Bahrain’s insurance sector leads the way in the GCC and MENA with its regulatory development and a large life sector, yet it is facing the prospect of slower growth.
The insurance sector in Bahrain has been developing on various fronts – a growing GWP, an increase in the number of operators, and continuous upgrading of the regulatory environment. However, market trends over the past few years signal the need for operators to revise their business strategies to cope with some of the serious challenges, such as the slowing growth of the life and takaful segments, and the large number of operators.
The slowing life segment
Life insurance has been a distinctive feature of Bahrain’s insurance sector, accounting for around one-fifth of the market operations, compared for example to 3% in Saudi Arabia and 10.5% in Oman. However, life premiums in Bahrain fell for the first time in 2014, reaching BHD57 million (US$151 million), 9% or BHD5.9 million less than the previous year. Most of this decline came from the family takaful business, which fell from BHD11 million to around BHD6.1 million, a reduction of around 45% compared to the 13% drop for conventional firms and 9% increase for overseas operators.
Several factors could have led to the decrease in life premiums between 2013 and 2014, said Mr Peter Drummond, CEO of Legal & General Gulf. These include a decrease in the rate of new business generated, an increase in the number of surrendered policies and partial withdrawals, a rise in gross claims, and a increase in lapsed or expired policies.
Competitive market
While the 2015 market results have yet to be released, it is worthy to look into the 2014 results to take the pulse of the market and address some of its challenges.
There are 25 operators in the market, in addition to Orient Insurance Co, which opened this year as a branch of the UAE-based Orient Insurance. In 2014, the top five players in terms of premium income controlled around 42% of the market.
The larger, the better
In Bahrain, the dominant operators are associated with larger groups, indicating that size matters in this market. The top five operators in terms of GWP demonstrate this fact – the largest is Bahrain Kuwait Insurance Co (BKIC) with around 10% of the market, and is linked to Gulf Insurance Group (gig). The second largest is American Life Insurance (9%), followed by Ace American (8%), Bahrain National Insurance (8%) and AXA Gulf (7%).
Some market analysts have raised concerns over the large number of players in this relatively small insurance market, especially with some of them facing big challenges in securing their base of capitalisation, with the Central Bank of Bahrain (CBB) having introduced new solvency guidelines for takaful operators in 2014. Encouraging M&A will be vital for players to consolidate. There were some successful attempts in the past, yet M&A has yet to become a trend. Last year, gig acquired 41% of the country’s largest takaful provider, Takaful International, making it the largest shareholder of the company. And in 2011, Medgulf Bahrain took over 75% of Allianz Takaful.
Takaful running out of steam?
Takaful has grown impressively in Bahrain and presently it accounts for around 20% of the market. The market includes six takaful operators with contributions reaching BHD57.29 million in 2014, hardly growing over the BHD57.22 million generated in the past year. This stagnation is a notable setback from the growth achieved in the previous 10 years. It is also the first time since 2003, at least, that takaful contributions have declined as a share of the market business, though just by 1% point. Takaful accounted for 21.1% of GWP in 2014, compared to 22.1% in the previous year.
Probably the biggest factor for this sluggish growth was the 45% plunge in family takaful contribution.
Stable financial centre
Bahrain’s well-regulated market has encouraged several international companies to set up branches in the Kingdom. However, there are only four direct providers listed on the Bahrain Bourse – Al Ahlia Insurance, BKIC, Bahrain National Holding and Takaful International.
Mr Drummond of Legal & General remains upbeat about the prospects of the insurance industry in Bahrain. “The Kingdom offers an ideal environment for the insurance industry, and it enjoys a forward-looking and business-friendly regulatory regime which will help sustain this growth in the long term. In addition, the Kingdom’s government has actively worked to maintain an open and diversified economy and has placed a great deal of focus on its legal and regulatory infrastructure. For these reasons I believe that the insurance industry will be progressing in 2016 and going forward.”
Bahrain has been able to achieve a distinctive position among its peers in the GCC. With a population of about 1.3 million covering an area of around 765 square kilometres, the country is the smallest, and yet, it stands tall in the financial sector, including insurance where it has the top penetration rate, highest localisation rate (66% of the workforce are Bahrainis) and an established regulator which is expected to guide the market and take it to the next level.