The overall risk level of the property and casualty (P&C) insurance sector in Bahrain has been assessed as "moderate" with the country risk deemed "high" by S&P Global Ratings.
The risk scale ranges from "low" to "intermediate", "moderate" and "high".
The industry risk assessment for Bahrain's P&C insurance sector is supported by low product risk, a well-established regulatory framework, and moderate profitability, noted the Economic Research & Analysis Department of Byblos Bank citing S&P's report. It considered that the insurance sector's low product risk reflects Bahrain's limited catastrophe risk and long-tail risk exposure.
However, S&P noted that the limited growth prospects and the low barriers to enter the overcrowded market constitute key risks to the Bahraini P&C sector. It indicated that the sector's return on equity stood at 5.4% in 2016 and averaged 6.9% annually in the 2012-16 period. It added that the premium income growth remained almost stable at below 2% annually during the 2015-17 period, and expected this trend to continue in 2018.
The "high" country risk reflects the country's modest level of wealth and the rapid accumulation of the already high government debt level, which are impeding economic policy effectiveness.
Further, the international rating agency said that Bahrain's high gross external financing needs and low foreign currency reserves could limit the country's access to external liquidity.