Posted on Feb 07, 2012 by Sergio Ulloa
The International Finance Corporation (IFC), an integral member of the World Bank Group, is investing in a Lebanese-owned regional insurance company over the next few years in a bid to increase access to sufficient health and commercial risk insurance services across the Middle East and North Africa (MENA) region. Addressing the region's low coverage rates could spur economic development
On Sunday, the IFC announced that they would be investing up to US$124 million in the Mediterranean and Gulf Insurance and Reinsurance Company B.S.C (Medgulf), a prominent regional insurance firm based out of Beirut, Lebanon. The IFC's acquisition, which could eventually make up a 15 percent equity stake in Medgulf, is aimed at supporting the company's regional expansion plans. Medgulf is looking to set up operations in Egypt, Iraq and Turkey over the next few years. These are developing insurance markets with poor coverage rates, and international finance and expertise is in demand to address these problems.
Lutfi El Zein, Chairman of MedGulf, explained in a press statement that the IFC's contribution would enable his company to more readily realize it's opportunities for growth, attract more private sector investor participation, and promote transparency and better business practices across the regional insurance sector. "The partnership with IFC will help Medgulf grow its operational capabilities to extend security to people who would otherwise have limited means of coping with calamities," said Lutfi al-Zein, adding that while the lack of insurance coverage across the MENA region remains quite troubling, "Medgulf has a strong strategic vision and the capacity to meet rising demand."
The region's low insurance coverage rates were cited by the IFC as one of the main reasons behind their decision to make such a sizeable investment in Medgulf, Lebanon's largest insurance company. According to their press filing, the MENA region currently boasts the lowest market penetrations rates for insurance coverage in the world. "In addition to creating uncertainties within households and businesses, such low rates hinder investments and job creation across the region's vital sectors," the IFC noted. The Middle East's total gross premiums are around 1 percent of the region's combined gross domestic product (GDP). Compare this to the United States, where gross premiums equate to around 9.3 percent GDP and the EU where rates average roughly 8.3 percent and you see there are considerable grounds for Middle Eastern insurers to catch up, and business opportunities therein. Nominal GDP growth has traditionally correlated well with insurance premium growth. This demonstrates that insurance is not yet being used as a vehicle for savings and financing investments in these countries.
The MENA region's unique demographic makeup also presents considerable challenges and opportunities for local insurers and investors. Only around five percent of the region's populace is over 65, and 30 percent are under the age of 14. According to the IFC, the share of the population aged 65 years and above across the MENA region is expected to more than triple by 2050. These indicators demonstrate the substantial human capital that the region possesses and the potential for high economic growth rates if the right policy mix is implemented. Changing demographics will spur demand for an increase in health, life, and pension insurance services, highlighting the overall growth potential for the MENA insurance sector. This could be an opportunity in particular for the life insurance business as Sharia-compliant Takaful grows in the region while the populations in Western countries are set to decline.
IFC Vice president, Dimitiris Tsitsirgaros, was on hand to return the sentiment, explaining that the investment in Medgulf met the IFC's mission statement
on promoting access to finance for lower-income segments of society through private enterprise investment, and could prove integral to economic development in the MENA Region. "IFC's investment in Medgulf supports our strategy to help extend essential services to underserved parts of the population by encouraging cross-border investments in the region. Addressing insurance needs in the region will make it easier for people to access health care, while an increased sense of security will help businesses grow," Tsitsirgaros said. According to the IFC, Medgulf is a model of sound corporate governance and transparency. Their decision to partner with the Lebanese firm will help institutionalize best business practices across the regional insurance sector.
The IFC is the world's largest development institution that focuses solely on private sector performance and economic development in emerging economies. The organization has found itself increasingly involved in the MENA region in the aftermath of the Arab Spring protests
. In 2011, the IFC invested over US$2billion in regional private equities, targeted specifically at small and medium enterprise (SME) development in the Middle East. This included an investment in another Lebanese company, software firm MobiNets, which received US$2 million in funding to help kick start the country's IT sector last December.
As the MENA region economies continue to grow
, urbanize and open their markets, demand for life and health insurance services is set to increase. Many countries have been updating their laws and regulation towards the insurance industry: increasing capital requirements, professionalizing risk management systems, and even opening up the field to greater foreign involvement. Insurers who can successfully target this large pool of potential customers will reap rewards and will also contribute to the economic development in the Middle East and North Africa.
Organizations and Companies Mentioned
The International Finance Corporation (IFC) is a member of the World Bank Group and is headquartered in Washington, DC. The IFC is the largest global development institution focused on promoting private sector investment in developing countries. Established in 1956, The IFC now has 182 member countries which collectively determine the organization's policies and approve investments. The IFC currently holds a US$48.8 billion portfolio across 100 different countries worldwide.
Founded in Lebanon in1980, Medgulf now provides insurance and reinsurance services in Lebanon, Saudi Arabia, Bahrain, the UAE, Turkey and the United Kingdom. Lebanese firm LFZ Holding purchased Medgulf in a $400 million deal in April 2011.