Magazine

Read the latest edition of AIR and MEIR as an Interactive e-book

Mar 2024

Life & Health - Life in the top 3 markets

Source: Middle East Insurance Review | Feb 2016

Most MENA markets still have life insurance penetration of less than 0.3% of GDP, but the expanding middle class with its rising incomes and awareness mean there is significant scope for expansion. We look at the performance of the top life markets in the region by penetration.
By Cynthia Ang
 
 
The MENA region may be home to some of the richest economies in the world, but its life insurance business is under-developed by international standards, with the 0.3% penetration rate far behind the global average of 3.4%. 
 
   Only two countries – Morocco (1.1%) and Lebanon (1.0%) – have penetration rates comparable to those in other emerging markets, according to Swiss Re’s sigma report (Chart 1). The UAE, the biggest life market in the region by premiums, comes a distant third with a penetration rate of 0.5%. Most of the remaining countries have virtually non-existent life segments despite very high income levels in some countries, such as oil-rich Qatar and Saudi Arabia.
 
MENA insurance penetration, 2014
 
   Also, total life premiums generated by the 13 MENA markets have consistently accounted for only around 15% of overall written premiums in the last few years. The slow development of the sector is mainly due to regulatory issues, cultural or religious factors, generous social security benefits for nationals, and lack of awareness. As a comparison, global life premiums have a 55.6% share of world premium volume. 
 
   In the following sections, we look at the performance of the top life markets in terms of penetration rate.
 
Morocco – Double-digit growth in 1H15; momentum set to continue
Morocco’s 6.3% y-o-y growth in total premiums to MAD16.78 billion (US$1.7 billion) in the first half of 2015 was driven by strong sales of life and saving products. According to data released by the Moroccan Federation of Insurance and Reinsurance Companies (FSMAR), life and health segment premiums grew by almost 14% y-o-y to MAD5.24 billion in the first half of 2015. 
 
   Individual life products, which already dominate the segment, increased by 19.7% y-o-y to MAD3 billion, while group life sales shrank by 2% to MAD1.1 billion after posting a 13.2% growth last year. Savings product sales also saw a strong increase, up 18.9% at MAD906.1 million.
 
   The strong growth of life business was in part driven by short-term economic factors, including growth in property lending and consumer credit which helped to boost sales, according to Mr Ali Harraj, CEO of Morocco’s largest insurer by domestic premiums, Wafa Assurance, in an media interview. He added that long-term factors, including rising awareness about savings products like retirement plans, and economic uncertainty in the wake of the global crisis, also helped to boost growth in the segment. 
 
   According to data from Swiss Re and the FMSAR, life premiums grew by an average of 13.2% per annum from 2005 to 2014. Morocco’s economic growth is generally expected to pick up over the next few years on the back of an improving business environment and a projected increase in Eurozone economic growth. This, combined with reasonably high income levels by African standards, political stability, low inflation and a sophisticated financial sector, indicates a positive outlook for the Moroccan life segment.
 
Lebanon – Growth likely to remain subdued but positive 
Despite tough market conditions, Lebanon’s insurance industry posted a 6% y-o-y increase in premiums to US$417.7 million in the first quarter of 2015, according to official figures released by the Association of Insurance Companies of Lebanon (ACAL). Life premiums totalled $102.1 million in the first quarter of 2015, growing by 5% and below the non-life growth of 7%. 
 
   Lebanon’s life market has two key drivers: demand for credit and demand for saving products. Life insurance also benefits from being a condition for receiving banking products. For instance, housing loans, which constitute slightly more than 60% of total individual loans, can only be granted if the beneficiary obtains a life insurance policy to cover the outstanding loan amount. 
 
   However, growth in life insurance, which contributed to 24% of sector premiums in the first quarter of 2015, is likely to remain subdued. One of the main challenges for life insurers is that existing users have limited need for new products, while new users are difficult to reach, according to BMI Research. 
 
   On a positive note, the market research company said: “Lebanon is a country where life insurance is well established as a conduit for organised savings – among households who understand its benefits and who can afford it.” On the whole, growth in life premiums is likely to remain at around 5% in 2016, with growth to come largely from selling additional products to existing customers, said BMI.
 
UAE – Expat market still important
The UAE life market is currently the largest in MENA with a premium volume of $2.2 billion, accounting for 28.3% of the region’s life business. While penetration remained flat at 0.5%, life insurance density increased from $212 in 2013 to $235. 
 
   Life insurance is on the rise in the UAE, registering a CAGR of 19% from 2010 to 2014, primarily due to growing demand from the expatriate community that forms around 80% of the country’s population, and an expanding middle class. 
 
   Large international life insurers help mobilise the savings of expatriates, who prefer to build a savings pool in their respective home countries, according to Alpen Capital’s GCC Insurance Industry report. The report said: “As the UAE also offers social security like other GCC nations, alleviating the need of life insurance among its citizens, the life insurance segment receives the bulk of its premiums from expatriates. Also, expatriates prefer to purchase insurance from the companies from their home countries operating in the UAE.” As a result, foreign insurers managed to grab 81.4% share of the UAE’s life insurance segment in 2014 compared to that of national insurance companies’ 18.6%.
 
   Looking ahead, the UAE life sector is forecast to reach AED10.8 billion (US$2.9 billion) in 2017 from AED6 billion in 2012, according to a media report citing Timetric. Group life insurance is expected to retain its position as the largest category in the life segment between 2012 and 2017 with an expected written premium of AED9.2 billion in 2017, the report said. 
 
Positive outlook
On the whole, life premium growth in MENA is estimated to accelerate to 7% in 2015 from 4.6% in 2014, with strong growth coming from the oil-exporting countries, said Swiss Re. Globally, life premiums are estimated to have risen by just 3.3% in 2015 in real terms.
 
   Low penetration rates and increasing awareness will continue to boost demand. In addition, an expanding middle class and a high proportion of the working-age population will push the demand for savings, protection and retirement products while at the same time, rising incomes will lead to increased demand for wealth protection and accumulation products. Further, increased acceptance and penetration of Shariah-compliant products like family takaful will also support the growth of the life insurance sector in the coming years.
 
| Print
CAPTCHA image
Enter the code shown above in the box below.

Note that your comment may be edited or removed in the future, and that your comment may appear alongside the original article on websites other than this one.

 

Recent Comments

There are no comments submitted yet. Do you have an interesting opinion? Then be the first to post a comment.