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Progress in the Omani Insurance Market

Posted on Mar 22, 2012 by Sergio Ulloa ()

Oman's insurance sector appears to be gradually catching up on its Gulf region neighbors, with recently published government statistics revealing yet another year of sustained double-digit market growth and development for the Sultanate's insurers. The Capital Market Authority (CMA), Oman's chief financial services regulator, revealed to local media this past week that Omani insurance companies had generated gross premium income of OMR281.7 million (US$731.6 million) in total last year. This amount represented a considerable 12.2 percent rise on the OMR251.07 million (US$654.6 million) cumulatively recorded during 2010, although the insurance sector's overall net premium (business retained within Oman) finished the year much lower at OMR141.86 million (US$368.95). The CMA's provisional year-end figures placed Dhofar Insurance as the overall market leader in Oman last year, with gross premiums of OMR52.2 million (US$135.7 million). The insurer was then followed by National Life Insurance who finished in second place with OMR35.2 million (US$91.5 million). Al Ahlia Insurance was in third at OMR29.5 million (US$76.7 million) while Oman United Insurance was fourth with OMR29.3 million (US$76.2 million) in gross written premiums. If the rankings were based on net premiums, New India Assurance would've led the market with OMR21.57 million (US$56 million). They would then have been followed Al Ahlia Insurance at OMR18.92 million (US$49.2 million), Dhofar Insurance with OMR15.34 million (US$39.9 million) , Oman United at OMR13.93 million(US$36.1 million) and National Life with OMR13.26 million (US$34.5 million). Oman currently has one of the smallest insurance sectors in the region but this expected to change soon due to the Sultanate's low insurance penetration levels, positive demographic trends and upcoming government investments and infrastructure spending. Similar to their Gulf Cooperation Council (GCC) neighbours, Oman's economy has traditionally relied on its oil revenues to support domestic growth, but with these resources predicted to run out within the next 20 years, the government has begun to diversify through investments in infrastructure and international business collaboration. The Omani government has already allocated over OMR15 billion (US$39 billion) towards future infrastructure spending, which will include new railways, ports, roads and airport developments, and this looks set to benefit the local insurance sector considerably over the next few years as contracting companies drive up demand for coverage across a variety of insurance classes. These infrastructure projects are expected to create pronounced opportunities for engineering, property and liability coverage, in addition to personal lines due to the increased employment opportunities made available in the country. Retail insurance products, such as medical and motor coverage policies, have also been contributing towards the growth in premium income amongst Omani insurers. The government is now taking similar steps to others in the region to encourage insurance as a valuable savings tool for its citizens. Rising income levels have furthermore lead to an increase in car sales in the Sultanate, and with compulsory motor insurance laws now in force, this necessitates a rise in coverage and policy sales. Health insurance is meanwhile fast becoming a top benefit priority for local companies, as more Omani citizens demand medical coverage to better protect their income against modern lifestyle illnesses. Discussions to make health insurance mandatory in Oman, similar to that in Qatar and the UAE, are currently underway and if approved would no doubt further contribute to industry growth. Oman's youth-leaning demographics perhaps present the most profound opportunities for insurance growth and development within the Sultanate going forward. Of the country's 2.7 million people, 83 percent are under 35 years old, while 30 percent are younger than 19. Oman's median age is 18.8 years old, one of the lowest averages in the GCC region, and this will be beneficial to the domestic insurance sector because a younger population will more likely become aware of and purchase retail insurance policies in the future. However, despite these promising growth drivers, Oman's insurance players still needs to address some fundamental issues in order to improve the sector's overall outlook going forward. While the CMA stats showed that the market performed well overall in 2011, many Omani insurers suffered a drop in profits or posted losses due to the increasing cost of claims made from storm damage and flooding over the past 3 years. Moreover, sliding market trends have led to reduced returns on investment from both real estate markets and equities and this has put pressure on the regulator to lift the amount that that Omani insurance companies are allowed to invest outside of the region to make up on these losses. The current CMA rules stipulate that no more than 25 percent of a company's portfolio may be invested outside of the GCC, which in their opinion reinforces local market stability. Local Omani insurers now feel however that this ceiling is restricting development in the sector and denying them legitimate investment opportunities to seek diversification outside the region and earn better returns in international markets. The long-awaited launch of Oman's shariah-compliant takaful insurance sector is expected to eventually mitigate some of these losses however. A report by the international research and consultancy firm Islamic Finance Advisory & Assurance Services (IFAAS) last December highlighted the key role Islamic finance is expected to soon play in Oman., anticipating that it would "change the country's financial landscape over the next decade with far reaching positive effects for the overall economy." The IFAAS study, further revealed that over 85 percent of Omani consumers would likely be interested in taking up a takaful insurance policy. Many firms have planned to enter into this fledgling segment soon, with hopes high that it will provide the Omani insurance sector with a new means of growth.
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