GCC insurance set for double-digit growth

Driven by government spending on infrastructure and a gradual increase in insurance penetration level in the region, the GCC insurance industry is expected to sustain its double-digit growth to hit  $62.1 billion by 2020 regardless of challenges posed by oil price plunge,  Alpen Capital said on Tuesday.
Despite a challenging 2014, the insurance industry continues to grow at a double-digit annual rate backed by increased awareness and favorable regulatory changes in most of the GCC nations, Alpen Capital said in its Insurance Industry report. 
"However, the persistent sluggishness in oil prices might put pressure on the gross domestic product, or GDP in the near term, creating challenges for its growth. In light of all these facts, the outlook for the GCC insurance industry is cautiously positive in the near to medium term," said Sameena Ahmad, managing director, Alpen Capital.
The report noted that the region's  insurance industry is currently  transitioning from being a protected industry into a globally competitive sector. "With governments realising the importance of an efficient and stringent regulatory requirement to foster growth, the industry is seeing several reforms to combat challenges such as slowdown in profitability and premium growth resulting from intense competition. Soaring valuations and limited market share are discouraging consolidation in the industry; however stricter solvency and capital requirement regulations may push small players to consider M&A route to sustain and grow in the industry", said Sanjay  Vig, managing director, Alpen Capital.
The report said the scale and growth of the insurance industry is strongly correlated with a country's economy. The GDP of the GCC economies is strongly linked to oil prices. We have projected two possible scenarios for the growth of the GCC Insurance Industry based on the economic growth projection of IMF, growth in population and inflation levels.
"As per our high growth scenario, the GCC insurance industry is expected to reach $62.1 billion by 2020, registering a compound annual growth rate (CAGR) of 18.7 per cent for the period 2014-2020," said the report.
The predicted drop in the GDP of the GCC countries for 2015 and the volatility in oil prices are expected to result in lower growth in premiums for 2015. Between 2014 and 2020, the IMF forecasts GDP growth in the region at a CAGR of 2.3 per cent. Additionally, population growth is expected at a CAGR of 2.4 per cent for the same period. "The resulting improvement in insurance penetration and density levels (based on historical regression analysis) is likely to bring about growth in GCC insurance premiums for the period 2014-2020. Our conservative growth scenario, assuming that the GCC countries will average non-life premium growth in line with their preceding five years, results in the GCC insurance industry reaching a size of $49.0 billion by 2020 at a 14.1 per cent CAGR."
The non-life insurance segment, growing at a CAGR of 20.2 per cent between 2014 and 2020, is likely to outperform the life insurance segment (CAGR of 5.9 per cent). This is primarily due to its line of compulsory insurance products and encouraging regulatory reforms.
The insurance penetration in the GCC nations is expected to increase to 3.3 per cent in 2020 from 1.4 per cent in 2014. At the same time, insurance density is expected to more than double. In 2014, eight insurers in Saudi Arabia re-capitalized their balance sheet to comply with the regulatory requirements and fuel future growth, leading to an almost 14.0 per cent increase in the Saudi Arabian insurance industry equity to $ 2.7 billion. Saudi Arabia, the largest country in terms of population, is likely to overtake the UAE as the largest insurance market in the region and drive the growth of the GCC insurance industry between 2015 and 2020.
Qatar is one of the fastest growing markets and is likely to remain at the third position after the UAE and Saudi Arabia, with a market share forecast of around 10.0 per cent between 2015 and 2020.
- issacjohn@khaleejtimes.com