With 25 operators contending over a relatively small market, Jordan’s insurance sector has been witnessing profound changes over the past three years which could gradually put the sector on the right track.
Almost three years ago, a couple of insurance companies were shut down due to solvency problems; this was followed by the abolishing of the Insurance Commission (IC) as part of comprehensive state reforms which allocated regulation of the sector to the Ministry of Industry and Trade.
Earlier this year, Jordan’s youngest insurer, First Insurance Co (FIC) – established in 2007 – decided to merge with Yarmouk Insurance Co (YIC), a composite insurer formed in 1980. With this move, FIC will become YIC’S shareholder, owning – directly and indirectly – 76% of the company.
More M&As for the sector?
The merger of FIC and YIC will be the first in decades for the sector, and it is hoped that more consolidation to take place. This is important, considering the number of players competing over a relatively small pie of around JOD530 million (US$748 million) in 2014.
The merger is a positive step towards consolidation, said Dr Ali Al Wazani, CEO of FIC. “Hopefully, others will follow suit as rules now exist for M&As.”
The insurance market in Jordan is fragmented, with the top five companies controlling about 46% of total premiums as at the end of 2014. “This leaves 20 other companies competing on the remaining 54% of the market premiums, thus creating such highly competitive conditions,” said Mr Imad Abdel Khaleq, Managing Director and Board Member of Jordan Insurance Co (JIC).
He said that though a merger is underway, “due to the small market size, other M&As will have to take place before we can see tangible effects of consolidation”.
The level of corporate governance and transparency in the sector makes for a fairly encouraging environment for consolidation, noted Dr Al Wazani. “Companies can take steps towards M&As based on the data available in the market.”
M&As for a better market
M&As will definitely help restructure the market by concentrating resources of smaller companies into bigger players, thus helping them to diversify their business instead of focusing on one or two very competitive lines of business, said Mr Abdel Khaleq.
A medium-sized but fast-growing operator, Euro Arab Insurance Group (EAIG) is open to mergers for the benefit of the company and its shareholders, noted Mr Basem Haddadeen, General Manager.
He added: “Last year, the company grew by 35% against 25% in the previous year, but eventually we will be in line with the market growth rate, which is around 7%. Merging is a good way to grow and benefit from economies of scale. The present number of companies is larger than the market can take, and merging is a good means of solving this issue and helping to improve the weak capitalisation of some companies.”
Dr Al Wazani pointed out that merging can be a good option especially for companies interested in writing life business. “M&As can be a viable option for successful operators, not necessarily just for troubled ones. It offers a solution to deal with higher operating costs and intense competition, which have been putting pressure on profits.
“If our merger goes smoothly, we will consider other opportunities in the market. FIC has an appetite for M&A and considers it part of its future growth strategy.”
Mr Abdel Khaleq pointed out that if mergers can provide a faster route to growth and increased market share, this would be a strong motive for JIC to seek acquisitions.
Higher profits, but room for improvement
The market made around JOD30 million in profits in 2014, compared to around JOD20 million in the preceding year. “Though improved, the result is modest as it hovers around 10% of the market capitalisation. Besides, most of the profits are achieved by just a few companies,” said Dr Al Wazani, stressing that insurers are still far from achieving their potential.
The market leader, Arab Orient, gig, generated JOD5 million, followed by JIC, which recorded JOD3.5 million. The net profits of the top five players reached JOD14.4 million, almost half of the sector’s profits.
Motor still the biggest challenge
Despite the improved profits, the motor third-party liability (MTPL) business created around JOD12 million in losses, said Dr Al Wazani. Yet, operators continue to expand their business in this line, with motor premiums growing by 6% to JOD219 million in 2014.
He attributed this to the increase in cost of operations, forcing companies to write more business to reach critical mass. “Motor and medical are among the very few available options – though they are not preferred. Young managers are eager to expand their business and prove themselves. Moreover, the economy is not expanding and trade has been impacted by the political situation in the region.”
Looking ahead
Overall socioeconomic and political circumstances in Jordan continue to be challenging and there are always fears of dramatic changes as the country is surrounded by hot spots. Being a safe haven comes at a price as the country has been attracting those seeking protection and stability.
So far, insurers have been able to adapt to the challenges; since the beginning of the Arab Spring events in 2011, the sector has managed to grow by an average of around 7% annually. Though still below the double-digit growth of earlier days, it shows that the market is adjusting and still growing.
It is hoped that consolidation will be a hallmark of the sector and inspire other MENA markets to follow suit.
JIF strengthens efforts
Last April, the Jordan Insurance Federation (JIF) elected a new board with Dr Ali Al Wazani named as Chairman. The new Board will continue to focus on the market’s main concerns, particularly motor TPL, which accounts for around 28% of GWP and 41% of gross net premiums.
Losses in this line have been the main reason for the sector’s deteriorating results as a whole. Measures have been introduced to stem the flow of losses but it appears that none have helped. Hence, Dr Al Wazani and his team are going to work to revive the government’s promise to free the motor third-party liability (MTPL) tariff or adjust the price in a way that matches actuarial analysis.
Other than motor, one of JIF’s initiatives concerns compulsory medical insurance for the private sector, said Dr Al Wazani. Statistics suggest that only 62% of organisations with more than 100 employees are insured, and 95% of those employing at least three persons are uninsured. “We are in discussions with the Ministry of Industry and Trade to make medical insurance compulsory for this segment. If this happens, it will support the sector with income of around JOD250-300 million annually.”
Seeking an expanded and diversified role
The Federation has also been strengthening ties with local civil and public institutions to improve coordination with society on various levels, noted Federation Director Maher Al Hussein. “It is also part of JIF’s larger role to raise its level of interaction with the public.”
Amongst the latest achievements is an agreement with authorities to collect traffic violation fines from foreign vehicles visiting or passing through the Kingdom. JIF has also set up an electronic link with the Directorate of Customs to create a database for foreign vehicles entering Jordan.
JIF is also looking to create an electronic link with the Directorate of Motor Licensing in order to start issuing an e-motor insurance policy. “There are various projects JIF is working on to modernise its tools and upgrade its role. Such projects also promote insurance and increase awareness.”
JIF has so far succeeded in creating a database of information, collected since 2005, for companies to improve their MTPL underwriting and curb fraud, in addition to enabling more precise IBNR calculations, said Mr Al Hussein.
As for the Electronic Traffic Accidents Reporting System which the JIF implemented in 2013, he pointed out that it would take time to see results, but 2014 results have already shown promising signs. Such projects are also strengthening JIF’s relationships with other civil and public institutions within the Kingdom, he added.
Going beyond motor
JIF’s role is not confined to motor, said Mr Al Hussein. “We have been boosting the Federation’s role in areas such as training on the local and regional levels. JIF recently joined hands with the German Jordanian University (GJU) to create a subsidiary, the German Jordanian Insurance Centre (GJIC), to provide insurance-related courses for professional development.”
He added that JIF is also organising various local and regional events such as the Aqaba Conference, which is being recognised as a major event in the Middle East. “Jordan’s insurance industry has always been a pioneer of various initiatives, and JIF’s tasks include maintaining this position and serving the industry locally and beyond.”