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Insurance Report Gcc Jabran Noor
 

Insurance Report Gcc Jabran Noor

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GCC Insurance Industry

GCC Insurance Industry

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    Insurance Report Gcc Jabran Noor Insurance Report Gcc Jabran Noor Document Transcript

    • Spotlight on GCC Insurance Industry with specific reference to UAE Jabran Noor This is a summary of the Takaful scene in Middle East with specific reference to UAE
    • Jabran Noor Spotlight on GCC Insurance Industry with specific reference to UAE Contents 1. Macro-Level Analysis of GCC ……………………………………………………………….. Page 2 2. Economic and Insurance Indicators ……………………………………………………... Page 2 3. Country-wise Analysis ………………………………………………………………………… Page 3 4. Regulatory setup ………………………………………………………………………………… Page 5 5. Islamic Models of Insurance ………………………………………………………………… Page 7 6. UAE Non-Life Insurance Market …………………………………………………………... Page 9 7. Leading Companies in UAE ………………………………………………………………….. Page 11 2
    • Jabran Noor 1. Macro-Level Analysis of GCC The six countries of the Gulf Co-operation Council (GCC – Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and UAE) have some of the fastest growing economies of the world. Following is a summary of the economies. 2001 2002 2003 2004 2005 2006 2007 Real Sector Real GDP growth (percent) 5.7 2.1 9.1 6.8 6.8 6.2 5.3 Real Non-oil growth (percent) 5.0 5.9 6.9 7.2 7.3 7.9 7.8 Nominal GDP ($bn) 333 350 405 483 612 719 804 Nominal GDP growth (percent) (2.7) 5.1% 15.7% 19.3% 26.7% 17.5% 11.8% Crude oil production (million b/d) 13.9 13.1 14.9 15.4 16.0 16.0 15.4 Gas production (boe) 2.6 2.8 3.0 3.3 3.5 3.8 4.0 Financial Indictors Fiscal balance (pecentage GDP) - 3.5 5.3 12.6 20.3 22.8 19.8 Consumer Price Inflation (ave) 1.0 2.0 3.0 4.0 5.0 6.0 7.0 Domestic debt, gross (percent GDP) 59 59.8 50.6 40.6 26.6 19.7 14.5 Domestic debt, net (percent GDP) 67.8 68.2 60.6 45.8 23.3 12.7 1.8 Current account balance ($bn) 31.5 25 52.2 89.4 166.7 196.7 188.3 Current account balance (percent GDP) 9.5 7.1 12.9 18.5 27.2 27.4 23.4 Foreign assets ($bn) 1,077 1,102 1,154 1,243 1,410 1,607 1,795 In 2007, the combined nominal GDP of GCC countries was around US$ 800 billion. This is about 70% of the Indian economy and about 80% of the South Korean economy. The GCC economies are growing at a very rapid rate. The Real GDP, which is in the region of 5-6% has tended to fluctuate with oil output. The contribution of the non-oil sector has been more vigorous. The non-oil growth has been more than 1.2% p.a. higher than the overall compound GDP growth in the period 2004-2007. Financial indicators are also impressive. The average fiscal surplus is around 20% of the GDP in 2007 while the aggregate current account surplus is around 23% of the GDP. Net foreign assets have also increased rapidly to about US$ 1.8 trillion in 2007. Inflation data is weak in many economies of the region and often understated by the inclusion of basket of items subject to regulation or control. The CPI is now running well above 10 percent in most of the countries. Inflation is going to be a major challenge for the economies to tackle in the future. 2. Economic and Insurance Indicators The insurance industry of the GCC countries is considerably under-developed. This is in contrast to considerably high economic prosperity of the region as indicated by the GDP per capita. Following is a summary of the key indictors of the countries. Figures for Malaysia have also been included in order to benchmark the figures against an Islamic country with developed insurance industry. UK and US market figures are also included. 3
    • Jabran Noor Saudi Arabia Kuwait Bahrain GWP 07 US$2,269m GWP 07 US$734m GWP 07 US$355m Life vs Non-Life 3:97 Life vs Non-Life 18:82 Life vs Non-Life 29:71 Penetration - Overall 0.6% Penetration - Overall 0.6% Penetration - Overall 1.8% Life 0.0% Life 0.6% Life 0.5% Non-Life 0.6% Non-Life 0.5% Non-Life 1.3% Density - Overall US$92 Density - Overall US$257 Density - Overall US$444 Life US$3 Life US$46 Life US$129 Non-Life US$89 Non-Life US$211 Non-Life US$315 GDP Per Capita US$15,223 GDP Per Capita US$40,345 GDP Per Capita US$24,625 Qatar UAE Oman GWP 07 US$538m GWP 07 US$3,555m GWP 07 US$414m Life vs Non-Life 5:95 Life vs Non-Life 17:83 Life vs Non-Life 18:82 Penetration - Overall 0.9% Penetration - Overall 1.9% Penetration - Overall 1.1% Life 0.0% Life 0.3% Life 0.2% Non-Life 0.9% Non-Life 1.5% Non-Life 0.9% Density - Overall US$640 Density - Overall US$812 Density - Overall US$160 Life US$34 Life US$141 Life US$29 Non-Life US$606 Non-Life US$671 Non-Life US$131 GDP Per Capita US$73,750 GDP Per Capita US$43,182 GDP Per Capita US$15,000 Malaysia UK USA GWP 07 US$8,824m GWP 07 US$463,686m GWP 07 US$1,229,668m Life vs Non-Life 67:33 Life vs Non-Life 75:25 Life vs Non-Life 47:53 Penetration - Overall 4.6% Penetration - Overall 15.7% Penetration - Overall 8.9% Life 3.1% Life 12.6% Life 4.2% Non-Life 1.5% Non-Life 3.0% Non-Life 4.7% Density - Overall US$332 Density - Overall US$7114 Density - Overall US$4087 Life US$222 Life US$5731 Life US$1922 Non-Life US$111 Non-Life US$1383 Non-Life US$2164 GDP Per Capita US$7,218 GDP Per Capita US$45,459 GDP Per Capita US$46,009 The economic prosperity of individual GCC countries in terms of GDP per capita is about 2 – 10 times that of Malaysia. However, the insurance premium for Malaysia is higher than the combined insurance premiums for the GCC countries. Malaysian insurance industry contributes 4.6% to the GDP of the country. In contrast, the GCC insurance industry contribute only 0.5% - 2% to the GDP of their respective countries. The contribution of insurance in USA and UK is around 9% and 16% respectively. The insurance industry of GCC countries is pre-dominantly non-life. The share of non-life insurance ranges from 3% - 30% of the total industry. Malaysia, in contrast has a life industry almost twice the size of it non-life industry. 3. Country-wise Analysis The following graph shows the gross written premium of the GCC countries. 4
    • Jabran Noor Gross Written Premium 4.0 US$ bn 3.5 3.0 2.5 2.0 1.5 1.0 0.5 - UAE Saudi Kuw ait Qatar Oman Bahrain Arabia Non-Life Life UAE and Saudi Arabia combined compromise 75% of the insurance industry of GCC, split as 50% and 25% between the two countries. Other countries have similar market share of around 5% each. Non-Life market forms the dominant portion of the insurance business within the GCC countries. Only UAE has a reasonable quantum of life insurance business. However, this forms only 15% of the total insurance premium of the country. The following charts give the progression of GDP and Gross Written Premiums for each of the countries over a period of 2003-2007, again benchmarked against Malaysia. 5
    • Jabran Noor Progression of GDP and GWP Saudi Arabia Kuwait 450 2,500 140 800 400 700 GWP (Million USD) 120 GWP (Million USD) GDP (Billion USD) GDP (Billion USD) 350 2,000 100 600 300 1,500 500 250 80 400 200 60 1,000 150 300 0.59% 40 0.77% 0.74% 0.63% 0.60% 0.63% 100 0.46% 0.40% 0.44% 0.52% 500 200 50 20 100 - - - - 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007 Year GWP as % of GDP Year GWP as % of GDP Bahrain Qatar 25 400 70 600 350 GWP (Million USD) 60 GWP (Million USD) 500 GDP (Billion USD) GDP (Billion USD) 20 300 50 250 400 15 2.17% 2.14% 40 1.75% 1.80% 200 300 10 1.56% 30 150 1.02% 1.00% 0.99% 0.91% 200 100 20 0.81% 5 50 10 100 - - - - 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007 Year Year GWP as % of GDP GWP as % of GDP Oman 200 UAE 4,000 45 450 180 3,500 40 400 GWP (Million USD) GWP (Million USD) GDP (Billion USD) GDP (Billion USD) 160 35 350 3,000 140 30 300 120 2,500 25 250 100 2,000 20 200 80 1,500 60 1.02% 1.00% 0.99% 0.81% 0.91% 15 1.22% 1.08% 0.98% 1.05% 1.06% 150 1,000 10 100 40 20 500 5 50 - - - - 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007 Year Year GWP as % of GDP GWP as % of GDP Malaysia 200 10,000 180 9,000 GWP (Million USD) GDP (Billion USD) 160 8,000 140 7,000 120 6,000 100 4.72% 4.22% 4.19% 4.88% 5,000 3.82% 80 4,000 60 3,000 40 2,000 20 1,000 - - 2003 2004 2005 2006 2007 Sources: Year - Gross Written Premium : AXCO Reports, Sw iss Re Sigma Report, Industry Figures GWP as % of GDP - GDP : World Bank The Gross Written Premium as % of GDP for all GCC countries has declined over the years 2003- 2007. Saudi Arabia is the only exception to this. However, Saudi Arabia has the lowest penetration rate within the GCC countries at only about 0.6% of the GDP. In contrast, the contribution of insurance to the GDP has increased in Malaysia. 4. Regulatory setup Following is a summary of the regulatory setup within the GCC countries and Malaysia 6
    • Jabran Noor Country Regulatory Body Market Summary Capital Requirements Regulatory Overview Shariah Compliance Saudi - In 2003 a law was passed requiring all insurance companies to operate under Sharia'a Arabia Saudi Arabian M onetary Agency - SAM A processing licenses of 35 - SR 100m (US$ 27m) for compliant Takaful insurance model; Exit plan for non-compliant companies in place - Saudi Arabian law system is based on Shariah (Insurance Supervision Directorate) companies. insurers - Significant improvement in regulations since SAM A took over regulations in 2004 - Fiqh Academy in 1985, allowd cooperative insurance. This led to - 14 have got license to operate. - New licenses require around 25%-40% of the compnay to be listed on local market establishment of NCCI in 1986 Also "Council of Cooperative Health - NCCI, established in 1986 was - Solvency requirements are - Foreign insurers can have maximum ownership of 49% with requirment to list also - Saudi Arabia does not explicity require use of takaful models Insurance" for health insurance partly privitized in 2004 prescribed applying Kuwait - 25 companies present - 15 national companies (10 composite; 5 non-life only) - Insurance law was enacted in 1961, however in 2004 FSAP commented on weekness of Ministry of Commerce and Industry - 8 Arab companies (6 composite; existing law and recommended as a priority to enact a new law (Insurance Department) 2 non-life only) - Existing supervisory processess are mostly focused on administrative work in addition to - 3 branches of foreign companies ensuring insurers' compliance with regulations (1 composite; 2 non-life only) - no state insurer Bahrain - 27 companies present BD 5m (US$ 13m) for insurers -18 locally incorporated companies - 9 branches of foreign companies and BD 10m (US$ 27m) for - Well astablished an applied legal framewor, considered the most advanced in the region - 56 exempt insurance and reinsurers - Bahrain issued Insurance Rulebook in April 2005. The rulebook sets out elaborate Central Bank of Bahrain reinsurance companies licensed in licensing and operational regulations for both conventional and Takaful insurance Bahrain but purely operating - Solvency requirements are - No limits on foreign ownership in Bahrain Joint Stock Company outside country prescribed for foreign insurers - no state insurer Qatar Dual Regulatory Regime - 12 licensed companies -The insurance law was enacted in 1966 and lacked adequate legislation - Ministry of Economy - 5 national companies - Currently insurance companies can get a license to operated form Qatar Financial Center - Qatar Financial Center (QFC) - 7 foreign companies ("QFC") which has world class regulations UAE - Under Federal Law 6 of 2007, establishmed of conventional and takaful Dual Regulatory Regime - In mid 80s the country had put restrictions on issuance of new licenses to foreign - 48 licensed companies - M inimum paid-up capital in companies is allowed, but no further requirements for operations of - Ministry of Economy; Insurance companies, however in 2004 the coutnry started issuing licenses again - 24 national companies place takaful companies have been decided. Commission setup in 2007 - Currently the capabilities of regulatory body and regulatory framework are - 24 foreign companies - DIFC encourages develolpment of takaful; Takaful companies are - Dubai International Financial underdeveloped - no state insurer - No solvency requirements subject to same regulations as conventional insurers, but must also fulfil Financial Center (DIFC) - Abu Dhabi launched compulsory health insurance scheme in 2006 requirements set forth in Islamic Financial Services Handbook Oman - 19 licensed companies - Insurance companies are governed by insurance law issued in 1979, which was last - 10 national companies (3 - OR 0.3m (US$0.8m) for updated in 2002 composite companies; 5 non-life insurers - The reulations have been significantly updated following the collapse of a local insurance Capital Market Economy only; 2 life only) company in 2001 and now cover coperate governance, code of conduct and reinsurance - 7 foreign companies (3 - minimum solvency management strategies composite companies; requirements in place - Foreign companies are required to reinsure upto 25% of the premiums in the country 3 non-life only; 1 life only) - no state insurer with one or more of the national insurance companies Malaysia - Aiming to become International Islamic financial hub as laid out in 2001 master plan. - RM 100m (US$ 0.3m) for - Shariah Advisory Council of Bank Negar M alaysia is responsible for - 49 licensed companies insurers and takaful companies advising on matters related to takaful and other areas of islamic finance - 8 composite companies - Conventional Insurance governed by M alaysian Insurance Act, 1996 - Director General of Takaful has to be satisfied that company is Shariah - 25 non-life companies Bank Negara Malaysia - minimum solvency - Takaful governed by M alaysian Takaful Act, 1984 Compliant - 8 life only requirments in place; Risk Based - Advanced regulatory regime in place for insurance and takaful companies - Regulatory does not require the use of specific takaful model - 8 takaful operaters Capital requirements introduced - One of the two countries in the world with separate insurance - no state insurer on trial basis in 2007 regulations for Takaful companies (other being Pakistan) - Original model was M udarbah model but losing ground to Wakala. Only two of original operators are still using M udarbah 7
    • Jabran Noor The regulatory regime of GCC countries is not very sophisticated. Not all countries have stringent licensing, paid-up capital requirements and solvency regulations. Bahrain and Saudi Arabia are in the process of implementing regulations modeled on the basis of sophisticated insurance markets like UK and EU. This involves having proper licensing requirements, paid-up capital, risk based solvency regulations, actuarial valuations and regular statutory reporting. Qatar has an off-shore financial center and insurance regulations are in place for operations from within the Qatar Financial Center (QFC). UAE, Kuwait and Oman have outdated insurance regulations which are an impediment to growth of insurance within these countries. Oman has recently tied up with QFC to develop regulations. UAE has taken steps in improving the insurance regulations but this is based on Jordanian insurance model and not that of sophisticated insurance markets. The Shariah compliance for insurance companies in GCC countries is also not well established. There are sporadic directives in place in some of the countries but nothing definitive in terms of regulations. In contrast, Malaysia has a very developed insurance regulatory environment. It has separate regulations for conventional and Takaful companies. The regulator is also very pro-active in implementing licensing and solvency regulations. 5. Islamic Models of Insurance Following chart gives the composition of insurance for the year 2007. Composition of Insurance (2007) Takaful Cooperative Model Conventional within Islamic Financial System World Wide Insurance (Billion US$) Insurance in Insurance In Non- 4,061 Muslim Countries Muslim Countries Conventional Islamic 4,016 45 Insurance Insurance Conventional Cooperative 99% 1% 39 5.8 Within Islamic Model Takaful Financial System 87% 13% 3.5 0.48 1.66 60% 8% 28% Source: Swiss Re Sigma 8
    • Jabran Noor Insurance is not a well-entrenched concept within the Islamic countries. It forms only 1% of the world insurance in terms of premiums. About 87% of the insurance within the Islamic countries is in form of conventional insurance and only about 13% is within the Islamic framework. A bulk of this Islamic framework insurance (70%) is non-Takaful. This is predominantly the insurance system of Iran and Saudi Arabia which is essentially the conventional insurance operating within an overall Islamic financial system. Takaful is based on a concept different from insurance as it involves sharing of risk within participants instead of risk transfer to the insurance company. Takaful market is projected to increase at a rapid pace (around 25-35% per annum) and international players within the insurance markets are embracing the concepts on conceptual and market potential grounds. Following chart gives the composition of the Takaful market. Takaful (billion US$) Malaysia 0.53 32% Saudi Arabia 0.43 26% Other Muslim Countries 0.24 15% Sudan 0.23 14% Indonesia 0.10 6% UAE 0.08 5% Bahrain 0.04 2% 9
    • Jabran Noor Sudan is the pioneer in Takaful. However, over the years, Malaysia has truly embraced the concept of Takaful and worked towards promoting it side-by-side with conventional insurance. Takaful companies are regulated through 'Malaysian Takaful Act, 1984'. Malaysia has a market share of 32% of the Takaful market followed by Saudi Arabia at 26%. The market share of Takaful in UAE is only 5%. There are only a few Takaful operators in UAE. However, the trend for newly licensed insurance companies in UAE is to operate on a Takaful model. 6. UAE Non-Life Insurance Market The following chart gives a snapshot of the UAE Non-Life insurance market. 10
    • Jabran Noor UAE Non-Life Insurance Market Gross Written Premium - Non-Life Composition of Gross Written Premium AED bn 12 100% 10 80% 29% 8 60% 23% 6 30% 40% 20% 4 20% 2 0% - 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007 Marine & Aviation Fire Non Motor General Accidents Motor Others Retention Ratio Gross Loss Ratio - All Lines 100% 100% 80% 80% 60% 60% 40% 40% 20% 0% 20% 2003 2004 2005 2006 2007 0% 2003 2004 2005 2006 2007 Retained Reinsured Gross Loss Ratio - Marine & Aviation Gross Loss Ratio - Fire Gross Loss Ratio - Marine & Aviation 100% 100% 100% 90% 80% 80% 80% 70% 60% 60% 60% 50% 40% 40% 40% 30% 20% 20% 20% 10% 0% 0% 0% 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007 Gross Loss Ratio - Non Motor General Accidents Gross Loss Ratio - Motor Gross Loss Ratio - Others 100% 100% 100% 90% 90% 90% 80% 80% 80% 70% 70% 70% 60% 60% 60% 50% 50% 50% 40% 40% 40% 30% 30% 30% 20% 20% 20% 10% 10% 10% 0% 0% 0% 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007 Non-Life Premium as % of Total Gross Written Premium Net Loss Ratio & Expense Ratio 100% 100% 80% 80% 60% 60% 40% 40% 20% 20% 0% 2003 2004 2005 2006 2007 0% 2003 2004 2005 2006 2007 Net Loss Ratio Expense Ratio 11
    • Jabran Noor The non-life gross written premium has increase at an average rate of around 25% over the period 2003-2007. The composition according to class of business has been largely stable. Motor and Non-Motor General Accidents form the two largest classes of business with a composition of about 35% and 28% respectively. Marine and Fire comprise about 15% each with other lines of business being 5%. The retention ratios has increase slightly over the years. Around 50% of the premiums are being retained by the insurance companies with the balance being reinsured. The gross loss ratio for the overall portfolio is considerably stable at around 60%. By class of business, motor and marine and aviation have relatively stable loss ratios. Greatest volatility was experienced in case of fire insurance. The Net Loss Ratio and Expense Ratios have declined slightly over the years. The overall ratio is around 95% in 2007, down from nearly 100% in 2004. 7. Leading Companies in UAE Following is a summary of the financials for companies in UAE (AED mn) 2007 Most of the companies are operating in all three lines of business – non-life, life and health insurance. Oman Insurance, Abu Dhabi National Insurance Company, Islamic Arab Insurance Company are the top three insurance companies, having a combined market share of around 45%. The second-tier of companies are Arab Orient Insurance, Al Ain Ahlia Insurance, Emirates Insurance Company and Al Buhairah National Insurance Company, with a combined market share of 30%. Most of the insurance companies in the list posted double-digit ROE in 2007. 12