JEDDAH – The GCC insurance market has been one of the fastest growing regions for insurers, with average annual revenue growth of 16.8 percent over the past six years, and will see significant further growth over the near to medium term, the new Moody's Investors Service report on Monday said. Together, the 2012 premiums of these six countries equated to $16.3 billion, broadly similar to the size of the Portuguese insurance market and more than doubling from $6.4 billion in 2006, the report noted. This represents a compound annual growth rate (CAGR) of 16.8 percent over this six year period, although growth in each market varies, ranging from 19.7 percent CAGR in Saudi Arabia to 7.9 percent CAGR in Kuwait. Moody's expects that the region will continue to grow at similarly strong rates over the near to medium term. Growth will be driven primarily by increased economic wealth in the region, together with an increase in insurance penetration levels (as measured by insurance premiums as a percentage of gross domestic product (GDP)). Currently, insurance penetration within the GCC is (apart from UAE/Bahrain) below 2 percent of GDP, compared with approximately 8 percent in the US and 11 percent in the UK. An increase in the affluence of the GCC population, as reflected by increasing GDP per capita (PPP), coupled with an increase in the educated working age population compared with previous years, will increase the demand for both Life and Non-life products. Further growth will emerge as an increasing number of insurance products become compulsory purchases, with third-party motor liability already compulsory in most countries and health insurance becoming increasingly a mandatory product throughout the region, Moody's said in the report. Many GCC insurance players are strongly capitalized, relative to the underwriting risks borne by their balance sheets, and have low or non-existing financial leverage levels. In addition, many insurers retain strong links to wealthy and/or ruling families, including board membership, such that some companies have access to significant capital resources relative to their underwriting risks. However, only a handful of the very largest groups in the region have implemented risk-based capital (RBC) assessments and most insurers tend to set capitalization targets relative to simplistic regulatory minimum requirements for paid in capital. According to Moody's, most GCC markets are characterized by a number of established groups controlling sizeable market positions; 4-6 groups controlling between 40 percent-70 percent of market premiums is not uncommon, with numerous smaller insurers competing for the remainder of the market, exacerbating the competitive pressures faced by all. Some GCC regulators are attempting to address these pressures, for example earlier in September, the UAE insurance authority announced its desire to see mergers within the UAE insurance market. Most of the GCC countries exhibit strong sovereign creditworthiness, as reflected in the fact that four of the six GCC sovereigns are rated Aa3 or higher, with all six being investment grade and five having a stable outlook. However, there remains the potential for political instability, as recently evidenced in Bahrain. With many Western insurers facing stagnant growth in their home markets, the growing insurance markets of the GCC present an attractive opportunity for them to demonstrate their strong technical expertise, distribution capabilities, customer orientation and financial strength, particularly within commercial property and casualty lines of business. Moody's expects that this trend will continue, with a number of Western insurers already having made acquisitions in the region in recent years.
The report presents a summary of the key business and financial characteristics of the insurance industries in the six countries comprising the Gulf Cooperation Council.— SG
