Tuesday 27 February 2024

GCC insurance premiums to hit $37bn by 2015

Dubai, August 21, 2011

The insurance premiums in the Gulf region, which stand at $18 billion, is set to grow at a CAGR of 20 per cent to hit $37 billion by 2015, said a report by leading investment bank Alpen Capital.

The UAE and Saudi Arabia will emerge out as the two biggest markets in the region garnering 75 per cent of the combined share by 2015, while Qatar is poised to register the fastest growth at a CAGR of 30 per cent from 2011-15, said T. M Lakshmanan, chief operating officer, Alpen Capital.

Overall the UAE insurance sector is expected to grow at a CAGR of 19 per cent reaching $18.3 billion by 2015, he noted.

The Life insurance penetration is expected to be around 13 per cent while the Non Life will be at 13 per cent. The Non Life insurance density would be around $2,738.47 while that of the Life is expected to be around $384.41 in 2015, he added.

Meanwhile in Saudi, the insurance sector is poised to reach $9.23 billion by 2015 growing at a CAGR of 18 per cent.

In contrast to the other GCC countries, life insurance growth in Saudi is expected at a much higher rate than non-life at a CAGR of 48 per cent while the Non Life sector will grow at a relatively stable CAGR of 14 per cent.

The life insurance density is expected to reach $64.88 by 2015 from the $14.59 in 2011, the report revealed.

With the GDP registering CAGR of 10.7 per cent, the insurance sector in Kuwait is expected to grow at an impressive rate of 17 per cent in the next 5 years.

The insurance industry in Oman is expected to grow at a CAGR of 18 per cent.

The Insurance sector in Bahrain is expected to grow at a CAGR of 16 per cent during 2011-15. The Non Life segment is expected to dominate in the coming years with a penetration growth of 10 per cent and density growth of 14 per cent in the kingdom.

The Life segment will lag marginally with a growth rate of 14 per cent.

The country is in the process of making health insurance compulsory for all expatriates by the end of 2013 which will play a major role in driving the growth of insurance sector, the report pointed out.

According to Alpen Capital, the non-life segments will continue to comprise 86 per cent of total premiums in 2015. Non-life premium penetration is expected to increase from 1.12 per cent in 2011 to 1.81 per cent in 2015.

Most GCC countries are experiencing rebounding economic activity, remarked Sameena Ahmad, managing diirector at Alpen Capital.

The region continues to diversify away from hydrocarbon dependence and have invested across varied sectors, she stated.

The diversification has given way for robust growth in non-life insurance segment. With
 substantial projects underway in multiple sectors, the demand for financial services, especially insurance, is expected to rise steadily in the coming years, she added.

'The insurance industry in the GCC was not immune to the financial crisis. The accelerated pace prior to 2007 hit the speed breaker as oil prices troughed on receding global activity and tightening credit markets.'

'While the sector has been resilient, and has registered a modest growth when most other markets were in the red, the pace of growth has shifted to a lower gear.'

As the region recovers from the downturn, diversified economic growth of the GCC countries, supportive government regulations and favorable demographics are creating an environment that is conducive for growth, she noted.

Increasing GDP remains the primary growth driver, said the Alpen Capital report.

While non-life insurance is expected to comprise a significant portion of the total premiums, life insurance premiums will grow at a higher CAGR, albeit from a smaller base.

Non-life segment is expected to grow at a CAGR of 19 per cent from 2011-15 while life premiums will grow at a CAGR of 25.1 per cent during the same period.

Life insurance will gain momentum with rising population and increasing per capita income. Our forecasts show that Life insurance density will grow at a CAGR of 22.2 from 2011 to 2015 increasing to $113.5 from $50.8.

The GCC insurance industry is relatively small with significantly low levels of insurance penetration and density. While this points to the size of the growth opportunity, GCC insurers continue to face a number of challenges, the report stated.

Alpen Capital pointed out that the GCC insurance industry was in a state of transition and that the markets have gained critical volume and were evolving from a protected industry to a globally competitive sector.

As economies in the region mature and diversification policies of the governments bear fruit, this sector is expected to expand rapidly.

However, insurers in the region need to gear up significantly to capitalize on the opportunity and remain competitive in the evolving landscape, the report stated.

According to the report, the GCC markets are characterized by a small population (except Saudi Arabia) that is young and include a high proportion of expatriates.

These markets also have high per capita income and strong government spending. Insurance sector in most of these countries is small and relatively underdeveloped.

Hence, insurance penetration and density is much lower than global peers. The growth potential of these markets has attracted many domestic and foreign players which in turn have led to over capacity in some countries.

Consequently, there is considerable fragmentation and poor retention levels resulting in lower profitability.

The region has one of the lowest penetration and density in the world, the report added.

Insurance penetration in the region is much lower than global and emerging market average. While the penetration rate in the GCC region increased from 0.6 per cent in 2000 to 1.3 per cent in 2010, it remains significantly lower than the global average of 6.9 per cent.

The confluence of economic and structural factors have created an environment conducive for steady growth of the insurance sector.

The report pointed out that the outlook for the region remained buoyant on expected higher oil prices and continued expansionary fiscal and monetary policies.

'The global economy has been on a recovery path since early 2010. The growth momentum achieved in 2010 is expected to continue in developed markets on the back of continued government support,' the report said.
'While there remain concerns such as US debt downgrade, economic slump in the Euro zone, the broader market theme is positive with emerging and developing economies leading the change.'

These markets are expected to continue to grow at a robust pace, driven by population, consumption and favorable market conditions, it added.-TradeArabia News Service

Tags: GCC | investment bank | grow | Alpen Capital | Penetration | Insurance premium |

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