The GCC insurance industry – which currently "is in a state of transition" – is expected to grow tremendously, with premiums increasing 20 percent by 2015 to $37 billion from $18 billion at present. Saudi Arabia and the UAE will be the two biggest markets in the region garnering 75 percent of the combined share by 2015, while Qatar is poised to register the fastest growth at a CAGR of 30 percent from 2011-15, Dubai-based investment bank Alpen Capital said Monday in its latest GCC Insurance Report. Saudi insurance sector is poised to reach $9.23 billion by 2015 growing at a CAGR of 18 percent. The UAE insurance sector is expected to grow at a CAGR of 19 percent reaching $18.3 billion by 2015. "Overall the outlook for the insurance sector in the GCC region is positive. While regional valuations are attractive, low insurance penetration and density reflect the opportunities for companies in the sector to position themselves strategically for periods of high growth", said T. M Lakshmanan, chief operating officer, Alpen Capital. 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. The life insurance penetration is expected to be around 13 percent while the non-life will be at 13 percent. 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, the report said. In contrast to the other GCC countries, life insurance growth in Saudi Arabia is expected at a much higher rate than non-life at a CAGR of 48 percent while the non-life sector will grow at a relatively stable CAGR of 14 percent. The life insurance density is expected to reach $64.88 by 2015 from the $14.59 in 2011, the report added. With the GDP registering CAGR of 10.7 percent, the insurance sector in Kuwait is expected to grow at an impressive rate of 17 percent in the next 5 years. The insurance industry in Oman is expected to grow at a CAGR of 18 percent. The insurance sector in Bahrain is expected to grow at a CAGR of 16 percent 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 percent in the kingdom. The life segment will lag marginally with a growth rate of 14 percent, the report noted. The report also expects the non-life segments to continue to comprise approximately 86 percent of total premiums in 2015 as 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 percent in 2011 to 1.81 percent in 2015, the report further aid. The growth and greater penetration of Takaful and other Islamic finance products is also expected to boost the industry's expansion. Alpen Capital said Takaful premiums grew at a rapid CAGR of 45 percent between 2004 and 2009. New distribution models including tie-ups with banks (bancassurance) will also play a role in driving growth in the insurance market. "The industry's growth is also aided by government spending, diversification of the economy and emergence of Shariah-compliant products," said Sameena Ahmad, managing director at Alpen Capital. The GCC insurance industry has not been immune to the financial crisis, though, the report said. 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, he said. The report noted that 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, it added. "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 and real estate, making them vulnerable in a volatile market," the report said. However, despite all these factors, the outlook for the GCC Insurance Industry remains positive. The low penetration of the industry provides many attractive opportunities for the companies operating in the sector.
