GCC insurance market to hit $20bn next year: QFCA

Posted on Nov 06, 2011

The GCC insurance industry is expected to reach $20bn by 2012 and reinsurance exposure is predicted to grow faster than the Gulf countries’ gross domestic product (GDP), according to Qatar Financial Centre Authority’s (QFCA) survey.

For 2010, total non-life and life premium volume in the Gulf Cooperation Council region is estimated at more than $16bn and projected to reach the threshold of $20bn by 2012, the QFCA said in its survey. Finance Minister HE Yousef Hussein Kamal said it is expected to reach $27bn by 2014.

“The potential for growth of the Gulf insurance markets continue to attract the global reinsurance industry,” the survey said, adding reinsurance capacity is expected to continue to increase in 2011 in line with the strategic objective of re-insurers to position themselves in the region for the expected growth to come and to further diversify their business.

The drivers of reinsurance growth would be the large number of major infrastructure investments and the scope for insurance penetration to increase, it said, highlighting that insurance penetration was just 1% against the global average of 3%.

With capacity in excess of the current needs and competition for market share, pricing levels are currently low, although reinsurance in the region generally remains profitable given the absence of major loss events. But “pricing levels are expected to come under additional pressure as the region remains highly attractive to international and regional re-insurers,” it cautioned.

Life business grows faster than the non-life segment but continues to be of marginal importance, according to the survey, which also said medical and health insurance is expected to be the fastest-growing line of business over the next two years, followed by engineering and construction.

Between 2005 and 2009, the GCC insurance premiums expanded almost five-times faster than the global average, with Qatar registering an impressive 25% nominal growth per annum.

In the GCC region, 46% of non-life premiums are ceded to reinsurance companies, the survey said, adding the total reinsurance market volume, accordingly, amounts to about $4.8bn. “Even though cession rates have been declining recently they remain high compared with other countries of similar wealth,” it said.

At 57%, Qatar displays the highest cession rate in the GCC region given the high share of large risks in energy, engineering and other commercial lines, it said, adding at 40%, Saudi Arabia has the lowest cession rate. It reflects the significant growth of medical business, which is largely retained by domestic insurers.

Local insurance companies in the GCC countries relay heavily on reinsurance, ceding about 46% of their non-life premium income to re-insurers, primarily foreign players domiciled in Europe and Bermuda, QFCA acting CEO Shashank Srivastava said. In 2009, non-life reinsurance business originating from the GCC region was worth almost $5bn, he added.

The survey said the limited exposure of the region to catastrophe risk increases its attractiveness, although the impact of climate change had arguably led to a recent increase in claims.

On reinsurance industry’s faster growth than the GCC’s GDP, the survey said a major factor was the expectation that underlying direct non-life insurance markets will expand more rapidly than the overall economy as insurance penetration rises and approaches levels which are more commensurate with the GCC countries’ GDP per capita levels.

Moreover, reinsurance exposure will rise in tandem with rapidly growing insurable assets in areas which are exposed to natural disasters.