financial Holdings, in September 2010 for KWD60 million (US$209million). "Neither the leading insurance company nor its dominant shareholder appear to see the opportunities in the local insurance sector as being more attractive than the opportunities that are available elsewhere," BMI surmised. Kuwait's insurance sector performance reflects the generally muted perception and demand for protection products in the country. For many Kuwaiti nationals, the country's pre-existing social security system appears generous enough to meet their needs and see no need to take out further insurance coverage. BMI notes that in the country's general insurance market, overall penetration rates have remained stagnant for years, with life insurance only posting moderate gains during the same period. While these low insurance density and penetration rates are certainly an issue throughout the region, unlike other Gulf Cooperation Council (GCC) countries, there appears to be no impending governmental or societal reforms in Kuwait which could push the insurance industry forward. The country's parliament, now dissolved, had yet to pass updated laws designed to lift the insurance sector closer to international standards, including much needed solvency requirements. This inaction has held the industry back and left potentially important sectors like bancassurance under the control of the Central Bank of Kuwait. Moves like this are a stark contrast to what is occuring in neighboring countries like Qatar and the UAE, which have both been actively promoting and liberalizing the development of their respective financial services sector. Going forward, comprehensive legislative reform will be needed to bring about the more robust regulation and oversight required to make insurance a much more prominent part of the country's overall financial services landscape. One insurance line that has been able to deliver consistent growth in Kuwait over the past few lean years has been takaful, which is a form of insurance that is designed to act within the tenets of sharia Islamic law. As is the case in many other GCC countries, takaful services now account for about a fifth of all Kuwait's insurance premiums. BMI notes however that while Kuwait is home to several substantial sharia compliant financial institutions, the country's takaful operators are not yet developed sufficiently to truly capitalize on this market. There are, according to government data, 12 active takaful companies that account for about 18-20 percent of total premiums written in Kuwait. Despite an increase in awareness and popularity of Islamic financial products, it is not evident that Kuwait's takaful operators are in fact growing any faster than the rest of the country's insurance sector as a whole. "Most of the takaful operators are tiny by any standard," BMI noted. The Gulf's insurance industry overall is entering an important transitional period. Recent economic developments, combined with the growth of a large young population that are more conscious about the concept of insurance, have helped create sizeable business opportunities for the region's insurance companies. 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. With the help of the international insurance industry this could soon change as more Emirati citizens see the value of greater insurance protection.