Asia-Pacic Journal of Risk and Insurance

Volume 3, Issue 2 2009 Article 8

Country Study: 2008 Review of the Middle East and North Africa (MENA) Insurance Markets
Editorial Team of Middle East Insurance Review

Copyright c 2009 Asia-Pacic Risk and Insurance Association. All rights reserved.

: Country Study: 2008 Review of the MENA Insurance Markets

Country Study: 2008 Review of the Middle East and North Africa (MENA) Insurance Markets
MiddleEast Insurance Review+

The Middle East in general and the Gulp Corporation Council (GCC) in particular have long been touted as the next big destination for growth. Driven by major infrastructure projects, the introduction of compulsory health and motor insurance in some countries and the development of takaful products, this region offers plenty of opportunities for both indigenous and foreign insurers. This is in spite of the slash in growth forecast for most Gulf economies in 2009 as showed by a Reuters poll. Although insurance growth rates in the MENA region are expected to exceed those of the world in the next few years, the markets remain relatively small. To become more dynamic, policymakers and regulators will need to fill the existing gaps in the underlying enablers, such as insurance awareness. Similarly, financial markets must continue to reform and develop, providing vehicles for investment and instruments through which finance can flow efficiently and transparently to those who can use it most effectively. In this article, we cover key developments in the insurance markets during 2008 in the following countries: Algeria, Bahrain, Egypt Iran, Jordan, Kuwait, Lebanon, Libya, Morocco, Oman, Qatar, Saudi Arabia, Sudan, Syria, Tunisia, Turkey, UAE and Yemen. Algeria. There are currently 16 insurance companies: 4 state-owned insurers, 7 private composite insurers, 2 mutuals and 3 specialized agencies. The market is dominated by the four state insurers Societe Nationale dAssurance (SAA), CAAR, Compagnie Algerienne dAssurance Transport (CAAT), and Compagnie dAssurances des Hydrocarbures (CASH). Together, they control around 80% of the market and specialize in direct insurance. Reinsurance services are provided by Compagnie Centrale de Rassurance (CCR). The life insurance market is underdeveloped and does not offer the capitalization products found in other markets, as the countrys social security plans offer 80% of salaries on retirement, in addition to social security reimbursements, which are also at 80%. Following the tragic earthquake of 2003, insurance against natural catastrophes became mandatory. All infrastructures buildings, private dwellings, offices, and industrial and commercial complexes are to be covered. However, according to a study by Algerias National Insurance Council (CNA), only 10% of Algerian households are insured against natural disasters. It attributed the low adoption rate to a lack of financial resources, a lack of information and general mistrust of insurance companies. In general, the industry is also hampered by cut-throat competition, a lack of transparency and training, and outdated IT systems and management tools. The current low level of personal liability and life insurance are gold mines waiting to be exploited in view of anticipated higher household income and savings. Various projects as

This article is based on the article with the same title by MiddleEast Insurance Review (January 2009) and reprinted with the permission and support of the editorial board of the magazine.

Published by The Asia-Pacific Risk and Insurance Association, 2009

113

Asia-Pacific Journal of Risk and Insurance, Vol. 3, Iss. 2 [2009], Art. 8

part of the US$60 billion public investment program for 2005-2009 and the recent entry of French insurance companies are other factors expected to boost the insurance sector turnover to more than $1 billion by 2010. Bahrain. The Bahrain Financial Harbor is expected to elevate the position of Bahrain in the global financial markets, especially in the light of the homecoming of over US$5.1 trillion of immigrated capital over the last decade. Already, the financial services sector, which contributes to approximately 27% of GDP, has been a key contributor to the nonhydrocarbon GDP and is expected to continue to grow along with expansion in Islamic banking and insurance. Total gross premiums in Bahrain grew 21% year-on-year to reach BHD135.6 million in 2007. Life insurance contributed the lions share of growth, soaring by nearly 67%, with medical and the traditionally strong motor business also growing by 39% and 16%, respectively. At the end of July 2008, there were 168 insurance firms, including 35 direct insurance companies, 24 locally-incorporated firms, 11 branches of foreign firms, and insurance ancillary services and organizations. Many in the industry are eyeing the plans for compulsory health insurance, as Bahrain now spends over BHD20 million a year on subsidizing healthcare services. However, the plan to roll out compulsory health insurance for expatriates in 2009 seemed to have hit a temporary snag late last year due to a change in the Minister of Health and the election of a new parliament. With 18 takaful firms and two retakaful operators, takaful is tipped to be the next big thing. Solidarity, one of the local giants, has said that it will pursue an IPO of its stock by the end of 2009 to fund expansion in Africa and Europe. Last April, a new takaful education program in the Kingdom welcomed its first students, part of a wider drive to develop human resources and vocational training across the sector. Egypt. Regulatory changes, including one allowing foreign firms to wholly own domestic insurers without the need for a local partner, are expected to set the stage for exciting growth in the Egyptian insurance sector, which currently comprises around 23 companies. Insurance premiums amounted to EGP7.4 billion in FY 2007/08, a 72% growth from FY 2004-2005. Public insurance companies share of the market plunged to 48.8% from 70.3% during FY 2004-2005, while the share of local private insurance companies grew to 13.9% from 10.1% three years earlier. Foreign private insurance companies accounted for 37.3% of the pie compared to 19.6% during FY 2004-2005. Life insurance premiums surged 115.3% over three years to EGP3.3 billion in FY 2007-2008, while property and casualty insurance premiums saw a smaller but still significant jump of 42.9% to EGP4 billion. In the first stage of non-bank financial reforms from 2004 to 2008, insurance supervision structures were developed, and one of the largest insurance institutions in Egypt and MENA region, Misr Insurance Company, was formed. The Peoples Assembly also approved a draft law on mandatory insurance covering civil liability in automobile accidents, covering millions of Egyptians and opening exciting new frontiers for growth. Under the second stage of the reform program from 2009 to 2012, a single supervising entity will be created for nonbank financial authorities, including capital markets, insurance, mortgage finance and financial leasing. In January, Allianz joined forces with PlaNet Finance, the First Microfinance Foundation (FMF) and Alexandria Business Association (ABA) to launch Egypts most ambitious microinsurance program to date. Allianz is indirectly offering death and disability insurance to FMF and ABA clients by insuring the loan institutions themselves against these risks. In the event that a client is disabled or dies, neither they nor their families will be responsible

http://www.bepress.com/apjri/vol3/iss2/8 DOI: 10.2202/2153-3792.1043

114

: Country Study: 2008 Review of the MENA Insurance Markets

for paying back the loan, and the institution receives a payout from Allianz to cover the default. Iran. The long-awaited privatization law following publication in the Official Gazette took effect in September 2008 and is expected to invigorate the Iranian private sector, including the insurance industry, which has long been overshadowed by a centralized economy, dominated by major government corporations for nearly three decades. According to the Head of Irans Securities and Exchange Organization last November, the stocks of insurance companies, excluding Iran Insurance Company, will be gradually offered on the Tehran Stock Exchange in the next Iranian calendar year, starting March 21, 2009. Foreign operators are mostly locked out of Iran due to sanctions. Currently, only one crossborder insurance firm, Fortis, is operative, servicing the nonlife segment. Continued political tensions between Iran and the U.S., as well as elements of the governments economic policy, and factional infighting within the administration will have negative effects on Irans economy and insurance sector, where a total of 19 companies operate. Irans has a promising nonlife segment with good development prospects due to a low level of penetration. Key drivers of growth in the nonlife segment in 2007-2012 are the anticipated rise in nominal GDP to US$604 billion from around US$225 billion and a near doubling of life density to $102 per capita by 2012. However, nonlife penetration is expected to remain roughly static over the period at approximately 1.3%, according to Business Monitor International. The miniscule life insurance business accounts for less than 10% of total market share. The key driver of growth in the life segment is the envisaged rise in life density from a mere $3 per capita in 2007 to $5 per capita in 2012. The countrys growing population will also contribute to growth. In December 2008, a new draft of the insurance Industry Overhaul Plan was published. According to the Vision 2025 plan, the insurance industry will be an economic, justiceoriented and reliable body, and will play a pivotal role in the capital market. Jordan. In March last year, the Insurance Commission of Jordan (IC) raised the minimum capital required to license new insurance companies from JD8 million to JD25 million. This is to ensure that weak companies with insufficient capital, which cannot serve customer needs, do not enter the local insurance market. The new capital requirement will not be applied to existing companies. However, IC Director General Bassel Hindawi has called on these companies to work to increase their capital for their own benefit and for the benefit of the parties covered by various types of insurance. Last May, the IC issued new instructions to regulate the bancassurance business, aimed at developing bancassurance, enhancing the quality of products and services, and strengthening the co-operation between the banking and insurance sectors. The following month, the IC issued licensing instructions for regional and representative offices of nonoperating foreign insurance companies to regulate and develop the Jordanian insurance market. A Royal Decree was issued last October approving the amended by-law on civil health insurance, which requires the renewal of health insurance cards once expired. The by-law also raised the monthly subscription for serving and former ministers and Parliament members, as the new regulations allow them to seek treatment in non-government hospitals, clinics and medical centers. First Takaful Co (FTC) was officially launched in June to become the third takaful operator in Jordan, bringing the total number of insurers to 29.

Published by The Asia-Pacific Risk and Insurance Association, 2009

115

Asia-Pacific Journal of Risk and Insurance, Vol. 3, Iss. 2 [2009], Art. 8

Kuwait. Total premiums in 2007 amounted to KWD165.8 million, with 85.5% written by domestic companies. There were a total of nine takaful operators in 2007, and together they generated KWD26.1 million worth of premiums. There are plans to establish insurance information and data bank to do further analysis and research for the benefit of the insurance industry, which suffers from a low level of transparency and technical skills. Nevertheless, there is significant growth potential given the relatively young population, a growing expatriate community and a flourishing economy. Increasing demand for takaful insurance products and real estate boom also offer great opportunities. These should be facilitated by a long-anticipated new insurance law drafted in line with IAIS standards, and separate takaful regulations in the works (see the interviews with Kuwaits Ministry of Commerce & Industry and Kuwait Insurance Companies Union in this issue). Lebanon. In 2007, gross written premium increased 17.5% over the preceding year to LBP1.13 trillion, helping the country maintain its rank among the top five Arab insurance markets. The life business accounted for a considerable share of 36% of total business and was the major force behind the overall growth as it increased by 49.5%, whereas nonlife premiums grew by only 4.9% from the preceding year. In 2008, the Association of Lebanese Insurance Companies (ACAL) unveiled a three-year plan to restore Lebanon to its former position as a regional insurance centre. The plan includes actions such as launching an annual Beirut Rendezvous insurance forum, organizing specialized training courses for the sectors employees, boosting ACAL technical committees to accumulate market expertise, and activating a centre for resolving insurance disputes. Earlier, ACAL initiated the ISO 90002000 certification process for quality management systems. A new pension plan has been approved by the Lebanese Parliament to replace the existing End of Service Indemnity program (EOSI) established in 1963. The new plan stipulated that the retired person will start receiving a monthly pension at the age of 64. The added value of the new plan is that it provides medical care to retired personnel and a monthly pension, compared to one lump sum retirement and no health coverage in the old system. Challenges faced by the insurance sector include the protracted delay in the new insurance law, price competition, relatively high taxes imposed on insurers operations, and a fragmented insurance sector (see the interview with the Insurance Control Commission in this issue). Libya. There are seven licensed insurance companies in the market, with Takaful Insurance Company being the latest to enter at the end of 2007. The latest North African country to liberalize its insurance sector, Libyas life insurance accounts for less than 5% of total market share. In addition, insurance penetration rate is less than 0.5% and insurance density barely reaches US$28. Gross written premiums grew by nearly 11% year-on-year to LYD208 million in 2007. About 25% of this came from the fire insurance business, followed by motor third party liability (TPL) and motor comprehensive lines in second place with each accounting for around 14%, engineering for around 13%, and marine cargo at 11%. Apart from the challenges faced in privatization and from low insurance awareness, the lack of human resources is a serious problem as the market used to be served by a single company. There is a need to establish insurance institutes to provide the market with experienced and educated cadres. The countrys new insurance regulatory body, which started operating only at the beginning of 2008, also needs time to prove itself. There is a lot to do, and the regulator shoulders a big responsibility in organizing the market. The

http://www.bepress.com/apjri/vol3/iss2/8 DOI: 10.2202/2153-3792.1043

116

: Country Study: 2008 Review of the MENA Insurance Markets

Insurance Supervisory Authority is now working hard to organize the industry with the goal of laying the foundations for a strong insurance industry that can grow and compete in the free market conditions. Despite liberalization, the market is not totally open and some experts have recommended easing the terms of entry and allowing higher degrees of exposure to foreign players. Achieving greater transparency and corporate governance culture would also help the market. Morocco. The Moroccan insurance market, considered a leader in North Africa, is the most dynamic market in the Maghreb region, thanks to a mature financial system, the presence of international groups, and a high awareness of insurance. Moroccans insurance sector looks promising with total insurance turnover increasing by 13% year-on-year to MAD10.25 billion in the first half of last year. Nonlife insurance dominated the market with a 73% share. Further potential has been created with the free trade agreement with the U.S. which is expected to bring more American insurers to the Moroccan insurance market, allowing them to establish branches from 2010. In 2007, there were 17 insurance companies and one national reinsurer, as well as more than 150 insurance brokers operating in Morocco. As the national reinsurer, SCR receives an obligatory 10% cession of all domestic insurance. In addition, it receives up to 50% of all treaties covering domestic insurers. However, the obligatory cession for nonlife business is expected to be removed soon, probably by 2012. Morocco launched its first risk-management association, AMRIM, which held its first general meeting in Casablanca last April. The association expects to give more structure to the riskmanagement field in Morocco by supporting its members in their efforts in implementing and developing risk management, promoting risk management, spreading a risk management culture, and helping the government to deal with the main risk issues threatening the country Oman. The history of Omans insurance sector can be classified under two main eras: preand post-6 June 2007, when Cyclone Gonu effectively raised the awareness of the need for adequate covers. The industry has also been helped by a buoyant economy, a burgeoning population and a supportive regulatory regime. The Capital Market Authority (CMA), which has regulated the industry since 2004, issued a license to Vision Insurance in late 2007, raising the number of national and foreign companies to 11 and nine, respectively. Total direct premiums of the insurance sector grew 17% year-on-year to OMR168.6 million in 2007. Apart from paving the way for more companies to be established in Oman, the CMAs policy of avoiding restrictive regulations has allowed the market to grow. In late December 2008, the CMA issued a decision amending the provisions of the Regulation of the Insurance Companies Law. The move comes within the regulators endeavors to improve the regulation to cope with the latest financial and economic developments to upgrade the efficiency of the insurance sector. In the same year, it also introduced several new regulations, including the unified motor insurance policy, a joint electronic database and a minor road traffic accidents system. In 2008, CMA also issued an administrative decision amending its organizational structure. Under this reorganization, the Directorate General of Insurance Regulations, the Directorate General of Market Operations, and the Directorate General of Companies and Funds Compliance were merged and renamed as Directorate General of Market Operations and Insurance Regulation. The licensing of insurance companies, insurance brokerages and agencies, has been brought under a single directorate of licensing. The supportive and

Published by The Asia-Pacific Risk and Insurance Association, 2009

117

Asia-Pacific Journal of Risk and Insurance, Vol. 3, Iss. 2 [2009], Art. 8

pragmatic stance of government agencies for Omani insurers has won kudos from industry observers such as Standard & Poors. 2008 saw other achievements. The long-anticipated formation of Oman Re, targeted at increasing the opportunity for reinsurance premiums to be retained within the Sultanate, was finally realized. In addition, the Orange Card automobile insurance system, which is similar to Europes Green Card system, was implemented from September. The system covers the insureds legal liability towards third parties while passing through Arab countries subscribed to the agreement. Medical insurance offers vast potential, with the government increasingly offloading its burden of taking care of the health of citizens. With more corporations now undertaking group health insurance schemes for their employees, this has led to insurers such as Al Ahlia, National Life and New India Assurance to re-launch health insurance schemes. Competition, however, is heating up with at least two more insurance companies expected to join the fray soon. Other problems include the uncertainty of the dollar vis--vis regional currencies, an under-developed insurance network and a limited availability of insurance products. Qatar. The insurance sector looks likely to continue expanding in Qatar, albeit from a low base, aided by government efforts to encourage health insurance among the expatriate population as well as corporate and individual insurance. According to market reports, premiums payments will reach around US$1.5 billion by 2013, and most of these would be for property and accident risk coverage. A number of Qatari firms are looking to both increase their exposure to the insurance market and to offer a wider product range. For example, in September 2008, ALICO AIG Life launched a bancassurance agreement with Standard Chartered Bank, and in mid-August, Qatar Islamic Bank announced its plans to establish a takaful insurance company. Moves are underway to raise greater insurance awareness and promote talent. The Qatar Financial Centre Regulatory Authority (QFCRA) has announced plans to launch a new Arabic corporate website, while in the beginning of September 2008, the QFC unveiled plans to set up a training institute offering accredited courses covering subjects such as insurance, wealth management and banking. Late last year, the Qatar Financial Centre Authority (QFCA) launched the Qatar Insurance Platform to help develop the insurance market, bring its growth in line with that of other booming sectors in the economy, and pave the way for Qatar to become a regional insurance hub. A new super-regulator combining the QFCRA, Qatar Financial Markets Authority and the Central Banks Banking Supervision and Consumer Services Units was expected to be formed in the first quarter of last year, but the plan has yet to see fruition. The still-unnamed single regulator is to offer a higher standard of regulation for the banking, finance, investment, insurance and reinsurance clusters and establish Qatar as key player in the regional and international financial services map. The QFC has so far attracted the likes of AXA, Zurich, RSA and AIG. The Qatar Insurance Co, one of the five listed insurers in Qatar, is also relocating its international operations to the QFC. Global brokers such as Nasco, Marsh, HSBC and Aon are presently either authorized or in the process of becoming authorized in Qatar. Saudi Arabia. Saudi Arabia, which represents between 50% and 60% of the GDP of the MENA region and 70% of the GDP among GCC member states, will witness strong growth in its insurance sector over the next five years, according to a 2008 report prepared by the Saudi Arabian General Investment Authority (SAGIA) in partnership with the Oxford

http://www.bepress.com/apjri/vol3/iss2/8 DOI: 10.2202/2153-3792.1043

118

: Country Study: 2008 Review of the MENA Insurance Markets

Business Group (OBG). The estimated per capita premium in the Kingdom is expected to increase from US$53 to $220 during this period. Many see the enforcement of compulsory health insurance for locals and expatriates as fuelling expansion in the healthcare sector. It has been estimated that health insurance will rise markedly and hit SAR15 billion by the end of 2008. By 2010, the health insurance market is expected to be worth some SAR30 billion. As Saudi Arabias retail and commercial insurance markets continue to develop, one of the main challenges will be ensuring a workforce which is fully qualified to service the sector. The next step for the Saudi insurance market is to develop its own talent in an industry where 82% of its 4,200 employees are foreign. The Saudi Arabian Monetary Agency has so far shown itself to be a prudent financial regulator, maintaining a balance between enforcing regulations and supporting market growth. The SAMA plans to introduce a new set of insurance regulations, in an effort to preempt the potential occurrence of fraud in the Kingdoms insurance sector. The new statutes, which are expected to be implemented early this month, will be mandatory on all insurance and reinsurance companies, including the branches of foreign firms and insurance middlemen. Under the regulations, insurance companies are required to pass on information about fraud to concerned authorities and SAMA, and to lay down emergency plans to counter fraudsters. As of last August, 18 insurance companies, including Saudi Re, were fully licensed to operate in the Kingdom and this was expected to hit 25 by the end of 2008. All insurers were required to be registered by March last year. With a capital of SAR1 billion one of the largest in the Arab world Saudi Re was the first professional reinsurer to be established in the Kingdom in August 2008. The Saudi reinsurance market is estimated to be worth SAR2.6 billion. Apart from the strong macro-economic growth and the implementation of compulsory insurance classes such as motor, the Kingdom also benefits from a young population and the overall growth of the financial sector. Over the next five years, there are plans to invest $70 billion in oil and gas infrastructure, $140 billion in general infrastructure projects, $92 billion in petrochemicals, and $90 billion in electricity and water. Such massive developments will undoubtedly bode well for the insurance market. Sudan. Sudan introduced the worlds first general takaful product in 1979 and is the only country in North Africa to make it compulsory for all insurance businesses to be Shariahcompliant. However, despite the long history of takaful in Sudan, the market remains relatively small. The 15 insurers generated a total premium volume of US$203.1 million in 2006, and insurance density and penetration were way below international standards at $5.5 and 0.5%, respectively. The Sudanese financial market is considered young and underdeveloped following years of repression, political and economic instability. Although the government has embarked on policies to reform and develop the financial sector, it will take some time to overcome the challenging issues in the insurance sector. Syria. Total insurance premiums reached SYP9 billion in the first three quarters of 2008 and was expected to rise by around 40% year-on-year to SYP13 billion by the end of the year, according to data released by the Syrian Insurance Supervisory Commission (SISC). Despite the sectors impressive growth, however, it still lags behind government predictions which put premiums at SYP37.2 billion by the end of 2010. The country welcomed its first Islamic insurer, Al-Aqeelah Takaful Company late last year. In all, 14 firms have been fully licensed but not all are operating. Last August, insurance companies agreed to create a special pool to co-insure foreign vehicles which pass through

Published by The Asia-Pacific Risk and Insurance Association, 2009

119

Asia-Pacific Journal of Risk and Insurance, Vol. 3, Iss. 2 [2009], Art. 8

Syria. The state-owned Syrian Insurance Co (SIC) is the largest shareholder in the pool with 30% of business returns, while the remaining is divided among the other seven private insurers. The initiative will help companies to spread their risks and reduce administrative expenses through sharing offices. It will also allow them to acquire fair share of business and preserve rates. The SISC moved last May to save the prices of marine covers from further deteriorating by issuing a tariff. However, some players felt it was against the market interest to interfere in setting prices and limiting competition among players, arguing that underwriting guidelines should be the main determinant of price. The SISC defended its decision as the marine covers are one of the compulsory lines and that rates had declined to a threatening level which could affect the whole market. The government is increasingly giving the private sector a larger role in the services sector. An industry-led initiative to establish a specialized health insurance company to serve mainly public sector employees will help to reduce the governments financial burden and prevent prices from dropping to lower rates. Due to the free health service offered to citizens over the years, investments in this field lagged behind, creating total dependence on the public sector facilities and affecting the overall private medical infrastructure. It is hoped that this initiative would open the door for insurers to increase level of cooperation and that this will be extended to other lines like motor. The governments decision to insure its properties and projects through the SIC is still controversial, with private players seeking a section of the pie, arguing that this contradicts with ending the state monopoly over the insurance sector. However, the government claims that there are wide segments to be tapped and players can innovate in different lines. In addition, the decision aims to create a balance as the SIC, as a state-owned company, does not enjoy the freedom of operations which private operators have. Other plans to further promote the insurance market include setting up an institution to train potential employees for the industry and the development of national corporate governance codes and other codes of practice for insurance companies. Tunisia. The Socit Tunisienne dAssurances et de Rassurances (STAR) was partially privatized in 2008, with the sale of a 35% stake in the company to French mutual insurer Groupama signifying the first active foreign presence in the Tunisian insurance market. As the winning bidder, Groupama will play an active management role, bringing expertise and raising the companys performance and the bar for its competitors. The privatization of STAR could also open borders to foreign participation, an experience that would overhaul the sector, import more sophisticated products and push local companies towards consolidation in the face of greater competition. Life insurance continued its upward trend of 23.4% in premiums in 2006 and 15% in 2007. Though the market share remains limited, it is a promising segment because of the low penetration. The 2008 finance law aims to increase the cost of a life insurance contract from US$1,645 to $2,467 per household, which will be tax deductible. The authorities have enacted a number of reforms in past decade, updating the regulations that govern the insurance sector, and giving space and incentives for insurance to expand. For instance, there have been notable efforts in health insurance and fiscal incentives related to life insurance. Also, rules for car insurance have been better defined. Despite such progress, Tunisias insurance sector still needs to modernize. The General Committee of Insurance (CGA), the insurance supervisory authority, needs to enhance its supervisory capacity as insurance becomes more diversified and sophisticated. It will also

http://www.bepress.com/apjri/vol3/iss2/8 DOI: 10.2202/2153-3792.1043

120

: Country Study: 2008 Review of the MENA Insurance Markets

need to strike a balance between a government wishing to maintain social protection and a private sector keen on modernizing and raising the industrys profitability. Insurance is likely to get a further boost with the launch of Tunis Financial Harbor, targeted for the beginning of 2009. The $3-billion project is aimed at transforming Tunisia into North Africas financial hub with insurance firms, banks, consultancies and an academy to train experienced and new traders. It is expected to create thousands of jobs and bring in billions of dollars to the economy. Turkey. Due to the global crisis and domestic slowdown, Turkeys insurance industry has shrunk for the first time since 2001, according to the data of the Association of the Insurance and Reinsurance Companies of Turkey (TSRSB), which show insurance premiums increased by 10.25% to TRY8.8 billion in the first nine months of 2008. However, this growth was negated by the 11.13% annual inflation in Septembers consumer price index, which will affect insurance prices. In addition, it will also have a negative effect on Turkish companies appetite for mergers or partnership deals due to constraint in liquidity. Last October, Yapi Kredi Bank said it had abandoned plans to sell its insurance activities because it could not get the price it wanted during the global financial crisis. However, the growth of the Turkish economy continues to accelerate more quickly than anywhere else in Western Europe. This has had a profound effect on the insurance industry and attracted considerable international interest. While foreign capital shares in the insurance sector was around 5% to 7% in 2004, it increased to 30% in 2007. Nevertheless, premium revenues constitute only 1.7% of the gross national product, whereas the average of EU countries is 8.4%. The continued influx of foreign investors and the amended insurance law of June 2007 should foster an environment adhering to EU norms. With this, new insurance and pension products and services are expected to be introduced in the market, leading to long-term growth for the sector. UAE. The UAE insurance sector, with total premium volume of US$3.56 billion in 2007 according to Swiss Res Sigma, continues to lead the GCC countries. The sector has expanded between 15% and 20% during the last three years, driven by population growth and economic development. The number of employees in the insurance sector also rose by 17% in 2006 from the previous year. The nonlife and life segments have been predicted by Business Monitor International (BMI) to have compound annual growth rates (CAGR) of 17% and 13%, respectively, for the period 2007-2012. A CAGR of 25.4% was recorded during the period 2001-2006. The boom in both oil and real estate had much to do with this sterling performance. The Dubai Health Authority recently announced a new law which will overhaul the healthcare funding system in Dubai, whereby health insurers are likely to play a major role in delivering compulsory basic and advanced healthcare for all residents with effect from 1 January 2009. This follows from the compulsory healthcare implemented in 2006 in Abu Dhabi and may also lead to federal legislation in due course as the UAE looks to harmonize healthcare provision across the federation. Aside from health insurance, there has been a disappointing absence of regulatory development in the last 17 months, despite expectations that changes would be forthcoming following the passing of the Insurance Law in August 2007. One of the primary functions of the Law was to establish a new semi-autonomous Insurance Authority responsible for the regulation of the insurance industry in the UAE.

Published by The Asia-Pacific Risk and Insurance Association, 2009

121

Asia-Pacific Journal of Risk and Insurance, Vol. 3, Iss. 2 [2009], Art. 8

Up till now however, the Insurance Authority has only recently been formally constituted and become operational, with a new Director General taking up his position at the Insurance Authority in June 2008. Legal firm Clyde & Co said it expects developments in the months ahead, including the promulgation of draft regulations and a more active and informed approach to regulation. One important issue to be resolved is whether the Authority will retain the current restriction that requires non-branch insurance companies established in the UAE to be publicly listed and have at least 75% UAE national ownership. According to Economy Minister Sultan bin Saeed Al Mansouri, the UAE economy is strong enough to deal with the repercussions of the global meltdown and is projected to grow 6% in 2008 compared with 5.8% in 2007, although the real test will be in 2009. Insurance earnings, like elsewhere, could be affected by the falling stock markets although most UAE insurers have generous capital bases that tend to be invested in the equity markets, which have boomed over the past few years, media reports have said. Yemen. Yemens economy was expected to produce a 5.4% growth last year, up from 2007s 3.3% real GDP level. The upward trend is largely the fruit of far-reaching reforms as outlined in the 2006 National Reform Agenda. It focuses on four key areas: increasing political participation, improving governance, enhancing public administration, and revitalizing the business environment. Yemens financial services sector is underdeveloped and the insurance market is small, comprising only 12 insurers serving a population of 22 million. Premium volume was estimated at around US$61.2 million in 2007. United Insurance Company, the largest player with 42% market share, launched its first takaful window in Yemen last September, offering all lines of insurance under supervision from the companys Shariah Board. Poverty, the lack of awareness and severe price competition are some of the challenges, but it is the absence of regulatory attention which is the biggest hurdle for the market. The industry have been calling for greater help and support from the government, lamenting that there is only a small department manned by a senior executive looking at insurance. Although financial regulations are insufficient, the government is taking some steps to improve certain rules. In March 2008, it announced a new round of increase in wages, pensions, and social welfare benefits, intended to mitigate the effects of rising inflation. The government has also undertaken initiatives to develop the leasing and microfinance sectors in the country. These reforms include the introduction of the Leasing Law in 2007, targeted at increasing the accessibility to financing facilities, especially for micro and small medium enterprise. In a country where the vast majority of the population does not use formal financial services, microfinance development may represent an effective approach to enhance access to the banking system. The establishment of an independent insurance agency has been an important development. Other plans include the development of more detailed legal framework, establishment of a credit bureau, a corporate governance code, and a stock exchange along with the regulator. In a bid to join the GCC and the WTO, Yemen has undertaken ambitious steps towards reforms and privatization. The countrys admission to either one of these international bodies would certainly enhance and develop its insurance sector.

http://www.bepress.com/apjri/vol3/iss2/8 DOI: 10.2202/2153-3792.1043

122