1. Spotlight on GCC
Insurance
Industry with
specific reference
to UAE
Jabran Noor
This is a summary of the Takaful scene in Middle East
with specific reference to UAE
2. Jabran Noor
Spotlight on GCC Insurance Industry
with specific reference to UAE
Contents
1. Macro-Level Analysis of GCC ……………………………………………………………….. Page 2
2. Economic and Insurance Indicators ……………………………………………………... Page 2
3. Country-wise Analysis ………………………………………………………………………… Page 3
4. Regulatory setup ………………………………………………………………………………… Page 5
5. Islamic Models of Insurance ………………………………………………………………… Page 7
6. UAE Non-Life Insurance Market …………………………………………………………... Page 9
7. Leading Companies in UAE ………………………………………………………………….. Page 11
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1. Macro-Level Analysis of GCC
The six countries of the Gulf Co-operation Council (GCC – Bahrain, Kuwait, Oman, Qatar, Saudi
Arabia and UAE) have some of the fastest growing economies of the world. Following is a summary
of the economies.
2001 2002 2003 2004 2005 2006 2007
Real Sector
Real GDP growth (percent) 5.7 2.1 9.1 6.8 6.8 6.2 5.3
Real Non-oil growth (percent) 5.0 5.9 6.9 7.2 7.3 7.9 7.8
Nominal GDP ($bn) 333 350 405 483 612 719 804
Nominal GDP growth (percent) (2.7) 5.1% 15.7% 19.3% 26.7% 17.5% 11.8%
Crude oil production (million b/d) 13.9 13.1 14.9 15.4 16.0 16.0 15.4
Gas production (boe) 2.6 2.8 3.0 3.3 3.5 3.8 4.0
Financial Indictors
Fiscal balance (pecentage GDP) - 3.5 5.3 12.6 20.3 22.8 19.8
Consumer Price Inflation (ave) 1.0 2.0 3.0 4.0 5.0 6.0 7.0
Domestic debt, gross (percent GDP) 59 59.8 50.6 40.6 26.6 19.7 14.5
Domestic debt, net (percent GDP) 67.8 68.2 60.6 45.8 23.3 12.7 1.8
Current account balance ($bn) 31.5 25 52.2 89.4 166.7 196.7 188.3
Current account balance (percent GDP) 9.5 7.1 12.9 18.5 27.2 27.4 23.4
Foreign assets ($bn) 1,077 1,102 1,154 1,243 1,410 1,607 1,795
In 2007, the combined nominal GDP of GCC countries was around US$ 800 billion. This is about
70% of the Indian economy and about 80% of the South Korean economy.
The GCC economies are growing at a very rapid rate. The Real GDP, which is in the region of 5-6%
has tended to fluctuate with oil output. The contribution of the non-oil sector has been more
vigorous. The non-oil growth has been more than 1.2% p.a. higher than the overall compound GDP
growth in the period 2004-2007.
Financial indicators are also impressive. The average fiscal surplus is around 20% of the GDP in
2007 while the aggregate current account surplus is around 23% of the GDP. Net foreign assets
have also increased rapidly to about US$ 1.8 trillion in 2007.
Inflation data is weak in many economies of the region and often understated by the inclusion of
basket of items subject to regulation or control. The CPI is now running well above 10 percent in
most of the countries. Inflation is going to be a major challenge for the economies to tackle in the
future.
2. Economic and Insurance Indicators
The insurance industry of the GCC countries is considerably under-developed. This is in contrast to
considerably high economic prosperity of the region as indicated by the GDP per capita. Following
is a summary of the key indictors of the countries. Figures for Malaysia have also been included in
order to benchmark the figures against an Islamic country with developed insurance industry. UK
and US market figures are also included.
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Saudi Arabia Kuwait Bahrain
GWP 07 US$2,269m GWP 07 US$734m GWP 07 US$355m
Life vs Non-Life 3:97 Life vs Non-Life 18:82 Life vs Non-Life 29:71
Penetration - Overall 0.6% Penetration - Overall 0.6% Penetration - Overall 1.8%
Life 0.0% Life 0.6% Life 0.5%
Non-Life 0.6% Non-Life 0.5% Non-Life 1.3%
Density - Overall US$92 Density - Overall US$257 Density - Overall US$444
Life US$3 Life US$46 Life US$129
Non-Life US$89 Non-Life US$211 Non-Life US$315
GDP Per Capita US$15,223 GDP Per Capita US$40,345 GDP Per Capita US$24,625
Qatar UAE Oman
GWP 07 US$538m GWP 07 US$3,555m GWP 07 US$414m
Life vs Non-Life 5:95 Life vs Non-Life 17:83 Life vs Non-Life 18:82
Penetration - Overall 0.9% Penetration - Overall 1.9% Penetration - Overall 1.1%
Life 0.0% Life 0.3% Life 0.2%
Non-Life 0.9% Non-Life 1.5% Non-Life 0.9%
Density - Overall US$640 Density - Overall US$812 Density - Overall US$160
Life US$34 Life US$141 Life US$29
Non-Life US$606 Non-Life US$671 Non-Life US$131
GDP Per Capita US$73,750 GDP Per Capita US$43,182 GDP Per Capita US$15,000
Malaysia UK USA
GWP 07 US$8,824m GWP 07 US$463,686m GWP 07 US$1,229,668m
Life vs Non-Life 67:33 Life vs Non-Life 75:25 Life vs Non-Life 47:53
Penetration - Overall 4.6% Penetration - Overall 15.7% Penetration - Overall 8.9%
Life 3.1% Life 12.6% Life 4.2%
Non-Life 1.5% Non-Life 3.0% Non-Life 4.7%
Density - Overall US$332 Density - Overall US$7114 Density - Overall US$4087
Life US$222 Life US$5731 Life US$1922
Non-Life US$111 Non-Life US$1383 Non-Life US$2164
GDP Per Capita US$7,218 GDP Per Capita US$45,459 GDP Per Capita US$46,009
The economic prosperity of individual GCC countries in terms of GDP per capita is about 2 – 10
times that of Malaysia. However, the insurance premium for Malaysia is higher than the combined
insurance premiums for the GCC countries.
Malaysian insurance industry contributes 4.6% to the GDP of the country. In contrast, the GCC
insurance industry contribute only 0.5% - 2% to the GDP of their respective countries. The
contribution of insurance in USA and UK is around 9% and 16% respectively.
The insurance industry of GCC countries is pre-dominantly non-life. The share of non-life insurance
ranges from 3% - 30% of the total industry. Malaysia, in contrast has a life industry almost twice
the size of it non-life industry.
3. Country-wise Analysis
The following graph shows the gross written premium of the GCC countries.
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Gross Written Premium
4.0 US$ bn
3.5
3.0
2.5
2.0
1.5
1.0
0.5
-
UAE Saudi Kuw ait Qatar Oman Bahrain
Arabia
Non-Life Life
UAE and Saudi Arabia combined compromise 75% of the insurance industry of GCC, split as 50%
and 25% between the two countries. Other countries have similar market share of around 5% each.
Non-Life market forms the dominant portion of the insurance business within the GCC countries.
Only UAE has a reasonable quantum of life insurance business. However, this forms only 15% of the
total insurance premium of the country.
The following charts give the progression of GDP and Gross Written Premiums for each of the
countries over a period of 2003-2007, again benchmarked against Malaysia.
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6. Jabran Noor
Progression of GDP and GWP
Saudi Arabia Kuwait
450 2,500 140 800
400 700
GWP (Million USD)
120
GWP (Million USD)
GDP (Billion USD)
GDP (Billion USD)
350 2,000
100 600
300
1,500 500
250 80
400
200 60
1,000
150 300
0.59% 40 0.77% 0.74% 0.63% 0.60% 0.63%
100 0.46% 0.40% 0.44% 0.52% 500 200
50 20 100
- - - -
2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
Year GWP as % of GDP Year GWP as % of GDP
Bahrain Qatar
25 400 70 600
350
GWP (Million USD)
60
GWP (Million USD)
500
GDP (Billion USD)
GDP (Billion USD)
20
300
50
250 400
15
2.17% 2.14% 40
1.75% 1.80% 200 300
10
1.56% 30
150
1.02% 1.00% 0.99% 0.91% 200
100 20 0.81%
5
50 10 100
- - - -
2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
Year Year
GWP as % of GDP GWP as % of GDP
Oman
200 UAE 4,000 45 450
180 3,500 40 400
GWP (Million USD)
GWP (Million USD)
GDP (Billion USD)
GDP (Billion USD)
160 35 350
3,000
140
30 300
120 2,500
25 250
100 2,000
20 200
80 1,500
60 1.02% 1.00% 0.99% 0.81% 0.91% 15 1.22% 1.08% 0.98% 1.05% 1.06% 150
1,000 10 100
40
20 500 5 50
- - - -
2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
Year Year
GWP as % of GDP GWP as % of GDP
Malaysia
200 10,000
180 9,000
GWP (Million USD)
GDP (Billion USD)
160 8,000
140 7,000
120 6,000
100 4.72% 4.22% 4.19% 4.88% 5,000
3.82%
80 4,000
60 3,000
40 2,000
20 1,000
- -
2003 2004 2005 2006 2007 Sources:
Year - Gross Written Premium : AXCO Reports, Sw iss Re Sigma Report, Industry Figures
GWP as % of GDP
- GDP : World Bank
The Gross Written Premium as % of GDP for all GCC countries has declined over the years 2003-
2007. Saudi Arabia is the only exception to this. However, Saudi Arabia has the lowest penetration
rate within the GCC countries at only about 0.6% of the GDP. In contrast, the contribution of
insurance to the GDP has increased in Malaysia.
4. Regulatory setup
Following is a summary of the regulatory setup within the GCC countries and Malaysia
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Country Regulatory Body Market Summary Capital Requirements Regulatory Overview Shariah Compliance
Saudi - In 2003 a law was passed requiring all insurance companies to operate under Sharia'a
Arabia Saudi Arabian M onetary Agency - SAM A processing licenses of 35 - SR 100m (US$ 27m) for compliant Takaful insurance model; Exit plan for non-compliant companies in place
- Saudi Arabian law system is based on Shariah
(Insurance Supervision Directorate) companies. insurers - Significant improvement in regulations since SAM A took over regulations in 2004
- Fiqh Academy in 1985, allowd cooperative insurance. This led to
- 14 have got license to operate. - New licenses require around 25%-40% of the compnay to be listed on local market
establishment of NCCI in 1986
Also "Council of Cooperative Health - NCCI, established in 1986 was - Solvency requirements are - Foreign insurers can have maximum ownership of 49% with requirment to list also
- Saudi Arabia does not explicity require use of takaful models
Insurance" for health insurance partly privitized in 2004 prescribed applying
Kuwait - 25 companies present
- 15 national companies (10
composite; 5 non-life only) - Insurance law was enacted in 1961, however in 2004 FSAP commented on weekness of
Ministry of Commerce and Industry - 8 Arab companies (6 composite; existing law and recommended as a priority to enact a new law
(Insurance Department) 2 non-life only) - Existing supervisory processess are mostly focused on administrative work in addition to
- 3 branches of foreign companies ensuring insurers' compliance with regulations
(1 composite; 2 non-life only)
- no state insurer
Bahrain - 27 companies present
BD 5m (US$ 13m) for insurers
-18 locally incorporated companies
- 9 branches of foreign companies and BD 10m (US$ 27m) for - Well astablished an applied legal framewor, considered the most advanced in the region
- 56 exempt insurance and reinsurers - Bahrain issued Insurance Rulebook in April 2005. The rulebook sets out elaborate
Central Bank of Bahrain
reinsurance companies licensed in licensing and operational regulations for both conventional and Takaful insurance
Bahrain but purely operating - Solvency requirements are - No limits on foreign ownership in Bahrain Joint Stock Company
outside country prescribed for foreign insurers
- no state insurer
Qatar
Dual Regulatory Regime - 12 licensed companies -The insurance law was enacted in 1966 and lacked adequate legislation
- Ministry of Economy - 5 national companies
- Currently insurance companies can get a license to operated form Qatar Financial Center
- Qatar Financial Center (QFC) - 7 foreign companies
("QFC") which has world class regulations
UAE
- Under Federal Law 6 of 2007, establishmed of conventional and takaful
Dual Regulatory Regime - In mid 80s the country had put restrictions on issuance of new licenses to foreign
- 48 licensed companies - M inimum paid-up capital in companies is allowed, but no further requirements for operations of
- Ministry of Economy; Insurance companies, however in 2004 the coutnry started issuing licenses again
- 24 national companies place takaful companies have been decided.
Commission setup in 2007 - Currently the capabilities of regulatory body and regulatory framework are
- 24 foreign companies - DIFC encourages develolpment of takaful; Takaful companies are
- Dubai International Financial underdeveloped
- no state insurer - No solvency requirements subject to same regulations as conventional insurers, but must also fulfil
Financial Center (DIFC) - Abu Dhabi launched compulsory health insurance scheme in 2006
requirements set forth in Islamic Financial Services Handbook
Oman - 19 licensed companies - Insurance companies are governed by insurance law issued in 1979, which was last
- 10 national companies (3 - OR 0.3m (US$0.8m) for updated in 2002
composite companies; 5 non-life insurers - The reulations have been significantly updated following the collapse of a local insurance
Capital Market Economy only; 2 life only)
company in 2001 and now cover coperate governance, code of conduct and reinsurance
- 7 foreign companies (3
- minimum solvency management strategies
composite companies;
requirements in place - Foreign companies are required to reinsure upto 25% of the premiums in the country
3 non-life only; 1 life only)
- no state insurer with one or more of the national insurance companies
Malaysia
- Aiming to become International Islamic financial hub as laid out in 2001
master plan.
- RM 100m (US$ 0.3m) for - Shariah Advisory Council of Bank Negar M alaysia is responsible for
- 49 licensed companies insurers and takaful companies advising on matters related to takaful and other areas of islamic finance
- 8 composite companies - Conventional Insurance governed by M alaysian Insurance Act, 1996 - Director General of Takaful has to be satisfied that company is Shariah
- 25 non-life companies
Bank Negara Malaysia - minimum solvency - Takaful governed by M alaysian Takaful Act, 1984 Compliant
- 8 life only
requirments in place; Risk Based - Advanced regulatory regime in place for insurance and takaful companies - Regulatory does not require the use of specific takaful model
- 8 takaful operaters
Capital requirements introduced - One of the two countries in the world with separate insurance
- no state insurer
on trial basis in 2007 regulations for Takaful companies (other being Pakistan)
- Original model was M udarbah model but losing ground to Wakala. Only
two of original operators are still using M udarbah
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The regulatory regime of GCC countries is not very sophisticated. Not all countries have stringent
licensing, paid-up capital requirements and solvency regulations.
Bahrain and Saudi Arabia are in the process of implementing regulations modeled on the basis of
sophisticated insurance markets like UK and EU. This involves having proper licensing
requirements, paid-up capital, risk based solvency regulations, actuarial valuations and regular
statutory reporting. Qatar has an off-shore financial center and insurance regulations are in place
for operations from within the Qatar Financial Center (QFC). UAE, Kuwait and Oman have outdated
insurance regulations which are an impediment to growth of insurance within these countries.
Oman has recently tied up with QFC to develop regulations. UAE has taken steps in improving the
insurance regulations but this is based on Jordanian insurance model and not that of sophisticated
insurance markets.
The Shariah compliance for insurance companies in GCC countries is also not well established.
There are sporadic directives in place in some of the countries but nothing definitive in terms of
regulations.
In contrast, Malaysia has a very developed insurance regulatory environment. It has separate
regulations for conventional and Takaful companies. The regulator is also very pro-active in
implementing licensing and solvency regulations.
5. Islamic Models of Insurance
Following chart gives the composition of insurance for the year 2007.
Composition of Insurance (2007)
Takaful
Cooperative Model
Conventional within
Islamic Financial
System
World Wide Insurance (Billion US$)
Insurance in
Insurance In Non-
4,061 Muslim Countries Muslim
Countries
Conventional Islamic
4,016 45 Insurance Insurance
Conventional
Cooperative
99% 1% 39 5.8 Within Islamic
Model
Takaful
Financial System
87% 13% 3.5 0.48 1.66
60% 8% 28%
Source: Swiss Re Sigma
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Insurance is not a well-entrenched concept within the Islamic countries. It forms only 1% of the
world insurance in terms of premiums. About 87% of the insurance within the Islamic countries is
in form of conventional insurance and only about 13% is within the Islamic framework. A bulk of
this Islamic framework insurance (70%) is non-Takaful. This is predominantly the insurance
system of Iran and Saudi Arabia which is essentially the conventional insurance operating within an
overall Islamic financial system.
Takaful is based on a concept different from insurance as it involves sharing of risk within
participants instead of risk transfer to the insurance company. Takaful market is projected to
increase at a rapid pace (around 25-35% per annum) and international players within the
insurance markets are embracing the concepts on conceptual and market potential grounds.
Following chart gives the composition of the Takaful market.
Takaful (billion US$)
Malaysia 0.53 32%
Saudi Arabia 0.43 26%
Other Muslim Countries 0.24 15%
Sudan 0.23 14%
Indonesia 0.10 6%
UAE 0.08 5%
Bahrain 0.04 2%
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Sudan is the pioneer in Takaful. However, over the years, Malaysia has truly embraced the concept
of Takaful and worked towards promoting it side-by-side with conventional insurance. Takaful
companies are regulated through 'Malaysian Takaful Act, 1984'.
Malaysia has a market share of 32% of the Takaful market followed by Saudi Arabia at 26%. The
market share of Takaful in UAE is only 5%. There are only a few Takaful operators in UAE.
However, the trend for newly licensed insurance companies in UAE is to operate on a Takaful
model.
6. UAE Non-Life Insurance Market
The following chart gives a snapshot of the UAE Non-Life insurance market.
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UAE Non-Life Insurance Market
Gross Written Premium - Non-Life Composition of Gross Written Premium
AED bn
12 100%
10 80%
29%
8 60%
23%
6 30%
40%
20%
4 20%
2 0%
- 2003 2004 2005 2006 2007
2003 2004 2005 2006 2007
Marine & Aviation Fire Non Motor General Accidents Motor Others
Retention Ratio Gross Loss Ratio - All Lines
100%
100%
80%
80%
60%
60%
40%
40%
20%
0% 20%
2003 2004 2005 2006 2007 0%
2003 2004 2005 2006 2007
Retained Reinsured
Gross Loss Ratio - Marine & Aviation Gross Loss Ratio - Fire Gross Loss Ratio - Marine & Aviation
100%
100% 100% 90%
80%
80% 80% 70%
60%
60% 60%
50%
40% 40%
40%
30%
20% 20% 20%
10%
0% 0% 0%
2003 2004 2005 2006 2007 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
Gross Loss Ratio - Non Motor General Accidents Gross Loss Ratio - Motor Gross Loss Ratio - Others
100% 100% 100%
90% 90% 90%
80% 80% 80%
70% 70% 70%
60% 60% 60%
50% 50% 50%
40% 40% 40%
30% 30% 30%
20% 20% 20%
10% 10% 10%
0% 0% 0%
2003 2004 2005 2006 2007 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
Non-Life Premium as % of Total Gross Written Premium
Net Loss Ratio & Expense Ratio
100% 100%
80% 80%
60%
60%
40%
40%
20%
20%
0%
2003 2004 2005 2006 2007 0%
2003 2004 2005 2006 2007
Net Loss Ratio Expense Ratio
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The non-life gross written premium has increase at an average rate of around 25% over the period
2003-2007.
The composition according to class of business has been largely stable. Motor and Non-Motor
General Accidents form the two largest classes of business with a composition of about 35% and
28% respectively. Marine and Fire comprise about 15% each with other lines of business being 5%.
The retention ratios has increase slightly over the years. Around 50% of the premiums are being
retained by the insurance companies with the balance being reinsured.
The gross loss ratio for the overall portfolio is considerably stable at around 60%. By class of
business, motor and marine and aviation have relatively stable loss ratios. Greatest volatility was
experienced in case of fire insurance.
The Net Loss Ratio and Expense Ratios have declined slightly over the years. The overall ratio is
around 95% in 2007, down from nearly 100% in 2004.
7. Leading Companies in UAE
Following is a summary of the financials for companies in UAE
(AED mn)
2007
Most of the companies are operating in all three lines of business – non-life, life and health
insurance.
Oman Insurance, Abu Dhabi National Insurance Company, Islamic Arab Insurance Company are the
top three insurance companies, having a combined market share of around 45%. The second-tier of
companies are Arab Orient Insurance, Al Ain Ahlia Insurance, Emirates Insurance Company and Al
Buhairah National Insurance Company, with a combined market share of 30%.
Most of the insurance companies in the list posted double-digit ROE in 2007.
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