Oman-based insurance firms with exposure to Cyclone Mekunu — the powerful storm that devastated large swathes of Dhofar Governorate in May this year — could potentially see their bottom-lines impacted, according to the Central Bank of Oman (CBO).
The apex bank made the observation as part of a review of the different segments that together make up the Sultanate’s rapidly diversifying insurance industry.
“Cyclone Mekunu that made landfall in Oman in 2018 may up insurance claims and put pressure on the profitability of the insurance sector,” the banking and financial services regulator stated in its Financial Stability Report 2018, issued here recently.
The comment echoes projections made by high-level officials of the Capital Market Authority (CMA), which also doubles as the regulator of the insurance industry, announcing that the cyclone had generated hundreds of property, engineering and vehicle-related claims. These amounted to around $200 million in value barely a month later, with officials warning that the aggregate figure was expected to spiral when all of the claims were finally in.
Despite the growth of the industry in recent years, gross premiums totalled RO 455 million in 2017, which were marginally up from RO 454 million in previous year, the CBO said. A hefty 86 per cent share came from the general (non-life) insurance business, which includes a 34 per cent contribution from Motor Insurance and 30 per cent from Health Insurance.
The apex bank noted the need for “stringent risk management” in light of the high retention and loss ratios witnessed in the Motor and Health Insurance segments.
Insurers retained about 57 per cent of the risk on average, while transferring the balance to re-insurers. For Motor Insurance, however, the companies retained about 86 per cent of the premium (thereby also taking on a proportionately higher risk).
The retention ratio was about 70 per cent for Individual Life Insurance, it said.
“Net claims paid against Motor Insurance constituted about 54 per cent of the claims paid by the insurance companies. Higher claims along with higher retention ratio imply that the net loss ratio (net claims / net premiums) for motor insurance also remained high at 68 per cent. That is, 68 per cent of the premiums earned by underwriting the motor risks were paid back in the form of claims. Similarly, Health Insurance also has a high retention ratio along with high loss ratio (80 per cent),” the CBO report noted.
Similarly, the loss ratio of Liability Insurance was the highest at 82 per cent, the Central Bank said. However, as this segment accounts for a mere 2.3 per cent of gross premiums, the net claims paid against liability insurance were only about 1.9 per cent of the claims paid by the insurance companies during 2017.
The Sultanate, according to the Central Bank, is relatively underinsured and thus prospective for further growth. It explained: “Insurance penetration, defined as the ratio of insurance premiums to GDP, was about 1.6 per cent which is comparable to that of GCC countries but remains much lower than the global average of 6.5 per cent. Likewise, Insurance Density, which is per head insurance premium, is about RO 100 (2016: RO 99) per person as compared to the GCC average of RO 141 and global average of RO 252 per head.”
“Both of these indicators are suggestive of the potential available to cater to the underserved and unserved market segments. The upside potential suggests that despite some slowdown in economic activity, the long term growth prospects for the insurance sector remain optimistic as the growth can pick up with an increase in product awareness,” the CBO added.
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