The overall outlook for the life sector in the Middle East and Pakistan region remains positive, although projected economic slowdown in the GCC will drag on life insurance premium growth in the short to medium term, said Swiss Re Institute in its latest sigma report, “World Insurance in 2016”.
Low penetration rates and increasing awareness of insurance, coupled with structural factors such as smaller families and growth of private-sector employment, should increase demand. A large working age population will push demand for savings, protection and retirement products. The increasing acceptance and penetration of Shariah-compliant products like family takaful will also support sector growth.
Life premium growth remained robust in the Middle East, Central Asia and Turkey, up by 7.0% in 2016 (2015: 7.2%), mainly driven by the rapid increase in Turkey (24%), noted the report outlining developments in several markets in the region.
Excluding Turkey, life premiums in the region grew by 3.8%, down from 9.9% in 2015.
In the UAE, the region’s biggest market, premiums increased by 2.4% (2015: 5.5%), driven by continued demand from the expatriate population and a growing middle class.
In Saudi Arabia, however, premiums fell by 2.8% due to weak economic conditions, after a rebound in the previous two years. In Oman, premium growth slowed markedly to 3.0% in 2016 after a formidable 27% increase in 2015, as redundancies in the construction industry led to lower life insurance requirements for employees.
Meanwhile, premiums in Bahrain are estimated to have contracted in 2016 amid economic slowdown. In Jordan, premiums continued to grow but the market was held back by lack of competition.
The ongoing war and strife in Syria, Yemen and Libya continued to restrain growth in those market.
Non-life premiums up 6.5% to $45 bln
Non-life premiums in the Middle East, Central Asia and Turkey grew by 6.5% (2015: 7.5%) to $45 billion in 2016.
In Turkey, premiums were up 21%, driven by a sharp growth in motor liability, as a regulatory change led to higher rates in motor liability. Excluding Turkey, non-life premiums grew by 2.9% (2015: 5.6%).
In Saudi Arabia, non-life premiums fell for the first time since 2000. Premiums are estimated to have declined by 1.2% in 2016 after having grown by 17% in 2015, due to lower health and general insurance premiums, owing to a slowing economy and reduced employment.
On the other hand, premiums in the UAE grew by an estimated 2.3%, mainly driven by strong growth in medical insurance, the fastest growing line of business there.
Iran’s non-life real premiums are estimated to have rebounded by 4.9% in 2016 after a decline of 3.5% in 2015.
Non-life profitability in the region remained under pressure, with price competition eroding underwriting results and investment yields slipping further.
The outlook for non-life insurers is mixed. With public budgets and subsidies being cut, demand is expected to slow in the short term.
Health insurance, however, is expected to continue to expand as governments enact laws requiring and/or extending compulsory health coverage.
Competition is likely to remain intense, applying pressure on rates and profitability.
Moreover, a range of regulatory reform in the region has started to hurt the capital levels of insurers and increased the cost of compliance. This will likely encourage M&A activity, particularly among small and medium-sized insurers, said the report.
In the longer term, these developments will likely yield improved profitability and lower the volatility of risk-adjusted capitalisation of insurers. Recent incidences of cyber breaches in the GCC region have led to increased interest in cyber insurance.
Global premium growth slow in 2016
The report shows that global premiums increased by 3.1% in real terms last year, a fairly solid outcome in an environment of moderate global economic growth. This was down from 4.3% growth in 2015. The main cause of the weaker global premium development compared to 2015 were the advanced economies but growth in many emerging markets – excluding China – slowed also.
Global life premium growth slowed to 2.5% in 2016 from 4.4% in 2015 as advanced market premiums contracted, while life premiums in the emerging regions together grew by more than double the long-term average.
On the non-life side, global premiums grew 3.7% in 2016, reflecting relatively solid expansion among the emerging countries and another exceptional performance in China.
The emerging markets will likely fuel improvement in life premiums in the coming years, with China and India being the main growth drivers. Non-life premium growth is expected to remain moderate, with stronger economic activity in the advanced markets supporting momentum. M