Market fragmentation is likely to remain a feature of the Kuwaiti industry, thereby pressuring insurers’ means of service existing capital, said a Moody’s report, “GCC Insurance Industry: Growing Economy Will Drive Further Market Growth Over Next Two Years”.
The Kuwaiti insurance market is highly competitive and fragmented with 23 domestic companies (two of which are reinsurance) and 10 foreign companies. Limited insurance regulations and openness allowing 100% foreign ownership have resulted in the entry of many new insurance players, including takaful companies since 2000, said the report.
However, the top five insurance groups – Gulf Insurance Group, Kuwait Insurance Company, Warba Insurance Company, Al Ahleia Insurance Company and Boubyan Takaful Insurance Company – accounted for 63% of the market in 2014. The strong market presence of these five players conversely leads to intense competition among the smaller local players, with US$13 million as the average premium per insurer for the remainder of the market.
To strengthen insurers’ capitalisation, the Kuwaiti Ministry of Commerce and Industry increased core capital requirements in 2011 to KWD10 million (US$33 million) for composite insurers and KWD15 million for reinsurers, from KWD150,000. “This may act as a barrier to entry for new players but has not resulted in the exit or consolidation of smaller players so far, as we expect in some of the other GCC markets which have enhanced regulations,” said Moody’s. The majority of the companies are privately owned by cash-rich local companies or individuals, so capital support may be available if needed.
Despite the intense competition, the Kuwaiti insurance market lacks diversity, both product-wise and geographically. Many players concentrate on the domestic market with little or no geographic diversification. GWP is dominated by non-life at around 80% share, mainly from motor.
The Kuwaiti insurance market’s profitability is weighed down by competitive pricing and volatile investment income. For the largest players, combined ratios vary but are generally well below the 100% mark, and expense ratios remain low (often as a result of the reinsurance commission income received). However, this is not consistent across the industry as competitive pricing has resulted in poor underwriting performance among smaller companies, with low return on capital employed.
Kuwait’s insurance industry saw a total GWP of $1,007 million, contributing roughly 4.5% to the region’s GWP in 2014. Insurance penetration and density remains at 0.6% and $291, respectively, in 2014, low in comparison to both larger regional insurance markets and advanced economies. These factors, together with an improving economic backdrop and an increasing population, should facilitate future growth prospects for insurers, said the report.
KWD1 = US$3.28