August 2011

Alpen Capital’s GCC Industry report assesses the current market scenario in all GCC countries in order to understand demand-supply dynamics, growth drivers and future outlook and analyzes the performance of the industry players.

Industry Outlook

Insurance industry in the GCC has not been 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. We expect the sector to see higher levels of growth during the period 2011 - 2015.

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 region has very high cession rates showing a high dependence on reinsurers. At the same time, the investment portfolios of the insurance companies are heavily tilted towards equities, making them vulnerable in a volatile market.

Alpen Capital estimates that the Insurance industry in the GCC to be approximately USD 18 billion in 2011 and will rise to USD 37 billion in 2015 registering a CAGR of 20%. While UAE and Saudi Arabia are the two biggest markets in the region with a 75%(2015) combined share, while Qatar is expected to register the fastest growth at a CAGR of 30% from 2011-15.The report also expects the non-life segments to continue to comprise approximately 86% of total premiums in 2015.

Most GCC countries are experiencing rebounding economic activity. The region continues to diversify away from hydrocarbon dependence and have invested across varied sectors. 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. Non-life premium penetration is expected to increase from 1.12% in 2011 to 1.81% in 2015.

In addition, increasing growth of Takaful will provide a strong impetus to the Insurance Sector. Takaful, which is Sharia compliant, has significant appeal amongst the local population in the region.

Key Growth drivers

Increasing GDP remains the primary growth driver for the insurance sector. Life insurance will also gain momentum with rising population and increasing per capita income. In addition, as GCC countries continue to diversify and develop new sectors, this will bring in new projects which will increase the demand for non- life insurance. Another growth driver for the sector is the introduction of compulsory health, third party motor and home insurance which has resulted in significant premium growth in the non-life insurance segment.

For more details please click here to access the complete version of the GCC Insurance Industry Report.