Alpen Capital (ME) Limited, Dubai-headquartered investment banking advisory firm, announced the publication of its latest report on the GCC Insurance Industry for the year 2019. The report provides a comprehensive overview of the GCC insurance sector and outlines the recent trends, growth drivers and challenges in the sector. It also profiles some of the prominent insurance companies in the region.
“The GCC insurance industry which maintained a positive momentum over the years, witnessed a slowdown in GWP’s due to sluggish economic conditions during 2016 and 2018. However, going forward, we anticipate the GCC insurance sector to grow at a moderate pace owing to economic revival, growing population, strengthening regulatory reforms and continued implementation of mandatory insurance coverage. Infrastructure development, in line with upcoming mega events, are expected to further aid growth in the segment.” says Sameena Ahmad, Managing Director, Alpen Capital (ME) Limited.
“We expect the GCC insurance industry to witness a moderate growth in accord with improving fiscal activity and macro-economic factors. Additionally, governments’ proactive economic and liberalization reforms, and efforts to strengthen the regulatory environment, will support growth in the sector going forward. Steady rise in population coupled with the increase in senior population within the region is expected to boost premiums of the health segment.
The M&A sphere in the GCC insurance sector has remained active over the past two years with several intra-regional and cross border transactions as companies seek to build stronger balance sheets in order to sustain the stringent reserve and solvency requirements. In addition to interest from foreign players, we expect to see continuing M&A activity as companies develop technological capabilities to broaden their product offering and improve profitability.”, says Krishna Dhanak, Executive Director at Alpen Capital.
The GCC insurance market is projected to grow at a CAGR of 4.3% from US$ 29.2 billion in 2019 to US$ 36.1 billion in 2024. Sustained economic growth, increase in population and substantial infrastructure development are among the leading factors that will facilitate growth of the sector. Additionally, governments’ efforts to strengthen regulations, introduce mandatory lines and diversify the economy are also likely to drive GWP for the insurance industry.
The gradual slowdown of the insurance industry witnessed over the past two years is likely to continue until 2024. However, GWP is expected to improve relative to the subdued levels of growth recorded in the recent past, as long-term growth prospects continue to remain positive.
Insurance penetration in the region is expected to remain between 1.8% - 1.9% from 2019 - 2024, below the global average of 6.1%, offering scope for growth in the sector. Insurance density in the region is expected to increase from US$ 502.9 in 2019 to US$ 555.8 in 2024.
Life and Non-life Insurance Forecast: Life insurance GWP is projected to grow at a CAGR of 4.9% to reach US$ 4.7 billion in 2024. Growth rates across each country vary based on their projected population increases. On the other hand, the non-life insurance market is expected to grow at a CAGR of 4.3%, primarily aided by mandatory insurance business lines, new regulations improving the pricing of policies, anticipated recovery in economic activity, and subsequent rise in infrastructure investments. The non-life segment will continue to comprise 86.9% of the total insurance market at US$ 31.4 billion in 2024.
Country wise Growth Forecast: Between 2019 and 2024, the insurance market in the UAE and Saudi Arabia is anticipated to grow at a CAGR of 4.2% and 5.0%, respectively. In UAE, infrastructure spending and phased introduction of mandatory health insurance across its remaining Emirates will drive overall growth in the sector. Saudi Arabia is expected to benefit from the significant infrastructural developments, coupled with new business and a reformed tourism program. Furthermore, a rapid increase in the number of women drivers, which is likely to grow by 3 million in 2020, is expected to facilitate growth of Saudi’s insurance segment. Across the GCC, Kuwait is anticipated to grow at the fastest annualized average pace of 8.2%. The market share of each GCC country is expected to remain constant through 2024.
Economic Growth: As part of economic recovery efforts, regional governments have made higher budget allocations and undertaken a series of measures to improve the business environment and boost demand in key sectors. Sectors such as tourism, aviation, retail, hospitality, real estate and construction, alongside significant infrastructure spending in the run up to Expo 2020 and World Cup 2022, will provide a boost to the regional economies. GDP (at current prices) across the GCC is anticipated to grow at a CAGR of 3.3% between 2019 and 2024.
Economic Diversification Efforts: GCC nations have adopted long-term national strategies to diversify their economies away from the hydrocarbon sector, leading to increased construction activities. Currently, the value of total active projects in the GCC is estimated at US$ 2.6 trillion, which will increase the amount of insurable assets over the long-term. Additionally, GCC nations have introduced liberalization reforms such as opening up sectors for 100% foreign direct investment and easing visa regulations for tourists and expatriates, which would aid growth of the insurance industry.
Mandatory Health Insurance: Health insurance remains one of the most important business lines in the GCC and will continue to drive the insurance market across the region. Currently, GCC countries are each at different stages of rolling out mandatory health insurance, which is likely to come into effect in 2020. Similar regulatory changes across the GCC region will be a fundamental factor for growth of the insurance sector.
Favorable Demographics: Steady rise in population base, comprising of the youth and working population, will boost the demand for life, motor, health and property insurance products across the GCC. Moreover, the increase in senior population (age > 50 years) is expected to boost premiums of the health segment.
Strengthening Government Regulations: Strengthening regulatory environment and supervisory standards will improve compliance standards in accordance with the best international practices and lead to sustainable business models.
Weak Consumer Spending: GDP per capita in the GCC economies has been volatile over the past five years as headwinds from global economic slowdown and volatile oil prices continue to weigh heavily on private sector activity in the region. Weak consumers’ spending has led to a drop in sales of vehicles and real estate, affecting the overall demand for related insurance.
Low Penetration Rates: Low awareness regarding the importance of insurance products and relatively underdeveloped life insurance market continue to pose challenges and result in lower penetration rates vis-à-vis the global average.
Exposure to Risky Assets: Insurance firms in UAE, Qatar and Saudi Arabia have relatively higher exposure to capital markets making them prone to volatility in equity markets and susceptible to market and economic surprises.
Weak Profitability: GCC insurance sector is highly fragmented with 200 insurers operating within the region. Companies are likely to face profitability pressure due to mounting competition, high regulatory costs and strict accounting standards.
Lack of Standardized Regulations and Transparency: Regulations governing the insurance sector vary significantly across the GCC nations, thereby limiting the number of insurers with pan-GCC presence. A uniform and transparent regulatory environment will encourage insurers to modernize their offerings and adopt effective international practices.
Growing Consolidation: High operating costs combined with a strengthening regulatory environment is driving the GCC insurance sector towards consolidation. Smaller companies may be compelled to merge with stronger players to strengthen their capital base and enhance product offerings in a highly competitive industry.
Influx of Foreign Players in Onshore Financial Centers: The influx of foreign operators will facilitate the evolution of the GCC insurance industry as new entrants expand their product offerings and streamline business operations. With no restrictions on foreign ownership, onshore financial centers such as the Dubai International Financial Centre and Qatar Financial Centre have emerged as a hub for foreign insurers, reinsurers and intermediaries.
Industry Stakeholders Collaborate to Drive Consumer Awareness: Regulators across the GCC are increasingly collaborating with insurance companies to educate consumers on protection and risk-mitigating insurance offerings to make a positive impact on the development of the industry.
Continued Popularity of Bancassurance: The bancassurance segment continues to gain traction, particularly in the UAE. With falling interest rates and declining credit growth, GCC banks are offering insurance products as part of their wealth management services or bundling them with mortgage or personal loans.
Digitization and Technological Advancements: As insurance aggregators gain importance, insurance companies in the GCC are establishing presence across multiple platforms (websites, social media pages, digital kiosks and mobile apps) to interact with new-age customers. The increasing adoption of technologies will stimulate regional operators to develop technological capabilities or collaborate with InsurTech companies.
The GCC insurance industry landscape is maturing as regional governments are consistently seeking to enhance the regulatory environment to improve compliance and create sustainable business models.
Please click here to access the GCC Insurance Industry Report online.