MUSCAT, DEC 16 – The insurance sector in Oman grew at an average annualised rate of 10.3 per cent between 2011 and 2016 to $1.2 billion, the third fastest growth in the GCC. The expanding market is mainly attributed to the rapid rise in the health insurance segment. The share of health insurance in non-life gross written premium (GWP) grew from 18.1 per cent in 2013 to 30.3 per cent in 2016 on the back of increasing use of healthcare facilities and growing awareness about the benefits of insurance among the people, according to the GCC Insurance Industry report published by Alpen Capital, an investment banking advisory firm.
The report said the subscriptions have increased ahead of the forthcoming mandatory health insurance in Oman. However, the largest business line continues to be motor insurance representing over 40 per cent of the non-life GWP due to compulsory third-party policy requirement. The share of property insurance business has dropped over the years owing to a slowdown in construction activity.
Other key business lines of marine and engineering also witnessed a decline in the last couple of years due to a lackluster business climate. Consequently, the non-life GWP — making up 88.0 per cent of the total insurance GWP — grew at a CAGR of 11.4 per cent between 2011 and 2016. On the other hand, the life segment grew at a slow pace of 3.5 per cent and formed a small portion of the insurance market. During 2016, growth in life segment slowed due to severances in the construction industry resulting in less life insurance contributions for employees.
The insurance industry in Oman went through major regulatory changes since 2014, aimed at strengthening the capital base of insurers and developing the industry. According to the new amendments to insurance law in August 2014, the Capital Market Authority doubled the minimum capital requirements for local insurance companies from $12.9 million to $25.9 million. Further, the companies have to convert themselves into public joint stock companies, by divesting 25 per cent of their promoters’ holdings through initial public offerings. Such regulations are expected to improve transparency and provide the firms access to additional funds.
In March 2016, the regulator introduced the Takaful Insurance Law, to bring the Sharia-compliant insurers in line with the conventional insurance sector. They will have to abide by the same regulations implemented for the larger industry. In September 2017, the regulator received the approval of ministers to introduce mandatory health insurance for private sector expatriates from 2018. To be implemented in stages, this move is set to expand the country’s insurance sector.
The GCC insurance sector maintains resilient growth, given the significant penetration gap compared to the advanced economies and despite challenges such as drop in oil prices and reduced, public and business spending. Nevertheless, developing regulations, economic diversification efforts, mandatory health insurance and favourable demography present a bright outlook for the sector.
The GCC Insurance industry is stepping into the next phase of growth, fuelled by rising insurance awareness, economic revival and infrastructure developments and an expanding consumer base. Further, the maturing and stringent regulatory environment is likely to create strong, stable and sustainable business models,” says Sameena Ahmad, Managing Director, Alpen Capital (ME) Limited.
“The GCC insurance sector has started showing signs of consolidation following the strengthening regulatory landscape. The trend is gathering momentum due to stringent reserving and solvency requirements in some countries. The M&A activity in the GCC insurance sector has picked up in the last couple of years, as companies are looking for strategic expansion or mergers to form stronger entities.
In addition to intraregional deals, the region witnessed several cross-border acquisitions, wherein overseas insurers acquired stakes in local companies to penetrate the market. Regional players also made a few strategic investments in foreign companies to diversify geographic presence,” says Siraj Bhavnagarwalla, Managing Director, Alpen Capital (ME) Limited.
According to Alpen Capital, the GCC insurance market is projected to grow at a CAGR of 10.9 per cent from $26.2 billion in 2016 to $44.0 billion in 2021. This projection is based on existing fundamentals of the industry and economic outlook.
The growth in GWP is likely to be moderate in 2017, as the industry players are adapting to the new regulations amidst increasing competition and recovering economic activity. On one hand, increased capitalisation requirement and actuarial pricing are improving the financial performance of insurers and on the other hand, the regulations are encouraging consolidation activity.
Between 2016 and 2021, insurance markets in the UAE and Oman are anticipated to grow at the fastest annualised average pace of 12.1 per cent, followed by Saudi Arabia at 10.5 per cent.
The premium growth in Oman is likely to be driven largely by the introduction of mandatory health insurance and that in the UAE by new motor insurance pricing regime. Additionally, macro factors like population growth, infrastructure developments and revival of business activity will aid growth across the countries. While the market rankings of the countries are not expected to change through 2021, the share of UAE and Oman are likely to expand and that of others may contract.
The non-life insurance market is expected to grow at a rapid CAGR of 11.7 per cent between 2016 and 2021). At $39.8 billion in 2021, the segment will comprise 90.4 per cent of the total insurance market, an increase of 2.8 ppts from 2016.
During the forecast period, the life insurance GWP is projected to grow at an annual average rate of 5.3 per cent to $4.2 billion.