GCC insurance growth outpaces developed markets

Growth rates in the insurance markets of Gulf Cooperation Council (GCC) countries remain higher than those of developed markets and have kept pace with those of some key emerging markets, according to a new report from AM Best.

Titled “GCC Growth Outpaces Developed, Other Emerging Markets,” the report compares GCC markets with developed markets and those of the BRIC (Brazil, Russia, India and China) countries.

It said gross premiums written (GPW) in the GCC countries had a compound annual growth rate (CAGR) of 21 per cent from 2002 through 2012, the same as Brazil and China, while Russia was at 18 per cent and India at 16 per cent.

Mahesh Mistry, Director, Analytics, said: “Interestingly, growth of GPW in the GCC markets continued to accelerate from 2010, and despite depressed financial markets, the GCC insurance sector is continuing to outpace most other markets in the analysis.”

While far fewer companies operate in emerging markets, developed markets are seen to be much more congested. However, developed markets have far more companies with niche strategies focusing on specific products or segments. By contrast, most companies within smaller, emerging markets tend to compete across all segments and product lines, creating intense competition across all market segments.

General economic growth and public spending in the GCC are likely to increase in the short to medium term, providing further impetus for the insurance market.

However, much of the recent growth in insurance has come from compulsory covers.

Vasilis Katsipis, general manager, market development – Mena, South & Central Asia, added: “Companies have taken high growth rates as a given, but governments are running out of opportunities to rely on compulsory business to stimulate the market. In this environment, premium growth is likely to be more subdued than the historical highs, which in turn puts more pressure on insurers to segment the market and identify strategies for growth.”

Market profitability

AM Best report said five-year cumulative profits in the developed markets totalled $560 billion, compared with $74 billion for China and $5 billion for the GCC. Relative to other emerging markets, the GCC markets are generating good profits, albeit on a small scale. GCC markets have been lagging in terms of life insurance profit, since there has been little business written in the segment.

The major drivers of profitability in the GCC market have historically been investment income and profits arising out of non-life business. In the past five years, the aggressive investment strategies followed by many companies in the region resulted in capital losses arising out of their real estate and equity holdings.

The report said insurance business in emerging markets is extremely competitive, with many companies complaining that there are more players than their markets can effectively sustain. More than 1,180 of the companies studied are in the developed markets of France, Germany and the United Kingdom. While far fewer companies operate in emerging markets, developed markets are seen to be much more congested. However, developed markets have far more companies with niche strategies focusing on specific products or segments. By contrast, all companies within smaller, emerging markets tend to operate across all segments and product lines, creating broad-based, intense competition.

Market dynamics

Premium volumes in GCC markets are heavily skewed to non-life business. Western markets have a 58-42 per cent split. In Western Europe, 58 per cent of premiums come from life business. The opposite is true in the GCC, where life business has among the lowest penetration rates of any emerging market, accounting for only 14 per cent of premiums.