Saudi Arabia Insurance Report INCLUDES BMI's FORECASTS

Q2 2011 www.businessmonitor.com sauDi araBia insurance Report INCLUDES BMI'S FORECASTS

ISSN 1752-8364 Published by Business Monitor International Ltd. SAUDI ARABIA INSURANCE REPORT Q2 2011 INCLUDES 5-YEAR FORECASTS TO 2015

Part of BMI’s Industry Report & Forecasts Series

Published by: Business Monitor International

Copy deadline: April 2011

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Saudi Arabia Insurance Report Q2 2011

CONTENTS

Executive Summary ...... 5

Table: Overview Of Saudi Arabia’s Insurance Sector ...... 5 Key Insights On Saudi Arabia’s Insurance Sector ...... 5 Issues To Watch ...... 6 SWOT Analysis ...... 7

Saudi Arabia Insurance Industry SWOT ...... 7 Saudi Arabia Political SWOT ...... 8 Saudi Arabia Economic SWOT ...... 8 Saudi Arabia Business Environment SWOT ...... 9 MetLife’s Acquisition Of ALICO ...... 10

Table: ALICO At A Glance ...... 11 Table: ALICO’s Pre-Tax Profits By Segment And Region Contribution, Year To November 30 2009 (%) ...... 12 Table: ALICO – A Market Leader In Japan ...... 12 Table: MetLife’s Acquisition Of ALICO ...... 13 Table: MetLife And ALICO Combined ...... 14 Middle East And Africa Overview ...... 15

Table: Non-Life Segment Premiums, 2009-2010 (US$mn) ...... 16 Table: Life Segment Premiums, 2009-2010 (US$mn) ...... 16 Islamic Insurance Overview ...... 19

Projections And Forecasts ...... 24

Table: Insurance Premiums, 2008-2015 ...... 24 Projections And Drivers Of Growth ...... 24 Table: Growth Drivers, 2008-2015 ...... 26 Country Update ...... 27

Macroeconomic Outlook ...... 27 Table: Saudi Arabia Economic Activity; 2006-2015 ...... 28 Political Outlook ...... 29 Long-Term Political Outlook ...... 32 Insurance Business Environment Ratings ...... 36

Table: Saudi Arabia’s Insurance Business Environment Rating ...... 36 Table: Middle East And Africa Insurance Business Environment Ratings ...... 37 Regional Context ...... 38

Table: Non-Life Premiums In A Regional Context, 2009 ...... 38 Table: Life Premiums In A Regional Context, 2009 ...... 39 Major Players In Saudi Arabia’s Insurance Sector ...... 40

Table: Gross Written Premiums, 2005-2009 (SARmn) ...... 40 Table: Net Written Premiums, 2005-2009 (SARmn) ...... 41 Table: Disclosed Gross Written Premiums And Net Premiums Earned By Listed Insurers, 2009 (SARmn) ...... 42 Table: Evolution Of Gross Written Premium Q409-Q310 And Indications For 2010, Top 10 Listed Companies (SARmn) ...... 43 Table: Evolution Of Net Premiums Earned, Q409-Q310, And Indications For 2010, Top 10 Listed Companies (SARmn) ...... 44 Table : Comparison Of Gross Written Premiums, 9M09-9M10 (SARmn) ...... 44

Table : Comparison Of Net Earned Premiums, 9M09-9M10 (SARmn) ...... 45 Table: Indicated Gross Written Premiums And Net Premiums Earned, 2010 (SARmn) ...... 45 Table: Saudi Arabia’s Insurance Sector At A Glance ...... 46 Analysis Of Regional Competitive Conditions ...... 47

Company Profiles ...... 49

Local Company Profiles ...... 49 Bupa Arabia ...... 49 Medgulf ...... 50 Tawuniya ...... 51 Regional Company Profiles ...... 53 Arab Insurance Group (ARIG)...... 53 Chartis ...... 55 Allianz ...... 57 Aviva ...... 59 AXA ...... 60 Generali ...... 61 HSBC Insurance ...... 62 MAPFRE...... 63 MetLife ALICO ...... 65 RSA ...... 67 Zurich Financial Services ...... 69 Country Snapshot: Saudi Arabia Demographic Data ...... 71

Section 1: Population ...... 71 Table: Demographic Indicators, 2005-2030 ...... 71 Table: Rural/Urban Breakdown, 2005-2030 ...... 72 Section 2: Education And Healthcare ...... 72 Table: Education, 2003-2005 ...... 72 Table: Vital Statistics, 2005-2030 ...... 72 Section 3: Labour Market And Spending Power ...... 73 Table: Employment Indicators, 1999-2006 ...... 73 Table: Consumer Expenditure, 2000-2012 (US$) ...... 73 BMI Methodology ...... 74

Insurance Business Environment Ratings ...... 75 Table: Insurance Business Environment Indicators And Rationale ...... 76 Table: Weighting Of Indicators ...... 77

Executive Summary

Table: Overview Of Saudi Arabia’s Insurance Sector

Non-life segment SARmn US$mn EURmn

2010 premiums, mn 16,872 4,499 3,509

2010-2015 premium growth, mn 13,260 3,536 2,919

2010-2015 CAGR, % 12% 12% 13%

2010 penetration, % of GDP 1.0%

Segment measure of openness to new entrants, out of 10 6.0

BMI segment rating, out of 100 45.0

Life segment

2010 premiums, mn 1,404 375 292

2010-2015 premium growth, mn 2,823 753 610

2010-2015 CAGR, % 25% 25% 25%

2010 penetration, % of GDP 0.1%

Segment measure of openness to new entrants, out of 10 4.0

BMI segment rating, out of 100 22.5

Total insurance sector

2010 premiums, mn 18,276 4,874 3,801

2010-2014 CAGR, % 13% 13% 14%

2010 penetration, % of GDP 1.1%

BMI’s Insurance Business Environment Rating, out of 100 53.0

CAGR = compound annual growth rate. Source: BMI estimates/forecasts

Key Insights On Saudi Arabia’s Insurance Sector

From the point of view of multinational insurers that are looking to expand into Gulf Cooperation Council (GCC) countries, Saudi Arabia represents an attractive prospect. Its economy was remarkably resilient in the downturn in oil prices in 2009 and will benefit from the strength in oil prices again in 2011. The market has also been opened up for foreigners. Other trends are also favourable in the insurance markets, with the main exception being the underdevelopment of the life segment.

The Saudi insurance sector differs from others in the Middle East in that it includes at least one indigenous insurer, Tawuniya, that would rank as a large company in most countries. Figures released by

Tawuniya to the Tadawul (Saudi Stock Exchange) on which it is listed indicate that its premiums nearly doubled over the course of 2009 AND Growth continued into 2010. In contrast, the next two largest players, Medgulf (a regional insurance company substantially owned by Saudi interests) and Bupa Arabia (the partly owned subsidiary of UK health insurance giant), lost ground.

In this report we provide a breakdown of the market shares of the various market participants. We also provide a breakdown of the insurance sector by line from the point of view of the regulator, the Saudi Arabian Monetary Agency (SAMA). The Saudi market is dominated by health products, which are double the value of the next most popular insurance category, motor insurance. They account for about 40% and 20% of the insurance products marketplace respectively.

The data we are using to provide our forecasts are based on 2009 actual data and data released by the major insurance companies and regulatory and supervisory bodies in 2010. We have generally been able to use data published in 2010 to adjust our estimates for the year as a whole. We estimate total premiums for 2010 of SAR18,276mn. This includes non-life premiums of SAR16,872mn and life premiums of SAR1,404mn. In 2015, the corresponding figures are forecast to be SAR34,359mn, SAR30,132mn and SAR4,227mn. In terms of the key drivers that underpin our forecasts, we expect non-life penetration to rise from 0.98% in 2010 to 1.25% by 2015 and for life density to increase from US$15 per capita to US$41 over the same period. BMI’s Insurance Business Environment Rating for Saudi Arabia is 53.0 out of 100.

Issues To Watch

Islamic Finance The absolute size of the capital pools in Saudi Arabia mean that the country has very strong potential as a market for the issuance and distribution of sukuks. Some estimates suggest that contributions to takaful operators account for about a fifth of the Saudi insurance market.

Regional Consolidation There is limited cross-border investment by insurance companies based in the Middle East. Medgulf and ARIG are examples of (re)insurers based in the region that operate very effectively across national borders within the GCC and slightly further afield. In Saudi Arabia and the other Arab countries in the region, the majority of insurance companies are small by anything other than local standards and lack economies of scale. There is scope for consolidation.

Health Insurance This line has emerged as a major and growing line in the non-life segment and should remain as such.

SWOT Analysis

Saudi Arabia Insurance Industry SWOT

Strengths By most standards, the non-life segment is growing rapidly and is reasonably open to participation from foreign firms. The industry is relatively fragmented, although particular local firms have dominance in particular areas and lines. This is good news for multinational insurers. Economic conditions are likely to remain favourable.

Weaknesses Relatively small life sector. It is expected to grow but the market is not very open to new entrants. The capitalisation of many newly established affiliates, mainly of major cross-border firms, implies that they will not have very large market shares. Many of the newly established firms may find Saudi Arabia is not the bonanza for health and autos insurers they expect it to be. Massive competition may compress premiums and consolidation and/or departures may result. New rules require that gross premiums do not exceed 10-times capital. Direct insurers must retain at least 30% of gross written premiums and reinsure a minimum of 30% of total gross written premiums within Saudi Arabia. At least 10% of the net surplus from insurance operations must be distributed to the policyholders in accordance with the mudaraba model of Islamic cooperative insurance.

Opportunities Demand for health insurance should grow rapidly over next five years. Small market for life insurance but premiums are growing quickly from a low base.

Threats Some players in the non-life segment may seek to diversify their business into life insurance, especially if competitive conditions in the health and car insurance markets are tougher than most commentators are expect. The legal framework has a negative effect on the insurance business environment.

Saudi Arabia Political SWOT

Strengths The country’s ample oil reserves underpin the Al Saud regime. Because the country is the world’s largest oil exporter, international powers have traditionally seen its internal stability as being in their own interests.

Weaknesses Saudi Arabia is home to several violent Islamist groups and a number of affluent Saudis have been linked with financing them. The crackdown on extremists has been used as an excuse for the ruling family to silence dissenters, as elsewhere in the region. This could breed greater dissent.

Opportunities Municipal elections in 2005 were the first nationwide polls in the country’s history, setting a precedent for further democratisation, although women are excluded and elected members account for only half of the seats on the municipal council. The media are reportedly opening up to a wider range of political views, although constraints remain. King Abdullah appears interested in dialogue with leaders of the minority Shi’a community.

Threats The Al Sauds’ key political alliance with the US has been a double-edged sword domestically. It also faces risks from US politicians and pressure groups suspicious of the government’s commitment to clamping down on anti-Western militants or those who object to the country’s democratic deficit. There is an ongoing struggle between modernisers (led by King Abdullah) and the conservatives (led by Prince Nayef) in the royal family.

Saudi Arabia Economic SWOT

Strengths As the main OPEC swing producer, the country is in a strong position within the cartel. The oil price boom boosted growth in the non-oil sector and infrastructure has improved greatly. A large and growing local population means solid domestic demand for goods, services and infrastructure despite the global economic slowdown.

Weaknesses Dependence on oil means growth, exports and government revenues remain highly vulnerable to shifts in world oil prices. The private sector is dependent on expatriate labour, reflecting a shortage of marketable skills among nationals and a high unemployment rate among Saudi citizens.

Opportunities A competitive business environment will make Saudi Arabia appealing to investors once risk appetite returns to global markets. Slower growth and lower liquidity will bring inflation down domestically, cushioning the impact of the consumer slowdown.

Threats Any attacks on oil facilities could lead to the disruption of output, which would be extremely detrimental to the overall economy given the reliance on the sector. Perceptions of high security risks deter some investors, as well as adding to the costs of insurance.

Saudi Arabia Business Environment SWOT

Strengths Saudi Arabia is well located for firms looking to establish a base in the region. Membership of the Gulf Cooperation Council means Saudi Arabia benefits from duty- free access to markets in Bahrain, Oman, Kuwait, Qatar and the UAE.

Weaknesses The education system is not attuned to the needs of the private sector with only limited technical training. Privatisation has been slow and given the government’s aim of increasing employment, ongoing political obstacles are likely.

Opportunities The government is investing in training as part of the ‘Saudisation’ process to increase the proportion of nationals in the workforce relative to foreigners. Joining the WTO and pursuing a free trade agreement with the US mean liberalisation will continue.

Threats The Saudisation process has been slow. Many Saudis perceive a stigma attached to semi-skilled jobs and tend to have higher wage expectations than expatriates. Perceptions of high political risk have added to the cost of insurance and private security guards.

MetLife’s Acquisition Of ALICO

MetLife Becomes A Global Player On March 8 2010, MetLife Inc announced a definite agreement to purchase the American Life Insurance Company (ALICO) from the American International Group (AIG) for about US$15.5bn.

This transaction was somewhat overshadowed by the proposed US$35bn acquisition of American International Assurance (AIA) by Prudential announced a week earlier. Nevertheless, the MetLife/ALICO transaction will be one of the most important merger and acquisition deals ever to have taken place in the global life insurance industry. It will transform MetLife into a global business that derives well over one-third of its premiums and other considerations from outside the US. As a result, MetLife will become a more diverse and over the long-term almost certainly a faster growing company than it otherwise would have been. Among much else, MetLife has become the leading cross-border life company in Latin America. It has also become a very large and – perhaps surprisingly – steadily growing player in Japan.

Background To The Deal On June 25 2009, AIG, the financially troubled insurance giant, announced that it would put two of its ‘leading international life franchises’, AIA and ALICO, into special purpose vehicles (SPVs). The SPVs would hold the two life insurance companies separate from the rest of AIG and would position them for ‘initial public offerings, depending on market conditions’.

The Federal Reserve Bank of New York (FRBNY), the component of the US Federal Reserve System that has been providing financial support to AIG since the global financial crisis reached its critical phase in September 2008, received preferred interests worth US$16bn in the AIA SPV and of US$9bn in the ALICO SPV. In return for this, the amount owed by AIG to FRBNY through the latter’s credit facility was reduced by US$25bn. After the formation of the two SPVs, the amount owed by AIG to FRBNY through the facility amounted to about US$40bn.

ALICO traces its origins to Shanghai in 1921, where Cornelius Vander Starr, the founder of the global AIG group, had already been active for about two years. Key aspects of ALICO are discussed below. What makes it unusual in global terms is that it is large by any measure, has long been established as one of the largest foreign life insurers in Japan and has a global footprint that spans 55 countries.

Aside from AIA, ALICO is by far the largest asset to have been sold by AIG as a part of its restructuring. Prior to the announcement of the AIA sale, the disclosed value of the assets that had been sold was around US$12,400mn. However, transactions involving assets with a combined value of US$2,650mn – including Nan Shan Life, the third largest life insurance company in Taiwan – had not closed by early March 2010.

What Is ALICO? In an 8-K statement on March 8 2010 filed with the US Securities and Exchange Commission (SEC), MetLife said that the purchase of ALICO represents a ‘unique opportunity, not replicable, either organically or by M&A’. Although ALICO is present in 55 countries (which includes micro-states in the Caribbean and the Palestine National Authority) it is perhaps more helpful to think of the company as having a substantial presence in five areas:

Japan.

Latin America and the Caribbean.

UK, France, Italy, Spain and Portugal.

Middle East (mainly Gulf Cooperation Council countries but also Egypt, Lebanon and Jordan).

Central and Eastern Europe (including Greece).

As the table below shows, ALICO is both large and profitable by many measures. It is diversified in terms of distribution channels and product lines.

Table: ALICO At A Glance

One of the largest life companies in Japan

Major presence in Europe

Top five player in 23 of its 55 countries

Diversified product portfolio

Diversified distribution model

Gross assets at the end of November 2009: US$112.0bn; net assets: US$13.3bn

Pre-tax profits, year to November 30 2009: US$2.2bn

After-tax operating income in 2009: US$1.5bn

Operating return on equity (ROE) in 2009: 14.0%

Projected compound annual growth rate (CAGR) in premiums and other considerations in 2007-2010: 8%

Risk-based capital ratio: >400%

Source: MetLife

ALICO claims to have a top five position in 23 of the 55 national markets in which it operates. It is possibly more useful to reflect on the markets in which ALICO does not have a presence.

ALICO is absent from the Asia Pacific, excluding Japan, except for a joint venture (JV) in Pakistan and very small operations in Nepal and Bangladesh. This is the part of the world where AIG operated mainly through its AIA franchise and where the combined Prudential/AIA will be the leading regional player. The two countries that are the exception to this are the Philippines, where the Philam Life has been sold to Prudential along with the rest of AIA, and Taiwan, where Nan Shan Life was the relevant AIG subsidiary.

Table: ALICO’s Pre-Tax Profits By Segment And Region Contribution, Year To November 30 2009 (%)

Segment % contribution Region % contribution

Accident and health 45 Japan 70

Life insurance 33 Central and Eastern Europe 14

Fixed annuities 15 Western Europe 7

Group 7 Middle East 7

Latin America 2

Source: MetLife

Table: ALICO – A Market Leader In Japan

Market leader in direct marketing

Number three insurer in terms of agency productivity

Strong brand

Diverse distribution channels: professional agencies (independent agencies; direct; bancassurance)

Mainly protection and spread products (accident and health; traditional life; fixed annuities)

Product mix: 42% life Insurance; 53% accident and health; 5% annuities

Compound annual growth rate (CAGR) in premiums and other considerations in 2003-2009: 12%

Looking to revive third-party distribution channels

Focusing on agent retention and productivity

Source: MetLife

ALICO is not present in Brazil, where AIG had a JV with Unibanco. Furthermore, and probably not coincidentally, ALICO does not have operations in South Africa or Germanic Europe (the German- speaking countries, Benelux and the Nordic countries). What South Africa and Germanic Europe have in common is that they are, for most products, fairly mature markets in which enormous local groups are well entrenched.

Of course, market share in terms of gross premiums is only one measure of relative importance. BMI forecasts gross life premiums in Japan, which is by far the most important single national market in which

ALICO operates, of about US$267bn in FY09 (ie: the year to March 30 2010). In the year to November 30 2009 ALICO’s total premiums and other considerations in terms of GAAP were US$6,200mn. However, ALICO has leveraged its products, brand and distribution to achieve both leadership positions in particular niches – and double-digit growth.

MetLife And ALICO Combined In its discussion of the rationale for its purchase of AIA, Prudential highlighted the benefits to be derived from the combination of two cross-border businesses that already have strong positions in a part of the world where savings rates are high and demand for life insurance (and related products) is growing rapidly. In contrast, for MetLife, part of ALICO’s attraction is the minimal business overlap. Integration of the two companies is expected to cost around US$300-250mn over the next 2.5 years. Savings from amalgamation of systems and so on should amount to only US$50-75mn a year.

Table: MetLife’s Acquisition Of ALICO

Total consideration of US$15.5bn

US$6.8bn in cash andUS$8.7bn in securities

Expected closing: Q410

Consideration is 1.16-times ALICO’s book value and 9.9-times forecast 2010 operating earnings

Minimal business overlap – after-tax savings of US$50-75mn a year

After-tax integration expenses of around US$300-350mn over 30 months

Joint integration team In place

Source: MetLife

For all its strengths in Japan and Brazil (where MetLife has BRL115bn in in-force business, 15,500 corporate clients and 5.7mn customers), MetLife has up to now been overwhelmingly a US company that focuses on life insurance, variable products and employee benefits. In distributing its products, it has tended to use professional agents, employers and third party relationships. In the year to September 30 2009 MetLife reported revenues from premiums (plus universal life and investment product policy fees) of US$31,279mn. Of this, US$27,257mn was written in the US. In terms of revenues from premiums and other considerations, ALICO is about a third of the size of MetLife. However, and despite a global headquarters in Wilmington, Delaware, ALICO’s business is wholly outside the US. We estimate that, once it is combined with ALICO, a little over one-third of MetLife’s business will be derived from outside the US, as the following table shows.

Table: MetLife And ALICO Combined

MetLife (year to ALICO (year to Notional Premiums, US$mn September 30 2009) 1 November 30 2009) 1 (combined)

US 27,257 27,257

Latin America and Caribbean 1,932 825 2,757

Asia 2 1,690 6,200 7,890

Middle East 570 570

Western Europe 3 400 1,105 1,505

Central and Eastern Europe 1,200 1,200

Total 31,279 9,900 41,179

Other measures

Total customers, mn 70 20 90

Number of countries 17 55 64

Life insurance, variable Accident and health, Main products products, employee benefits traditional life

Captive and independent Professional agencies, agencies, direct marketing, third Distribution employers, third party party

1 Premiums, universal life and investment product policy fees for MetLife, premiums and other considerations (GAAP) for ALICO; 2 Wholly Japan for ALICO and mainly Japan for MetLife; 3 Includes MetLife’s Polish business, about half of ALICO’s is in the UK. Source: MetLife

Both companies have a presence in Japan, although ALICO’s business is much larger than that of MetLife. MetLife’s Latin American operations are of significantly greater size than those of ALICO. However, it has no presence in Central and Eastern Europe (except for a minor subsidiary in Poland) or the Middle East. The two companies are also very different in terms of the products that they tend to focus on and the distribution networks that they favour.

Following the acquisition, MetLife will truly be one of the world’s leading global life insurance companies. In terms of in-force business, the combined insurer will be number one in the US, Mexico, Chile and Russia. It will be number two in Japan, and the second-largest independent insurer in Brazil. It will be number six in Poland. It will have joint ventures in both India and China. It will have achieved a significant diversification of its business – and largely through expansion into markets where premiums should grow more rapidly than in the US. If ALICO’s experience in recent years is any guide, such markets will – perhaps surprisingly – include Japan.

Middle East And Africa Overview

Not A Growth Bonanza As we discuss below, there are a number of trends and themes common to many of the markets in the Middle East and North Africa. However, the most recent figures published by regional regulators and by the many insurance companies that are listed show that the fortunes of insurers have varied between and within countries.

If the global financial crisis of late 2008 had an impact, it was to reduce growth in premiums across the region to single digits in 2009. In Iran and the UAE, non-life premiums just achieved double-digit growth in calendar 2009. Thanks mainly to the continuing expansion of medical insurance, non-life premiums rose by 32% in Saudi Arabia that year. However, elsewhere growth was generally pedestrian. In Bahrain, takaful operators achieved growth of 22%, with the result that they now account for about 15% of total premiums. Reinsurance written in Bahrain rose by 25% in 2009. But partly because of competitive pressures, non-life premiums were soft.

Except in Saudi Arabia, where we estimate 24% growth in non-life premiums and a 40% increase in the life sector for 2010 on the basis of the results posted by listed insurers in the country for H110, last year is likely to have been dull, but far from disastrous, across the region. We estimate a slight decline in premiums in both major segments in Oman. Outside Saudi Arabia, the fastest growth in non-life premiums, of 37%, should be in Libya.

Outside Bahrain, it appears that much of the growth in takaful is taking place in the UAE. The growth in takaful in the UAE is an important driver of the overall expansion in premiums in the emirates. Our estimates for 2010 as a whole are based on the H110 results disclosed to the Dubai Financial Market and the Abu Dhabi Securities Exchange by a sample of 22 listed national companies. Collectively, these companies accounted for about 60% of total premiums. The companies in our sample achieved absolute growth in total premiums of AED619mn (US$168mn) in H110 and over half of the total increase was accounted for by Dubai Islamic Insurance and Reinsurance (Aman) and Islamic Arab Insurance Company (Salama). Abu Dhabi National Insurance Company and Oman Insurance – two conventional firms – accounted for another quarter of the total increase.

Conversely, six of the 22 companies in our UAE sample reported that gross written premiums were lower in H110 than they had been in H109. We suggest that this is significantly because of a more discriminating approach to business by many companies at a time that the local economy remains soft. Elsewhere, Oman United Insurance Company, one of the leading players in that country, reported that medical and life premiums had suffered in H110 as a result of the general weakness of the Omani economy. By contrast, the increasing use of health insurance is a key driver of the development of the

non-life segment in Saudi Arabia. In 2009, health insurance lines accounted for two-thirds of the total growth in premiums.

Table: Non-Life Segment Premiums, 2009-2010 (US$mn)

Premiums Growth In 2010

2009 2010e US$ terms

Algeria 1,047 1,157 10%

Bahrain 376 395 5%

Egypt 793 928 17%

Iran 4,382 4,899 12%

Kuwait 517 604 17%

Lebanon 712 862 21%

Libya 287 392 37%

Morocco 1,829 1,963 7%

Oman 508 494 -3%

Saudi Arabia 3,629 4,499 24%

Tunisia 680 674 -1%

UAE 4,773 5,251 10% e = estimate. Source: BMI

Table: Life Segment Premiums, 2009-2010 (US$mn)

Premiums Growth In 2010

2009 2010e US$ terms LC terms

Algeria 76 88 17% 19%

Bahrain 151 158 5% 5%

Egypt 1,135 1,306 15% 15%

Iran 241 270 12% 15%

Kuwait 152 183 21% 21%

Lebanon 351 400 14% 14%

Libya 9 11 25% 23%

Morocco 855 797 -7% -1%

Oman 103 100 -3% -3%

Saudi Arabia 267 375 40% 40%

Tunisia 99 123 23% 30%

UAE 813 895 10% 10% e = estimate; LC = local currency. Source: BMI

Adel Moneer Rabeh, the deputy chair of the Egyptian Financial Supervisory Authority (EFSA), indicated that he was looking for premiums in the country to rise by 15-20% in 2010 (our estimate is for growth of 16%). The EFSA hopes that the strengthening of the regulatory regime through the amalgamation of three non-bank financial regulators under one umbrella organisation, the general stability of the economy, improved investment in training and education within the insurance sector will result in the adoption of products by first-time users. Much of the opportunity for insurance companies in Egypt lies in the fact that only 1.5mn people in a total population of about 86mn are using insurance.

In theory, and in practice in many countries, liberalisation is the catalyst for more rapid growth in demand for insurance. This has been true to differing extents in Saudi Arabia, the UAE, Morocco, Qatar and Bahrain. However, the pace of liberalisation and reform remains slow in Egypt. According to Rabeh, there are no plans to privatise the state-owned Misr Insurance or National Insurance, which together account for about half of all premiums written in Egypt. For the time being, neither takaful, which accounts for around 5% of total premiums, nor health insurance are drivers of growth as they are in the insurance sectors of many of the Gulf Cooperation Council (GCC) countries.

Liberalisation has, in the short-term, actually contributed to a sharp slowing of growth in the underdeveloped Iranian insurance sector. For a long time, premiums rose by 25-30%, which equated to real growth of 1-2% per annum in a country where high rates of inflation and currency devaluation have been institutionalised. Over the last two years, nominal growth has slowed so that it is barely in double- digits. Parsian Insurance, one of the more dynamic private sector operators, reported that its gross written premiums rose by just 7% in the year to March 2010. The problem, according to Parsian’s directors, was a fall in prices following liberalisation of the non-life market under the regulator Bimeh Markazi Iran. A number of companies appear to have been writing unprofitable business. Thanks to the privatisations of Bimeh Asia and Bimeh Alborz, and the likely privatisation of Bimeh Dana, private sector companies’ share of the total Iranian insurance market should rise to about 40% over the next year. However, there are still no plans to privatise Bimeh Iran, the largest of the state-owned insurance companies.

Structural Problems Persist Consistently low levels of penetration and density indicate entrenched structural problems in some countries in the region. In some cases this is due to the lack of education among potential customers. However, the compulsory nature of motor insurance in most of the region and of health insurance in many countries means the lack of consumer education is being overcome. In some instances, entrenched inflation and/or a history of economic and financial instability has discouraged the use of life insurance. Iran is perhaps a classic example of this. In other cases, life insurance has been developed mainly by foreign groups that have been seen as the preferred suppliers. Egypt, Morocco and to a lesser extent Bahrain are examples. In the richer GCC countries, the development of life insurance has been hampered by generous social security systems, which have meant people have not needed to provide for retirement or the event of a death.

Although the Middle East and North Africa includes several countries that are running very large current account surpluses and is home to substantial asset pools, there is a lack of capital available to insurers. This is reflected in local companies’ tendency to focus on straightforward risks – CMTPL, voluntary motor insurance (CASCO) and fire/property insurance. It is also reflected in the tendency for retained premiums (gross premiums less outwards reinsurance) to be relatively low.

Aside from a handful of indigenous insurance companies, such as Tawuniya in Saudi Arabia and Bimeh Iran, most of the local insurers are small by any standards other than those of the Middle East and North Africa, with gross written premiums less than US$250mn a year. This means that very few players can achieve economies of scale even if they have been public sector organisations operating under privileged conditions. The fragmented nature of most of the insurance markets in the region is partly because deregulation has happened only recently, as in Libya and most of the GCC, including Saudi Arabia, and the slow pace of reform and liberalisation, such as in Egypt. However, the fragmented nature of the insurance sector is also due to the desire of many conglomerates or local governments to participate, even if they have not traditionally had a comparative advantage. In this respect, many of the countries across the region, notably the UAE, are similar to the Philippines or Indonesia, where lack of scale is also an issue.

One challenge faced by virtually all insurance companies in the region is the relative lack of skilled workers. Expatriate labour has traditionally been used to fill the gaps and such talent will certainly become cheaper and more readily available in the wake of the global financial crisis. However, many countries in the region have policies that require or encourage the employment of nationals.

Perhaps more than in any other country in the region, the authorities in Bahrain have recognised the benefits of opening up the insurance industry, and the entire financial services sector, to foreign competition. Foreigner companies bring capital, expertise, new products and, in the long-term, greater integration with the global economy, while customers usually benefit from lower costs. However, Bahrain is an exception. Until fairly recently, actual or effective barriers to entry tended to limit the role of foreign groups to offshore reinsurers. As a result, no major multinational insurance company has a truly substantial presence in the Middle East and North Africa, although several, such as MetLife ALICO, Allianz and Zurich, are among the largest life groups in particular countries.

Islamic Insurance Overview

Islamic Insurance – Still Embryonic Since Q209, BMI’s insurance reports have included coverage of Islamic insurance – or takaful – which has been recognised as one of the fastest growing areas of the global insurance industry.

Arguably to a greater extent than in Islamic banking, it is difficult to define the Islamic insurance industry using hard numbers. Ernst & Young, authors of the World Takaful Report, which was presented at the third World Takaful Conference in Dubai in April 2009, suggest global gross takaful contributions rose from around US$1.38bn in 2004 to US$1.69bn in 2005, then to US$2.01bn in 2006. Ernst & Young suggested that contributions should continue to grow by around 20% a year and reach US$4.30bn by 2010.

Assuming that Ernst & Young’s projections are correct, global gross takaful contributions will have been around US$2.50bn in 2008. Of this, around US$1.40bn would have been received by takaful operators in the GCC countries, while almost US$1.0bn would have been received by takaful operators in South East Asia. There are other areas of the world where takaful operators are present – South Asia (mainly Pakistan), the Levant (mainly Jordan) and Africa (mainly Sudan) – but contributions are currently negligible.

As is the case in the commercial banking sector, there is not universal agreement as to whether Iran’s insurance companies are truly takaful operators, even though they supposedly work in accordance with Islamic principles. Although some of the limitations that apply to Iranian banking (such as the deficiencies in the regulatory regime) also apply to Iran’s insurance sector, it appears that the Iranian insurance companies are more widely accepted as being shari’a-compliant than the banks. The Takaful Panel of the International Cooperative and Mutual Insurance Federation (ICMIF) identifies 15 shari’a- compliant insurance companies in Iran. However no Iranian company is a member of ICMIF.

Ernst & Young point out that if the Iranian insurers are considered to be truly shari’a compliant takaful operators, they would account for well over half of all contributions received globally. Estimated gross contributions in Iran, which are excluded from the figures cited above, rose from US$2.16bn in 2004 to US$2.75bn in 2005 to US$3.68bn in 2006. Ernst & Young forecast that gross contributions in Iran will rise at an annual rate of around 31%, or to US$10.69bn in 2010.

Swiss Re (in its research publication sigma No.5 of 2008) estimated that takaful premiums account for about 5% of the insurance premiums written in all Muslim countries. Takaful accounted for about 20% of the Saudi Arabian market. Figures cited by officials from Bank Negara Malaysia (BNM), the country’s central bank, indicate that takaful operators account for about 7% of all contributions/gross premiums and

a similar percentage of the assets of the insurance sector in Malaysia. According to Swiss Re, Muslim countries collectively accounted for about 11% of all insurance premiums written worldwide in 2007.

The drivers of the growth of takaful are well known. The richer predominantly Muslim countries (eg: the GCC area and Malaysia) and some of the poorer ones (eg: Indonesia) are likely to achieve economic growth significantly higher than the global average over the coming five years. Density and penetration of insurance is increasing from a low base. There is growing demand for financial products that are shari’a- compliant, and not just from Muslims.

However, the crucial issue is that even within the Muslim world the takaful industry remains at an embryonic level. As recently as 2006, Saudi Arabia and Malaysia were two of just seven countries where takaful contributions exceeded 1% of total premiums. The others were Jordan, Kuwait, Qatar, the UAE and Indonesia. Life insurance remains (very) underdeveloped in the GCC countries on this list. The development of life insurance has been hampered by demographics (specifically large numbers of young people who have not seen the need for life insurance), cultural issues (such as the expectation that social welfare benefits can be attained from one’s extended family, and, in some instances, unsuitable regulatory environments.

What Is Takaful? Before considering the other challenges takaful operators face, it is useful to remember the key characteristics of takaful, that is, the aspects that set it apart from conventional insurance.

Conventional insurance operators are usually constituted as companies. They may be listed on stock exchanges, subsidiaries of other financial institutions, subsidiaries of (predominantly) non-financial groups, private companies or state-owned enterprises (SOEs). In all these instances, the insurance companies are normally run primarily for their shareholders. In a minority of cases, conventional insurance companies are constituted as mutuals – organisations where ownership rests with the policyholders. However, in some major markets – including France and the US – some of the largest protagonists are mutuals.

A contract between a conventional insurer that is constituted as a company and a customer is inconsistent with shari’a for several reasons. The insurer receives premiums from the customer which the insurer expects will be sufficient to cover claims and to produce a suitable return for shareholders. This expectation is effectively speculation (maysir) and therefore unacceptable. The customer is usually paying premiums to cover outcomes that may or may not occur. This ambiguity would, in the view of most shari’a experts, be akin to uncertainty (gharar) and, as such, is unacceptable. Further, most conventional insurance companies derive some of their investment income from fixed income securities. This breaches the shari’a prohibition of usury (riba). In some instances, the insurance companies may invest in

industries such as alcohol/tobacco, gambling or defence/aerospace (arms). These areas are regarded as forbidden (haram) by shari’a.

There are some similarities between the modus operandi of a conventional insurance company that is constituted as a mutual and that of a takaful operator. In both instances, the contracts are mutual in nature and the claims are paid from policyholders’ funds. However, the relationship between the conventional mutual insurance company and the customer probably involves some aspect of speculation and/or uncertainty (from the point of view of shari’a). Further, the conventional mutual insurance company is likely to be investing in conventional fixed-income securities and, therefore, engaging in usury.

Takaful involves the voluntary provision (tabarru) of mutual assistance (ta-awun). Customers enter into a cooperative agreement to insure each other. The payment that they make is a contribution, not a premium. There are five key aspects to the relationships between the customers and the takaful operator.

The first of these is mutual guarantee. A defined loss is paid from a specified fund. Liability for the loss is spread equally across all customers/policyholders – in essence, they are both the insurers and the insured. The second aspect is the mutual ownership of the insurance fund. As would be the case with a conventional mutual insurance company, the customers/policyholders own the insurance fund and are entitled to a share of the profit. The third aspect is the elimination of uncertainty. Strictly speaking, the customers are each making a voluntary donation to the insurance fund. They are looking to help in the event that any policyholder suffers a loss; they are not looking to achieve a predetermined – but uncertain – monetary benefit. Fourth, the fund is managed by a designated takaful operator in accordance with shari’a principles. Finally, all investments of the insurance fund neither contravene the prohibition of usury nor the ban on investment in particular industries.

The contracts between takaful operators and the insurance funds that are collectively and mutually owned by the customers typically follow one of two models. Under the wakala model, the fund (and therefore the customers) is a principal, while the takaful operator is the agent. The operator receives a fee for managing the operations of the fund (this may include a performance-related element). The operator also receives a fee – usually paid out of the fund’s investment income – for investment management. Under the mudaraba model, the customers are essentially providers of capital (rab al mal) while the takaful operator is an entrepreneur (mudarib). The compensation that is paid by the fund to the takaful operator is based on specified percentages of the underwriting surplus (the excess of premiums over claims) and the investment profits.

In some cases, the relationship combines both models. The wakala contract is used for underwriting of risks, while the mudaraba contract is used for investment activities. The Central Bank of Bahrain, as well as other regulators and international organisations, recommends a combination of the models in this way.

Lack Of Suitable Assets One challenge for the takaful operators is the comparative absence of shari’a compliant assets in which they can invest. Some regulators, such as the Securities Commission of Malaysia, have been proactive in defining particular securities within their respective financial markets as shari’a-compliant. However, some takaful operators find that they face a shortage of suitable investments that will enable them to meet their investment objectives. This shortage has been compounded by the lack of new issuance of sukuks – shari’a compliant bonds.

It remains to be seen how fast the market for sukuks, which has been affected by the general aversion of investors to the perceived risks associated with corporate bonds, recovers. In the meantime, the lack of suitable investment assets is not the only obstacle facing the development of takaful.

Other Problems As is the case with Islamic banking, the lack of suitably qualified staff is a problem and one that is unlikely to be resolved quickly. Ernst & Young’s World Takaful Report said: ‘As the takaful industry develops and institutions expand or are established, the demand for seasoned human resources will only increase. Human resources are the single largest contributor to an Islamic financial institution’s operating expenses and thus have the potential to greatly affect profitability.’ Ernst & Young also argues that for a takaful operator the ability to retain staff will be a significant competitive advantage.

Economies of scale are absent. Various sources suggest that there were 133 takaful operators worldwide in 2006. Of these, 59 were in the GCC countries (mainly in Saudi Arabia) and 22 were in South East Asia. There were 21 takaful operators in the tiny Sudanese market. Of the remainder, nine were in South Asia, but none were in India – home to one of the largest Muslim ppopulations in the region. Arithmetic alone shows that most takaful operators are very small by any standard. The implication is that, for many, it is difficult to achieve levels of profitability that are competitive and attractive for both the operators and their customers. The majority of insurance companies in Muslim countries do not run according to shari’a principles. As noted above, the vast majority of insurance business – even in Saudi Arabia – is undertaken along conventional lines.

A separate problem is the lack of globally accepted standards. As Ernst & Young said: ‘The global takaful industry currently includes a number of different operational models, accounting standards and regulatory regimes. Bahrain, Malaysia and Pakistan are currently the only markets to have issued specific takaful laws or regulations, but there remain no global standards on regulation and best practice, the development of which would do much to facilitate cross-border growth. Standardisation would also assist in developing the perceived trustworthiness of the takaful industry and prevent unfavourable press coverage. The embryonic state of many regulatory regimes also makes takaful operators susceptible to unfavourable regulatory decisions and the possibility of increased regulatory costs.’

We would add two more challenges that have not received much attention in the specialist trade press or consultants’ research papers. The first is the probable lack of shari’a compliant reinsurance capacity. Many of the conventional non-life insurance companies in the GCC states have limited capital to use for underwriting. The difference between gross written premiums and net written premiums is often substantial, as risks are laid-off through outwards reinsurance. The challenges for takaful operators must be even greater, given their typically smaller size and the lack of suitable investment assets for the shari’a compliant reinsurers (re-takaful operators).

The other problem is more subtle. The growth of Islamic banking has been driven by actions of governments and government-linked protagonists – especially in Malaysia and Bahrain. As is clear from the discussion developments in the sukuk markets, it is governments and central banks, and not just BNM, which took steps to ensure Islamic banking escaped the worst effects of the global financial crisis. It is far harder to see evidence that governments are intervening directly to boost the fortunes of takaful operators. With the arguable exception of the government of Iran, no government of a (majority) Muslim country in the Middle East and North Africa, South Asia or South East Asia had mandated that takaful be widely used. There have been many announcements of official support for Islamic finance in general, but few actions that are clearly and immediately helpful to the takaful operators. At the end of April 2009, BNM announced that it would issue up to two new licences for family takaful (ie: shari’a-compliant life insurance) as well as a new licence for an Islamic bank. The bank also announced a liberalisation of the rules restricting foreign investment in Islamic financial institutions.

Conclusion The prospects for takaful are easier to describe than the prospects for Islamic banking, which will depend substantially on whether or not activity recovers in the markets for sukuks. We will be monitoring five key issues:

Merger and acquisition activity. This is an obvious response to the lack of scale.

Movement towards standardisation of regulations and products. At the moment, cross-border distribution is virtually impossible, which is another barrier to the attainment of economies of scale.

The Monetary Authority of Singapore. The authority has been active in promoting Singapore as an Islamic finance centre. Any move by the MAS, which is the country’s central bank and insurance regulator, to promote takaful in Singapore would be encouraging.

Clear evidence that takaful contributions continue to grow much more rapidly than the overall insurance markets. Given the embryonic level of development, this is what we would expect: any slowing would indicate that takaful risks remaining a niche within the global insurance sector.

Projections And Forecasts

Table: Insurance Premiums, 2008-2015

CAGR, % SARmn 2008 2009 2010e 2011f 2012f 2013f 2014f 2015f 2010-2015

Non-life premiums 10,325 13,607 16,872 19,349 22,052 24,560 27,275 30,132

% change 25% 32% 24% 15% 14% 11% 11% 10% 12%

Life premiums 594 1,003 1,404 1,928 2,456 3,015 3,570 4,227

% change 82% 69% 40% 37% 27% 23% 18% 18% 25%

Total premiums 10,919 14,610 18,276 21,276 24,509 27,575 30,845 34,359

% change 27% 34% 25% 16% 15% 13% 12% 11% 13%

US$mn

Non-life premiums 2,753 3,629 4,499 5,160 5,881 6,549 7,273 8,035

% change 25% 32% 24% 15% 14% 11% 11% 10% 12%

Life premiums 158 267 375 514 655 804 952 1,127

% change 82% 69% 40% 37% 27% 23% 18% 18% 25%

Total premiums 2,912 3,896 4,874 5,674 6,536 7,353 8,225 9,162

% change 27% 34% 25% 16% 15% 13% 12% 11% 13%

EURmn

Non-life premiums 1,872 2,576 3,509 4,231 4,646 5,239 5,819 6,428

% change 16% 38% 36% 21% 10% 13% 11% 10% 13%

Life premiums 108 190 292 421 517 643 762 902

% change 69% 76% 54% 44% 23% 24% 18% 18% 25%

Total premiums 1,980 2,766 3,801 4,652 5,163 5,883 6,580 7,330

% change 19% 40% 37% 22% 11% 14% 12% 11% 14%

e/f = BMI estimate/forecast. Source: SAMA, BMI

Projections And Drivers Of Growth

If possible, we project premiums ‘from the bottom up’. Specifically, we seek to incorporate hard numbers published by the regulator and/or trade association in relation to the development of the insurance sector. We also try to incorporate the available data in relation to particular lines. If, for instance, compulsory third-party motor liability (CTPML) insurance dominates the non-life segment, as it does in some

countries, then growth in non-life premiums will depend on factors such as the numbers of motor vehicles and pricing.

In order to assess our estimates for the first year where we have estimated premiums (2010) and the following years in the forecast period (2011-15), we consider the results that are published via the Tadawul by the major listed Saudi insurance companies.

There were 31 listed companies at the end of 2009. The 10 largest in terms of gross written premiums generated SAR9,442mn and SAR5,422mn in net premiums earned. On the basis of the figures for the entire market that are published by SAMA, this means that the 10 largest companies accounted for 64.6% of gross written premiums and 53.8% of net premiums earned.

During the third week of October 2010, virtually all of the largest companies published preliminary results for Q310. Their collective gross written premiums rose from SAR2,522mn in Q409 to SAR3,073mn in Q110, before falling to SAR2,813mn in Q210 and SAR2,315mn in Q310. The pattern for net premiums earned was roughly the same. The respective quarterly figures were: SAR1,520mn, SAR1,681mn, SAR1,847mn and SAR1,831mn.

In comparing the combined premium incomes for the 10 largest companies for 9M10 with the corresponding period in 2009, it appears that gross written premiums rose by 18.5%, while net premiums earned increased by 37.3%.

In our report for Q410, our examination of the published results for H110 suggested to us that gross written premiums for the non-life and life segments were likely to rise by 24% and 40% respectively in 2010. We consider that the latest results published by the 10 largest companies are broadly consistent with these forecasts and we maintain them. We see no reason at this stage to change our projections of non-life penetration or life density for 2011-2015.

The figures published by the 10 largest listed Saudi insurers are consistent with the following conclusions:

The growth rates of the non-life and the life segments peaked in 2009 and 2008 respectively.

Rising density will continue to propel the expansion of the life segment.

In terms of gross written premiums, the 10 largest Saudi insurers have collectively been losing market share. However, there has been a huge variation in the patterns of growth.

In terms of net premiums earned, the growth of the 10 largest Saudi insurers was much faster and more consistent through the first three quarters of 2010.

Table: Growth Drivers, 2008-2015

Non-Life 2008 2009 2010e 2011 2012f 2013f 2014f 2015f

Nominal GDP, US$bn 475.70 369.70 388.50 414.20 444.10 474.90 509.70 542.50

Penetration, % of GDP 0.58% 0.98% 0.98% 1.05% 1.10% 1.15% 1.20% 1.25%

Density, US$ per capita 112.84 148.71 179.95 200.77 224.45 244.38 267.40 291.07

Density, EUR per capita 76.73 105.58 140.36 164.63 177.32 195.50 213.92 232.85

Life

Population, mn 24.60 25.30 26.00 26.50 27.00 27.60 28.10 28.60

Penetration, % of GDP 0.03% 0.07% 0.08% 0.10% 0.12% 0.14% 0.16% 0.18%

Density, US$ per capita 6.49 10.96 14.92 20.00 25.00 30.00 35.00 40.83

Density, EUR per capita 4.41 7.78 11.64 16.40 19.75 24.00 28.00 32.67

Exchange rates

US$/EUR 0.68 0.71 0.78 0.82 0.79 0.80 0.80 0.80

SAR/EUR 3.75 3.75 3.75 3.75 3.75 3.75 3.75 3.75

e/f = BMI estimate/forecast. Source: IMF, BMI, SAMA, World Bank

Country Update

Macroeconomic Outlook

Growing Contribution Of Non-Oil Sector To Growth We hold to our positive economic growth outlook for Saudi Arabia and forecast real GDP growth to come in at 3.9% in 2011, up from an estimated 3.8% in 2010, driven by stronger growth in gross fixed capital formation (GFCF). However, until the mortgage law is passed we caution that persisting weak credit market will pose risks to the country’s growth sustainability. Over the longer term, we forecast average GDP growth of 3.5% in real terms between 2012 and 2015.

Saudi Arabia’s non-oil sector will play an increasingly vital role in the economy as the government’s initiative to diversify away from the hydrocarbon sector will bolster private consumption and GFCF. As a result, we forecast GFCF growth to outperform all other expenditure components of GDP through to 2015. As part of a long-term spending plan, the government plans to spend US$155bn in 2011 alone, investing in education and infrastructure. In our view, this will drive GFCF expansion up to 9.0% in 2011 and it will remain elevated over the coming years to average 7.8% growth over 2012-2015.

Saudi Arabia’s attractive investment environment bodes well for government efforts to promote non-oil sectors. State-funded projects will raise interest among foreign investors, especially regarding infrastructure upgrades. In the last decade Saudi Arabia emerged to become among the top 10 recipients of foreign direct investment (FDI) in the world. According to a report by the Saudi Arabian General Investment Authority, FDI inflows are distributed over a wide range of sectors, the most important of which are real estate, construction and transport infrastructure.

Among the most important infrastructure spending projects we highlight the US$3bn construction of roads and the US$112mn expansion of the Ras al-Zour Port, both of which are due to be completed by the end of 2011. Over the longer term, ambitious plans include the US$1.5bn project to expand Prince Mohammad Bin Abdulaziz International Airport by 2022, as well as an US$80bn investment plan to more than double electricity generating capacity to 67,000MW by 2020. Encouraged by this overwhelming investment drive into Saudi Arabia’s non-hydrocarbons sector, we see GFCF as the chief contributor to the country’s economic growth over the coming years.

In addition, we anticipate that the passing of the new mortgage law will occur in 2011 as part of a planned overhaul of the country’s home finance market to solve the expanding housing deficit. We see the passing of the law as a trigger for the much needed construction of new homes, adding to the expansion of GFCF. Although Muhammad al-Jasser, the governor of SAMA, said in January 2011 that no authority has been assigned to supervise the new mortgage scheme, he also reiterated that the government is still working on regulations for real estate mortgages to address the high price of residential buildings. According to

SAMA’s report in 2010, the passing of the law could spark a lending capital market of US$32bn a year over the next decade. The law could also add upside risks to our growth forecasts.

As well as the positive impact on GFCF, these ambitious projects will create jobs, which combined with the increased presence of private companies on the Saudi labour market will decrease unemployment and act as a major driver of stronger private demand. Consequently, we forecast household consumption to pick up to 6.0% in 2011, rising from an estimated 4.0% in 2010. The consistent increase in the number of points of sale terminals in 2010, which is a favourite leading indicator of private consumption growth, to 74,000 in Q310 from 70,000 in Q110 underpins our upbeat outlook.

Risks To Outlook With weak credit growth recorded throughout 2010, the failure of banking sector asset growth to recover could be symptomatic of more subdued household expenditure growth. Relatively weak private sector demand dragged asset growth to average 2.4% in 2010, with December’s growth coming in as low as 1.0%. Banks increased their loans to the government, coming in at 12.0% y-o-y in December, up from -26.6% in the same month in 2009, which was a reflection of reduced risk appetite and banks’ concerns about non-performing loans.

Increasing domestic oil consumption combined with oversupply on the global market could also add threats to our growth outlook for Saudi Arabia, with the country’s reliance on oil beyond question for the foreseeable future. As such, despite the government’s efforts to reduce the country’s exposure to oil price fluctuations, any substantial drop in global oil prices could undermine the country’s growth outlook.

Table: Saudi Arabia Economic Activity; 2006-2015

2006 2007 2008 2009 2010e 2011f 2012f 2013f 2014f 2015f

Nominal GDP, SARbn 1 1,335.6 1,442.6 1,781.6 1,384.4 1,454.8 1,551.0 1,663.2 1,778.4 1,908.9 2,031.6

Nominal GDP, US$bn 1 356.6 385.2 475.7 369.7 388.5 414.2 444.1 474.9 509.7 542.5

Real GDP growth, % change y-o-y 1 3.2 2.0 4.1 0.4 3.8 3.9 3.7 3.5 3.5 3.2

GDP per capita, US$ 1 15,061 15,945 19,303 14,601 14,947 15,618 16,422 17,225 18,146 18,961

Population, mn 2 23.7 24.2 24.6 25.3 26.0 26.5 27.0 27.6 28.1 28.6

Unemployment, % of labour force, eop 1 6.3 5.6 5.0 5.4 6.0 7.0 7.0 7.0 7.0 7.0

e/f = BMI estimate/forecast. Source: 1 SAMA/BMI. 2 World Bank/BMI

Political Outlook

Unlikely Contagion But Risks Remain Although Saudi Arabia shares several socio-economic conditions as the North African countries, we believe that the risks of contagion of political unrest to the country are low due to fundamental differences that will prevent it. Nevertheless, King Abdullah’s health continues to raise questions over succession, ultimately weighing on the country’s stability.

Although there were some protests against the Saudi regime at the start of 2011, the scenario whereby social unrest escalates to a similar extent as in Egypt or Tunisia remains unlikely. Superior living standards, the lack of any significant opposition and a stronger military apparatus are some of the major differences that set Saudi Arabia apart, undermining the risks of contagion from North Africa. There is no doubt that Saudi officials are closely watching the events in the region but it is clear that there is no intention to allow any leeway for protests to reach the same level of rage and obstinacy as in other countries. When asked at the Davos World Economic Forum in late January if democracy – the main demand from protesters in all authoritarian regimes – is even more dangerous than a nuclear Iran, Prince Saud al-Faisal, a former ambassador to the US, said: ‘I don’t know, in Saudi Arabia we have neither nuclear weapons nor democracy.’

Fundamentally Different For the time being, fundamental differences underpin our view that the risks of contagion to Saudi Arabia are reduced. First, living standards are much higher than in North Africa, with the wealthy government able to afford to pay unemployment benefits, offer free medical services and not charge income tax. GDP per capita in Saudi Arabia is estimated to be among the highest 25% in the world and far higher than in Egypt, Tunisia, Algeria or Morocco. Combined, these factors leave the Saudi population with fewer reasons for discontent, having been among the most tolerant of their leaders among the authoritarian regimes in the region.

Second, given the nature of the regime, opposition to the ruling family is limited and therefore no resistance body could trigger a significant act of protest. The Movement for Islamic Reform is the most prominent opposition organisation but it is based in London and its last major act was in 2004 when 21 members were arrested for taking part in an anti-government protest in Jeddah. On February 10 201,1 a group of activists created a political party in an attempt to demand greater voice in policy formation. However, the act will remain symbolic as parties and public dissent are banned in Saudi Arabia and the chances that this group will have any success are slim. Therefore, in the absence of a more robust opposition to the current regime, organising demonstrations will be almost impossible, with the government immediately shutting down any attempt at forming a protesting coalition.

The government also has full control over the media, with the capacity to close down not only local television channels but also international ones. The precedent in 2008 of Al Jazeera toning down its coverage towards Saudi Arabia as a response to Riyadh’s demands is certainly proof of the ruling family’s control over the media. Other countries such as Kuwait in November 2010 and Egypt during the 2011 protests have also shut down Al Jazeera’s local bureaus completely.

The entire internet and telecommunication infrastructure is also state-owned, enabling the government to shut off internet access at any time. With online social networks the main channels of organising the protests in North Africa, the Saudi government’s ability to control the internet leaves even less leeway for anti-government movements to materialise and mobilise. Online censorship is made easier in Saudi Arabia by an extremely centralised internet infrastructure. There are only two nodes that connect to the outside world and all internet service providers must connect through these nodes’ proxy servers.

Should protests manage to overcome all the prevention measures taken by the government, Saudi Arabia’s stronger security apparatus will react immediately, stopping them before the instigation of social instability. On the rare occasion when protests have emerged, the police intervened quickly and arrested those who took part, with the total lack of response to their actual demands suggesting no willingness from the government to compromise. A similar situation was recorded in late January 2011 when a group of protesters gathered in Jeddah to demonstrate over the government’s response to floods and demanded better infrastructure. Within 15 minutes the authorities had broken up the protests and reportedly detained 30-50 participants.

Risks To Outlook: King Abdullah’s Succession Despite the apparent stability of the autocratic regime, uncertainty over the health of King Abdullah poses risks to the political outlook. Following a telephone conversation with US President Barack Obama on February 10 there were even rumours that the king had died following a heart attack. Although these were rejected later in the day, the 87-year-old monarch will eventually have to be succeeded. Although power was unofficially transferred to Prince Nayef in late 2010 (see our online service on November 22 2010, ‘Succession To Remain Uncertain’), the reaction of the population to the next leader and his ability to continue Abdullah’s policies remain to be seen. Saudi Arabia’s strongest ally, the US, could also react with the same hostility towards the next leader as they did with the Hosni Mubarak in Egypt in the event of an eruption in protests. With these factors in mind, although we see the occurrence of large protests as unlikely in Saudi Arabia, we highlight that the process of succession could unveil a weakness that discontented elements of the population could take advantage.

Succession To Remain Uncertain Signs of Abdullah’s deteriorating health could rush the decision regarding his succession. We are wary of the outlook of a smooth transition of power given the poor health of the next two candidates in line, while

we believe that the recent appointment of Abdullah’s son Prince Mitaeb as head of the National Guard indicates that he could be a potential alternative.

Abdullah’s reign is likely to come to an end over the medium term, with his fading health potentially rushing the decision regarding his succession. The king has already delegated the traditional role to oversee the hajj that the he has always held to interior minister Prince Nayef. This is one of a number of of duties that he has relinquished since June 2010 due to health problems that were never officially disclosed. His trip to the US for treatment of a back ailment, combined with the pictures showing Abdullah in a wheelchair, raise further concerns regarding the king’s health and his capacity to rule the country for much longer.

Aged Sudairi Seven Under a law adopted in 1992, Saudi Arabia must be ruled by the male descendants of the first king, Abdul-Aziz, with preference given to the ‘Sudairi Seven’ – the seven sons of one of the late king’s wives. Nevertheless, during the past year the Saudi royals who have dominated the government for over 30 years have been treated for various health problems, which could limit the alternatives for potential candidates. The first in line for the succession is 83-year-old Crown Prince Sultan, who has been receiving treatment for the past two years for an illness. Prince Nayef, 78, Sultan’s brother and considered second in line to the throne, has also had unspecified treatment in the past 12 months.

While Abdullah’s succession remains uncertain, the appointment of his son Mitaeb as commander of the National Guard indicates a potential candidate for the throne. Our view is supported by the fact that this position previously held by the king is being passed to someone else for the first time since 2005. In addition, 57-year-old Mitaeb was educated at Sandhurst – the UK’s top military academy – and is much younger than most other potential candidates. Nevertheless, while he is a descendant of Abdul-Aziz, the prince is not part of the Sudairi Seven, which could lower his chances of being chosen by the Allegiance Council.

The decision making process was regulated by Abdullah in 2006 and will be tested for the first time when the next crown prince is nominated. Under the new rules, the Allegiance Council will choose from one of three names suggested by the king. If the council of 35 sons and grandsons of the founder of Abdul-Aziz cannot agree then it will take a vote. The new system also allows for the creation of a five-member council to rule the country in the event that the king and the crown prince are incapacitated, a scenario that we also do not rule out given their health conditions.

Limited Effects On The Oil Market Given that Saudi Arabia has the lion’s share in OPEC’s total crude reserves, oil markets will closely watch any transfer of power in the absolute monarchy. While there is increasing interest in the king’s succession, we do not expect any major shift in policy from Saudi Arabia’s side or OPEC. With the

country’s total crude oil reserves coming in at 260bn barrels in 2009 (accounting for 25% of the world’s reserves), we believe increasing oil export revenues will remain the focus for the foreseeable future, regardless of the outcome of the succession.

Long-Term Political Outlook

Major Political Challenges For The Coming Decade: Scenarios For Change The Saudi royal family depends on steady oil revenues and Western support to maintain its tight grip on the population. The loss of either one of these could lead to substantial unrest and potentially regime change over the long term.

Saudi Arabia has one of the lowest long-term political risk ratings in the Middle East and North Africa (55.0) which, given its wealth, is something of an indictment of the political system. Against BMI’s criteria for political stability, the lack of democratic freedoms and entrenched inequalities in society leave it very vulnerable to upheaval over the long term. Here we look at the threats to the status quo and some potential scenarios for political change.

As it stands, Saudi Arabia’s political system can be described as an Islamic monarchy, led by King Abdullah, who has been on the throne since the death of his half-brother King Fahd in 2005. Strict shari’a law and very limited democratic freedoms exist in tension with a large expatriate community and very friendly relations with the West. Freedom House gives the country a score for political freedom on a scale of one to seven, with seven being the least free, and six for civil liberties, ranking it as ‘not free’. Saudi Arabia is also considered to be one of the worst violators of human rights in the world and the most prolific users of the death penalty. There is severe gender inequality, a lack of religious freedom and the Shi’a minority (making up around 30% of the population) is believed to be economically and politically marginalised by the Sunni elite.

Under a law adopted in 1992, Saudi Arabia must be ruled by the male descendants of the first king, Abdul-Aziz, with preference given to the ‘Sudairi Seven’ – the seven sons of one of the late king’s favourite wives. The 150-word consultative council is appointed, not elected, and while landmark municipal elections were held in 2005, the follow-up polls (originally due in 2009) were been postponed for two years. Even if they had gone ahead, the elections give little real power to Saudi citizens: only half of municipal council members are elected and those that are elected have to be approved by the government. Only men over 21 are eligible to vote.

The royal family maintains this hold on power through its oil wealth, with a combination of carrot and stick spending strategies (represented by public sector employment and benefits, and the military and security forces, respectively).

Challenges And Threats To Stability Succession: King Abdullah’s chosen successor, the 83-year-old Crown Prince Sultan, is apparently very ill and the identity of his successor remains undecided. Of course, this is not as immediate a threat as it would be if the king were to be incapacitated and it is likely to be resolved before this happens. The most likely outcome would appear to be the appointment of Prince Nayef, following his promotion to second deputy prime minister by Abdullah: both the latter and Sultan acceded to the second deputy prime minister post before being named crown prince.

Abdullah introduced a mechanism in 2006 to systematise the decision-making process: under the new rules, which will be tested for the first time when the next crown prince is nominated, the Allegiance Council will choose one from three names suggested by the king. If the council of 35 sons and grandsons of the founder of Saudi Arabia, King Abdul-Aziz, cannot agree then it will take a vote. The new system also allows for the creation of a five-member council to rule the kingdom in the event of both the king and the crown prince becoming incapacitated. Such uncertainty could be destabilising, but with the monarchy as a whole retaining a tight grip on the kingdom’s extensive security system, it is highly unlikely to lead to regime change.

Demographic challenges: The population is rapidly expanding and the UN estimates that around half of Saudis are under 25. This poses a substantial risk in terms of the government’s ability to provide jobs and housing as well as maintain living standards. The conservative Wahhabi environment and associated lack of social freedoms have left young men particularly susceptible to sexual and personal frustrations. This, in conjunction with anger at Western policy in the Middle East, has historically proven to benefit al- Qaeda’s recruitment efforts. The government seems to have contained the al-Qaeda presence for now through an extensive military crackdown, but the presence of this generation of underemployed young men, who have become accustomed to having most of their needs met by the government, could be explosive going forward.

Economic development and diversification: Although Saudi Arabia has embarked upon a China-style path of economic reform without political reform, the lack of democracy continues to stand in the way of economic development. As long as the government is keeping the population on side with the state’s financial resources, free markets cannot fully operate and transparency cannot prevail. It is also causing a large-scale labour imbalance, given that the government can currently afford to pay its own citizens inflated wages. In addition, the government provides very generous benefits – young men in Saudi Arabia can expect a government job, free healthcare and education, as well as a grant towards the cost of their wedding and first home. If no job is available then they can expect such generous benefits as to disincentivise trying to find one, certainly in the private sector.

The government’s efforts to resolve this problem have been clumsy. The Saudisation programme has forced private sector companies to hire locals who cost more and add less value than better-qualified

foreigners. Locals will, in many cases, not do any of the manual labour, so this has to be imported, causing much of the wealth to flow out of the region in the form of remittances, while government cash is unproductively used to support the unemployed. This leaves the government very vulnerable to a drop in oil prices, with 89% of revenues coming from crude exports in 2008.

Foreign policy: Saudi Arabia is on good terms with the US. It has been a key ally in the war on terror and, more recently, has stood with the Western powers in their bid to prevent Iran from becoming a nuclear power. Many observers believe that shared hostility towards Iran allows it to maintain a pragmatic working relationship with Israel, but officially Riyadh has no diplomatic relations with the latter. With very little public opinion poll data or media freedom, it is unclear to what extent the public sympathises with al-Qaeda’s anti-Western and anti-Israel agenda.

Overall, it is clear that the government believes it is preferable to keep its relations with Western powers low-key, and stories such as the handshake between Israeli Deputy Foreign Minister Danny Ayalon and former Saudi intelligence chief Turki al-Faisal in February 2010 are still regarded as scandalous. Certainly, if the population is in tune with its counterparts in the rest of the Middle East, there will be at least some dissent to this pragmatic relationship.

Scenarios For Political Change Under our core scenario, we see oil prices remaining high, allowing the government to maintain its hold on power, with possible small-scale reforms depending on the whims of the incumbent. We would expect to see another round of municipal elections eventually and potentially some relaxation of gender segregation rules and an improvement in human rights (with regard to, for example, the application of the death penalty). But what would it take to derail this outcome and bring dramatic political change?

As stated previously, there is the possibility of a leadership vacuum, particularly once the remaining members of the Sudairi Seven have passed form the political scene. In general, we would not expect this to lead to any major systemic change. Even if there was an internal battle for power, this would likely be resolved behind closed doors to avoid instability that would benefit no one. Moreover, it is the institution of the royal family, rather than the figure of the king, that holds real control.

However, there are a number of conditions that, if met, would increase the likelihood of a major change. Broadly, these are: a) the government running out of money; b) the total withdrawal of Western support; and c) the emergence of a genuinely reformist leader with strong support among the public and the royal family.

Running out of money: As the world’s largest oil producer, Saudi Arabia is one of the least likely states in the world to go bankrupt, but a breakthrough in alternative fuels leading to a permanently lower oil price, against the backdrop of a failure to diversify fiscal resources or provide private sector jobs, could

leave the country in dire financial straits. The government would be rendered unable to keep the population in the luxury to which it has become accustomed, and would be forced to introduce taxation and cut benefits, while unemployment would rise. The net result would be growing public dissatisfaction with the regime.

Withdrawal of Western support: This could be the work of a particularly liberal president in the US in a bid to stabilise the region and end the export of radical Wahhabist ideology, or it could be triggered by Saudi attempts to expand its territorial influence. Alternatively, it could be an Israeli-led initiative, if the government had become more hostile in response to populist concerns or, perhaps most likely, if a large- scale terrorist attack could be traced back to the country.

Such a withdrawal of support would leave Saudi Arabia, in the first instance, vulnerable to a depletion of its weaponry and military equipment, most of which is provided by the US and the UK. This would reduce its regional leverage and, eventually, its control over its own population. It would also be rendered very vulnerable to threats from nearby Iran (particularly if the latter had, by then, been allowed to turn into a nuclear power with influence over Iraq and Syria). In an extreme situation, it could potentially even be subject to the threat of a Western invasion for any of the reasons listed above.

These scenarios are dramatic, but could be played out in part: gradually lower oil prices and a reduction in support from the West could weaken the government. The introduction of even a small income tax and minor spending cuts could lead to public unrest and demands for greater representation. The royal family could also be weakened either by the re-emergence of al-Qaeda (in the event of the regime losing financial or military strength) or by the empowerment of the Shi’a population of the Eastern Province. This minority group has been historically marginalised by the Sunni elite, but if Saudi Arabia’s Sunni government appeared to have lost some of its regional clout to the advantage of a strengthened Iran, then the province could start to agitate for independence.

In the event of all or some of these conditions being fulfilled, potentially with more vocal encouragement from the West, then radical Islamist ideologues could come to power, reversing the Westernisation and openness to foreign investment and cutting ties with the US and Israel. Alternatively, a young leader could emerge to pose a real threat to the establishment, hastening the onset of democracy and liberalising the political and economic environment.

Insurance Business Environment Ratings

Table: Saudi Arabia’s Insurance Business Environment Rating

Score, Limits of Potential Returns Data out of 10 Rating score, out of 100

Non-life premiums, 2010 4,499.2 4.0 Non-life 45.0

Non-life premium increase, 2010-2015 3,536.0 6.0

Non-life penetration, % of GDP, 2010 1.0% 2.0

Measure of openness 6.0 6.0

Life premiums, 2010 374.5 1.0 Life 22.5

Life premium increase, 2010-2015 752.8 4.0

Life penetration, % of GDP, 2010 0.1% -

Measure of openness 4.0 4.0

GDP per capita, 2010 US$14,497 8.0 Country structure 64.8

Active population, % of total 57.4% 7.0

Tax 65.3 6.5

GDP volatility 4.0 4.0

Financial infrastructure 68.9 6.9

Risks to Realisation of Returns

Regulatory framework and development 6.0 6.0 Regulatory framework 60.0

Regulatory framework and competitive landscape 6.0 6.0

Long-term financial risk 97.5 9.8 Country risk 75.1

Long-term external risk 63.3 6.3

Long-term policy continuity 80.0 8.0

Legal framework 75.0 7.5

Bureaucracy 59.6 6.0

Insurance Business Environment Rating 53.0

Source: BMI

The insurance business environment rating (IBER) takes into account objective measures of the current state and long-term potential of both the non-life and the life segments. It also takes into account an assessment of the openness of each segment to new entrants and economic conditions. Collectively, these measures enable an objective assessment of the limits of potential returns across all countries and over time. The IBER also incorporates an objective assessment of the risks to the realisation of returns. The risk assessment is based on BMI’s country risk rating. It embodies a subjective assessment of the impact of the regulatory regime on the development and the competitive landscape of the insurance sector.

Saudi Arabia’s overall IBER is 53.0 out of 100. By this measure, the country is relatively high ranking in terms of its attractiveness relative to other countries in the Middle East and Africa surveyed by BMI. It has a very high GDP per capita, reflecting its oil-rich resource reserves. Compared to other countries in the region, Saudi Arabia stands out for the absolute size of and the likely absolute growth in annual non- life premiums.

The other factor that boosts Saudi Arabia’s IBER is its relatively high country risk factor. The energy boom and the political environment are such that scores for financial and external stability are high, as is the score for policy continuity over the long term. These factors outweigh the deficiencies in the legal framework and the bureaucracy. However, Saudi Arabia’s IBER is held back by the small size of the life segment.

Table: Middle East And Africa Insurance Business Environment Ratings

Limits of Potential Returns Risks to Realisation of Returns

Non-life Life Country Regulatory Overall segment segment Structure framework Country Risk rating Rank

South Africa 72.5 65.0 59.2 85.0 59.8 66.4 1

Israel 57.5 55.0 68.2 80.0 67.6 64.5 2

Bahrain 37.5 35.0 64.0 85.0 77.3 57.3 3

UAE 50.0 30.0 59.3 70.0 66.2 53.7 4

Saudi Arabia 45.0 22.5 64.8 60.0 75.1 53.0 5

Oman 30.0 17.5 60.7 65.0 80.0 49.2 6

Morocco 40.0 35.0 48.2 70.0 54.9 47.5 7

Egypt 30.0 37.5 48.6 60.0 66.6 47.0 8

Qatar 33.8 10.0 57.6 55.0 76.9 45.8 9

Lebanon 37.5 32.5 50.9 65.0 43.4 44.6 10

Kuwait 22.5 12.5 58.1 50.0 81.8 44.3 11

Jordan 32.5 20.0 54.7 70.0 47.3 43.3 12

Tunisia 30.0 17.5 55.0 55.0 59.0 42.6 13

Algeria 32.5 15.0 45.4 50.0 62.7 40.0 14

Kenya 32.5 22.5 45.1 45.0 40.4 36.8 15

Nigeria 35.0 20.0 41.9 25.0 46.6 34.7 16

Iran 32.5 10.0 46.9 20.0 50.7 33.6 17

Scores out of 100, with 100 the highest. Source: BMI

Regional Context

Table: Non-Life Premiums In A Regional Context, 2009

Penetration, Density, Density, Premiums, US$mn Premiums, EURmn % of GDP US$ per capita EUR per capita

Algeria 1,047 743 0.82% 29.99 21.30

Bahrain 376 267 1.83% 376.32 267.18

Egypt 793 563 0.41% 10.20 7.24

Iran 4,382 3,111 1.18% 59.06 41.93

Israel 5,044 3,581 2.59% 672.47 477.45

Jordan 465 330 2.02% 73.78 52.38

Kenya 558 396 1.56% 14.10 10.01

Kuwait 517 367 0.47% 161.64 114.76

Lebanon 712 506 2.21% 169.57 120.40

Morocco 1,829 1,298 1.95% 57.32 40.70

Nigeria 1,077 765 0.50% 7.14 5.07

Oman 508 360 1.10% 181.32 128.74

Qatar 926 657 0.94% 578.47 410.71

Saudi Arabia 3,629 2,576 0.98% 148.71 105.58

South Africa 7,448 5,288 2.57% 151.39 107.49

Tunisia 680 483 1.74% 64.17 45.56

UAE 4,773 3,389 1.77% 1,015.58 721.06

Source: BMI

Table: Life Premiums In A Regional Context, 2009

Penetration, Density, Density, Premiums, US$mn Premiums, EURmn % of GDP US$ per capita EUR per capita

Algeria 76 54 0.06% 2.16 1.54

Bahrain 151 107 0.73% 151.00 107.21

Egypt 1,135 806 0.58% 14.61 10.37

Iran 241 171 0.07% 3.25 2.31

Israel 4,764 3,382 2.45% 635.18 450.98

Jordan 49 35 0.21% 7.82 5.56

Kenya 277 196 0.78% 6.99 4.96

Kuwait 152 108 0.14% 47.41 33.66

Lebanon 351 249 1.09% 83.52 59.30

Morocco 855 607 0.91% 26.80 19.03

Nigeria 261 185 0.12% 1.73 1.23

Oman 103 73 0.22% 36.63 26.01

Qatar 58 41 0.06% 36.31 25.78

Saudi Arabia 267 190 0.07% 10.96 7.78

South Africa 21,911 15,557 7.57% 445.35 316.20

Tunisia 99 71 0.25% 9.38 6.66

UAE 813 577 0.30% 173.00 122.83

Source: BMI

Major Players In Saudi Arabia’s Insurance Sector

The Saudi insurance sector is regulated by the Saudi Arabian Monetary Agency. SAMA was established in 1952 and is part of the Ministry of Finance.

Table: Gross Written Premiums, 2005-2009 (SARmn)

2005 2006 2007 2008 2009

A&L and Other 424.0 579.6 577.3 531.3 543.7

Motor 1,587.3 1,920.2 2,440.2 2,542.1 3,055.4

Property/Fire 643.5 769.2 742.2 798.4 904.9

Marine 382.0 431.4 531.6 619.6 525.0

Aviation 135.1 126.1 114.5 138.5 174.1

Energy 121.6 126.7 305.3 208.2 301.7

Engineering 296.4 543.7 479.7 682.1 810.3

Sub-total general 3,589.9 4,496.9 5,190.8 5,520.2 6,315.1

Sub-total health 1,370.3 2,222.2 3,065.0 4,805.2 7,292.0

Non-life 4,960.2 6,719.1 8,255.8 10,325.4 13,607.1

Life 193.2 217.9 327.0 593.7 1,002.8

Total 5,153.4 6,937.0 8,582.8 10,919.1 14,609.9

Change 35% 24% 27% 34%

Source: SAMA

Table: Net Written Premiums, 2005-2009 (SARmn)

2005 2006 2007 2008 2009

A&L and Other 182.7 243.4 219.2 217.3 244.3

Motor 1,486.9 1,814.1 2,297.3 2,458.7 2,944.1

Property/Fire 69.2 80.8 84.1 95.4 105.1

Marine 112.7 124.4 169.8 201.5 183.2

Aviation 4.0 4.3 3.6 5.5 1.1

Energy 0.1 0.0 2.4 0.9 5.2

Engineering 56.8 84.2 97.6 122.2 125.3

Sub-total general 1,912.4 2,351.2 2,874.0 3,101.5 3,608.3

Sub-total health 1,106.6 1,842.5 2,403.1 3,750.9 5,556.9

Non-life 3,019.0 4,193.7 5,277.1 6,852.4 9,165.2

Life 149.7 153.2 266.8 468.2 908.0

Total 3,168.7 4,346.9 5,543.9 7,320.6 10,073.2

Change 37% 28% 32% 38%

Source: SAMA

In 2010, SAMA reported the following numbers of insurance and reinsurance companies and services providers by category: 21 licensed companies, four listed companies and six approved companies. The identified members by category are:

Licensed companies: Mediterranean and Gulf Cooperative Insurance & Reinsurance (Medgulf); The Company for Cooperative Insurance (Tawuniya); Saudi Arabian Cooperative Insurance Company (SAICO); Malath Cooperative Insurance & Reinsurance Company; SABB Takaful; al-Ahli Takaful; Saudi IAIC for Cooperative Insurance (SALAMA); Arabian Shield Cooperative Insurance; Assurance Saudi Fransi; Gulf Union Cooperative Insurance Company; Trade Union Cooperative Insurance Company; Sanad for Cooperative Insurance and Reinsurance; Saudi Indian Company for Cooperative Insurance; al-Sagr Company for Cooperative Insurance; Saudi United Cooperative Insurance (Wala’a); Arabia Insurance Cooperative Company; Saudi Re For Cooperative Reinsurance Company; Bupa Arabia for Cooperative Insurance; al-Ahlia for Cooperative Insurance; United Cooperative Assurance (UCA); and Allied Cooperative Insurance Group (ACIG)

Listed companies: Al-Rajhi Company for Cooperative Insurance; Wiqaya Takaful Insurance & Reinsurance Company; Ace Arabia Cooperative Insurance Company; and AXA Cooperative Insurance Company.

Companies approved to be established: Alalamya for Cooperative Insurance; Buruj Cooperative Insurance Company; Solidarity Saudi Takaful Company; Gulf General Insurance Company; Amana for Cooperative Insurance (Amana); and Tokio Marine Saudi Arabia.

There is no insurance trade association in Saudi Arabia. From quarter-to-quarter, the most convenient source of data for the industry appears to be the Tadawul, the national stock exchange on which many companies are listed. Details of gross and net written premiums as reported to the Tadawul are below.

Table: Disclosed Gross Written Premiums And Net Premiums Earned By Listed Insurers, 2009 (SARmn)

Gross Written Premiums Net Premiums Earned

Tawuniya 4,035.3 2,063.7

Medgulf 1,849.5 1,299.9

Bupa Arabia 1,347.3 1,205.4

Gulf Union 494.7 176.1

SABB Takaful 389.3 63.0

Malath Insurance 363.2 130.8

Allianz 337.8 127.3

SANAD 223.8 77.2

SALAMA 217.2 210.0

Arabian Shield 183.8 68.1

Sagr Insurance 171.0 124.2

Walaa 142.9 41.6

ATC 115.9 1.1

Saudi Indian 85.0 37.7

Al-Ahlia 82.8 15.6

SAICO 73.6 11.5

Saudi Reinsurance 51.1 8.3

ACIG 6.1 0.8

Trade Union 0.0 0.0

UCA 0.0 0.0

Solidarity 0.0 0.0

Buruj 0.0 0.0

Table: Disclosed Gross Written Premiums And Net Premiums Earned By Listed Insurers, 2009 (SARmn)

Gulf General 0.0 0.0

Amana 0.0 0.0

AXA Coop. 0.0 0.0

Al-Rajhi Takaful 0.0 0.0

Al-Alamiya 0.0 0.0

ACE 0.0 0.0

AICC 0.0 0.0

Weqaya Takaful 0.0 0.0

Wataniya 0.0 0.0

Top 10 total 9,441.9 5,421.5

NB as % market 64.6% 53.8%

Sample total (31 companies) 10,170.3 5,662.4

NB as % market 69.6% 56.2%

Market totals 14,609.9 10,073.2

Sources: SAMA, company reports to Tadawul

Table: Evolution Of Gross Written Premium Q409-Q310 And Indications For 2010, Top 10 Listed Companies (SARmn)

Jan-Sept 2010 Q409 Q110 Q210 Q310 Sub-total

Tawuniya 1,306.9 985.3 1,220.0 635.3 2,840.6

Medgulf 353.9 832.8 619.1 671.3 2,123.3

Bupa Arabia 228.0 637.0 415.4 388.2 1,440.5

Gulf Union 1 123.7 0.0 71.4 93.5 164.9

SABB Takaful 171.5 88.8 86.3 51.7 226.8

Malath Insurance 2 87.6 170.5 131.0 150.8 452.3

Allianz SF 98.2 113.8 127.6 180.9 422.3

SANAD 92.9 108.2 39.3 24.0 171.5

SALAMA 25.8 48.1 42.3 24.6 115.0

Arabian Shield 33.3 88.3 60.2 93.5 242.1

Top 10 total 2,521.9 3,072.7 2,812.8 2,313.8 8,199.3

Notes: 1 Estimate for Q409; 2 Malath premiums for Q310 estimated as average of preceding two quarters. Source: Company reports to Tadawul

Table: Evolution Of Net Premiums Earned, Q409-Q310, And Indications For 2010, Top 10 Listed Companies (SARmn)

Jan-Sep 10 Q409 Q110 Q210 Q310 Sub-total

Tawuniya 591.1 650.8 667.9 664.8 1,983.5

MedGulf 351.7 407.5 473.5 439.0 1,320.0

Bupa Arabia 341.8 368.3 387.7 415.2 1,171.2

Gulf Union 1 44.0 0.0 47.4 48.0 95.4

SABB Takaful 23.2 29.0 40.5 35.7 105.2

Malath Insurance 2 49.7 61.7 61.3 61.5 184.4

Allianz SF 41.4 43.0 58.0 45.9 146.9

SANAD 33.7 51.7 43.2 44.2 139.1

SALAMA 21.5 42.5 36.4 28.9 107.7

Arabian Shield 21.5 26.2 31.2 48.0 105.4

Top 10 Total 1,519.6 1,680.7 1,847.0 1,831.1 5,358.8

Notes: 1 Estimate for Q409; 2 Malath premiums for Q310 estimated as average of preceding two quarters. Source: Company reports to Tadawul

Table : Comparison Of Gross Written Premiums, 9M09-9M10 (SARmn)

9M09 9M10 % change y-o-y

Tawuniya 2,728.4 2,840.6 4.1%

Medgulf 1,495.6 2,123.3 42.0%

Bupa Arabia 1,119.4 1,440.5 28.7%

Gulf Union 1 371.0 164.9 -55.5%

SABB Takaful 217.9 226.8 4.1%

Malath Insurance 2 275.6 452.3 64.1%

Allianz 239.6 422.3 76.2%

SANAD 130.8 171.5 31.1%

SALAMA 191.4 115.0 -39.9%

Arabian Shield 150.5 242.1 60.9%

Top 10 Total 6,920.1 8,199.3 18.5%

Notes: 1 Estimate for Q409; 2 Malath premiums for Q310 estimated as average of preceding two quarters. Source: Company reports to Tadawul

Table : Comparison Of Net Earned Premiums, 9M09-9M10 (SARmn)

9M09 9M10 5 change y-o-y

Tawuniya 1,472.6 1,983.5 34.7%

Medgulf 948.2 1,320.0 39.2%

Bupa Arabia 863.6 1,171.2 35.6%

Gulf Union 1 132.1 95.4 -27.8%

SABB Takaful 39.8 105.2 164.2%

Malath Insurance 2 81.0 184.4 127.7%

Allianz SF 85.9 146.9 70.9%

SANAD 43.5 139.1 219.6%

SALAMA 188.5 107.7 -42.9%

Arabian Shield 46.6 105.4 126.1%

Top 10 Total 3,902.0 5,358.8 37.3%

Notes: 1 Estimate for Q409; 2 Malath premiums for Q310 estimated as average of preceding two quarters. Source: Company reports to Tadawul

Table: Indicated Gross Written Premiums And Net Premiums Earned, 2010 (SARmn)

Gross Written Premiums Net Premiums Earned

Tawuniya 4,201.3 2,779.6

Medgulf 2,625.7 1,809.6

Bupa Arabia 1,733.9 1,634.7

Gulf Union 219.9 127.3

SABB Takaful 405.4 166.5

Malath Insurance 596.2 297.7

Allianz 595.4 217.6

SANAD 293.3 246.7

SALAMA 130.5 120.0

Arabian Shield 295.7 154.0

Top 10 total 11,187.4 7,445.7

Indicated Market Total 18,276.0 13,834.2

Source: BMI estimates based on company reports to Tadawul

Table: Saudi Arabia’s Insurance Sector At A Glance

Actual gross written premiums, 2009 (SARmn) 14,609.9

Indicated gross written premiums, 2010 (SARmn) 18,276.0

Indicated growth (%) 25%

Actual net premiums earned, 2009 (SARmn) 10,073.2

Indicated net premiums earned, 2010 (SARmn) 13,834.2

Indicated growth (%) 37%

Source: BMI estimates based on company reports to Tadawul

Analysis Of Regional Competitive Conditions

As in previous reports, we have looked at which cross-border insurers are present in which country across each region. We endeavour to describe the competitive landscape in some detail on the basis of recently published official information, whether sourced from the regulator or the trade association.

Since Q308, we have included substantially more information about the insurance companies that operate in each country surveyed by BMI. With very few exceptions, foreign multinationals have a significant, if not a dominant, presence in the markets that we survey. Because so many multinational insurers consider national markets not as individual entities but as part of a larger region, or indeed the whole world, we contend that it is difficult to understand the competitive landscape within a particular country unless one also considers the footprints of all the multinationals across the relevant region.

Accordingly, for each of the multinationals profiled, we have sought to identify particular issues: the proper name of the holding company in the home country; the activities, in summary, of the company in its home country; the name of the company’s operations in each of the countries in the region; and relevant and specific comments (if any) that have been made by the company in relation to its operations in each of the countries in the region. As much as possible, we have used company websites and annual reports as sources of information. For efficiency, we have often quoted verbatim from these sources. In such instances, we have always indicated the source that we used. Over the coming quarters, we will incorporate considerably more details about each of the companies that operate in each market.

The insurance sectors of the Middle Eastern countries fall into two categories. The first is characterised by a relatively small number of oligopolists, whose positions may have been formally protected by law (as in most of the GCC countries) or effectively protected by geopolitical issues (as in Israel and Iran). The oligopolists are large by local standards, but no more than medium-sized companies by other standards. Examples include Clal, Harel, Phoenix/Hadar and Menorah in Israel and Bimeh Iran, Bimeh Asia, Bimeh Dana and Bimeh Alborz in Iran. Outside Israel, these companies are overwhelmingly non-life insurers. Following the announcement by the government of Egypt in late 2007 that three state-owned insurers, al-Chark, Misr Insurance and National Insurance, were to be merged, concentration is increasing in that country.

The second category is characterised by the large number of local players relative to the present market opportunity. By world standards, these are small companies. Typically they are pure non-life companies, or non-life companies that derive a small portion of total income from life products. Often they have a close association with a local banking or trading company that may assist with procurement of business. The UAE, where local companies account for nearly 80% of the market, is a good example. So too is Kuwait, where the local companies account for about 90% of local premiums.

Other markets in the region with (comparatively speaking) large numbers of players relative to the total opportunity include Oman (eg: Oman United and Muscat International), Qatar (eg: QIC, QGIC, Doha Insurance and al-Khaleej), Bahrain (eg: Bahrain National, Gulf Union and Bahrain Kuwait), Algeria, Morocco, Tunisia, Jordan and especially Lebanon.

Chartis and RSA are noteworthy as major foreign multi-nationals with non-life operations across the region. Multinationals with a strong presence in the life segment include Zurich Financial Services and MetLife ALICO, as well as HSBC Insurance. Allianz is active in both the non-life and the life segments.

A number of Middle Eastern insurers have expanded their business into other countries in the region. Examples include Lebanon’s Medgulf and ARIG, the Bahrain-based reinsurer.

Various reports, especially in the mainstream media highlight the huge potential for takaful throughout the Middle East. Hard numbers, however, are difficult to come by. Assuming that all of the business of Aman, Salama and Abu Dhabi National Takaful consist solely of takaful products, it appears that this niche of the market accounts for about 12% of total premiums in the UAE. It would be fair to say that the excitement about takaful may exceed its true potential, but that the sector is undoubtedly growing rapidly from a very low base.

Company Profiles

Local Company Profiles

Bupa Arabia

Strengths Clearly the established leader in health insurance in Saudi Arabia, with a dominant market share.

Access to expertise and backing of Bupa, one of the world’s largest health insurance companies.

Weaknesses As a stand-alone business, Bupa Arabia is not large except perhaps by the standards of the Middle East. It is not a full subsidiary of Bupa.

Opportunities No company is better placed than Bupa Arabia to take advantage of the government- directed growth in medical insurance.

Threats Potential for unfavourable regulatory change.

Company Overview In 1997, the global Bupa group established a partnership with Nazer Group to form Bupa Middle East. The resulting joint venture ‘started its Saudi operations with its focus on providing a world- class service and becoming a market leader.’

In accordance with the Saudi Arabian insurance regulations, Bupa restructured the joint venture so that it became a publicly listed company offering cooperative health insurance. The public hold 40% of the stock. Bupa’s interest in the Saudi Arabian affiliate is 26.25%.

According to the company, it is ‘the first specialised insurer in Saudi Arabia exclusively focused on healthcare’. Its three main product lines are Bupa Corporate, Bupa Business and Bupa Family.

Figures released to Tadawul, on which Bupa Arabia is listed, indicate that it is the third largest insurer overall, accounting for about 8% of total premiums (but a much higher percentage of the health insurance business).

Key Personnel CEO: Tal Hisham Nazer

Chair: Loay Hisham Nazer

Directors: William S. Ward, Aamer Abdullah Ali Reza, Zuhair Hamed Fayez Dr Mohammed Akef al-Maghrabi, Anthony Frank Cabrelli

Contact Details Tel: 542 026636936

Website: www.bupa.com.sa

Medgulf

Strengths A leading player in the Saudi Arabian non-life segment with established relationships and access to capital.

Clear competence in health insurance and ancillary services across the region.

Weaknesses Still only a medium-sized insurer by most standards outside the Middle East.

Very limited involvement with life and long-term savings products.

Opportunities The ongoing energy-driven growth of the Saudi Arabian economy will result in continual increase in non-life risks that need to be underwritten: few companies are better placed than Medgulf to exploit this.

Continued expansion of health insurance.

Threats Increasing competition from rivals backed by foreign multinationals.

Company Overview Medgulf, The Mediterranean and Gulf Cooperative Insurance & Reinsurance Company KSA, is the local operation of the regional Medgulf group.

Medgulf was established in Lebanon in 1980 and has since expanded across the Middle East. It is backed by al-Azizia Commercial Investment Company, Saudi Oger, Saudi Investment Bank and LFZ Holdings. It is active in three broad areas:

Insurance and reinsurance in Lebanon, Saudi Arabia, Bahrain, other GCC companies, Turkey and the UK.

Reinsurance placement in the UK and risk management for clients in the Middle East.

Third party (medical insurance) administration services in Lebanon, Saudi Arabia, Bahrain, the UAE and Jordan under the MediVisa brand.

Figures released to Tadawul, on which Medgulf’s local subsidiary is listed, suggest that its Saudi business, focusing on a broad range of property and casualty lines (but also medical malpractice insurance), accounts for about 10% of the non-life (and, therefore, entire) Saudi insurance sector.

Key Personnel CEO: Lutfi Fadel el-Zein

Chair: Saleh Ali Saoud al-Saghri

Directors: Mohamad Ahmad al-Hariri, Nehme Elias Nehme Sabbagh, Musaed Mohamad al-Munaife, Abdel-Rahman A.M. al-Saleh, Abdel-Aziz A. al-Nowaiser Rashed M .Thahen, Ramzi Abdullah al-Nassar

Contact Details Tel: +966 1 4055550

Website: www.medgulf.com

Tawuniya

Strengths By far the largest player in Saudi Arabia, with the benefits of established relationships and access to capital.

Clearly moving towards new (online) distribution channels and focused on improving underwriting results.

Weaknesses Still only a medium-sized insurer by most standards outside the Middle East.

Very limited involvement with life and long-term savings products.

Opportunities Ongoing energy-driven growth of the Saudi economy will result in continual increase in non-life risks that need to be underwritten: few companies are better placed than Tawuniya to exploit this.

Tawuniya could collaborate with foreign groups to develop new products for Saudi Arabia and/or to expand outside the kingdom.

Continued expansion of health insurance.

Threats Increasing competition from rivals backed by foreign multinationals.

Company Overview Tawuniya, the National Company for Cooperative Insurance, was established as a state-owned enterprise in 1986. As the Saudi Arabian insurance sector has grown and been opened up to foreign competition, Tawuniya has grown in absolute terms, although its market share has declined. In 2008, it accounted for 23% of the market in terms of total gross written premiums, and remains by far the largest player. SAMA noted that the eight largest insurers in Saudi Arabia accounted for 64% of gross written premiums in 2008.

Tawuniya’s annual report for 2008 identifies four major business areas: motor; medical and takaful; property and casualty. ‘Tawuniya focused extreme attention on the renewal of major clients’ policies… a step considered highly successful in the light of strong competition witnessed in the local insurance market.’ Growth in premiums in 2008 was mainly due to the rise in medical insurance premiums thanks to a surge in compulsory contributions.

Tawuniya owns stock in three affiliates: United Insurance Co (50%), a Bahraini insurance operation; Cooperative Real Estate Investment (33.33%), a Saudi property investment company; and Waseel Application Service Provider Co, a Saudi group specialising in electronically linking insurance companies with medical service providers.

Saudi nationals account for 73% of the workforce.

At the end of 2009, total assets amounted to SAR7.23bn. Over the year, gross written premiums rose from SAR2.35bn to SAR4.03bn. Net Profit After Tax increased from SAR67mn to SAR296mn.

Key Personnel CEO: Ali A. al-Subaihin

Chair: Soliman S. al-Humayyd

Non-executive directors: Mohammed A. al-Kharashi, Saad A. al-Marzoqi

Independent directors: Abdullah M. al-Fayez, Muhammad A. al-Agil, Abdulaziz A. al- Modaimigh

Contact Details Tel: +966 1 218 0100

Website: www.tawuniya.com.sa

Regional Company Profiles

Arab Insurance Group (ARIG)

Company Overview ARIG is unusual in that it is a substantial, Arab-owned, professional reinsurance group. It is owned by three governments in the Middle East and North Africa region. The UAE government is the largest shareholder, with 31.4% of the stock. The other two governments are those of Libya (14.5%) and Kuwait (12.3%). Private investors in Kuwait and the UAE account, respectively, for an additional 16.0% and 8.6% of the stock.

ARIG is listed on the stock exchanges of Bahrain, Dubai and Kuwait. ‘Operating out of Bahrain, ARIG offers a broad range of treaty and facultative reinsurance services for Property& Casualty, Specialty, as well as Life and Medical lines to its clients from the region and beyond. Together with its subsidiaries, ARIG also provides Takaful reinsurance solutions and popular insurance software products.’

Aside from the main reinsurance operations in Bahrain, underwriting is co-ordinated through the group’s branches in Singapore and Labuan, Malaysia. There is also a representative office in Mauritius.

ARIG is also an equal partner in the joint venture Hardy ARIG Insurance Management (HAIM). Through its subsidiary ARIG Capital Limited (ACL) in the UK, ARIG has entered into a two-year tenancy agreement with the Hardy Group to write a 7.5% share of the business written from 2011 by Hardy’s syndicate 382 at Lloyds of London. ‘This arrangement will provide the Hardy Group with additional capital flexibility, whilst giving ARIG access to London… opportunities and furthering the strategic relationship between the two groups.’

Aside from ACL, other subsidiaries include Takaful Re Limited (Dubai, in which ARIG has a 54% share), Gulf Warranties WLL (66%) and Arima Insurance Software WLL (100%). The last two subsidiaries are based in Bahrain.

At the end of November 2010, ARIG announced that it plans to open a representative office in Tripoli, Libya, which will service clients in that country and in the Maghreb. Source: www.arig.net

Corporate Highlights Gross Written Premiums in 2009 amounted to US$279.4mn, or slightly less than the US$280.7mn of 2008. Net Written Premiums rose from US$269.2mn to US$270.7mn. The company posted a net profit of US$21.9mn, having suffered a loss of US$28.6mn in 2008.

At the end of 2009, investment assets amounted to US$653.7mn. Total Assets were US$1,132.3mn. Technical provisions stood at US$589.8mn; shareholders’ equity, at US$267.3mn.

Of the total Gross Written Premiums of US$279.4mn, 58% were written in the Middle East. Asia outside the Middle East accounted for another 25%. No less than 15% of Gross Written Premiums were written in Africa. The main lines are: property, 22%; life, 18%; medical, 18%, engineering, 16%, and; accident, 9%.

Regional Operations Bahrain is the centre for ARIG’s core reinsurance operations and Arima Software. The partially owned subsidiary Takaful Re is based in Dubai.

Company Details Status: Public listed company Home country: Bahrain, but also listed in Kuwait and the UAE Main source for press releases: www.arig.net

Chartis

Company Overview Chartis is essentially the global non-life business of American International Group (AIG). Like ALICO and AIA, which have already been spun out of AIG, Chartis’ origins can be traced back to the foundation of the predecessor of AIG, by Cornelius Vander Starr, in Shanghai in 1919.

On July 27 2009, as a part of its restructuring following a bailout by the Federal Reserve Bank of New York (FRBNY), AIG formed a Special Purpose Vehicle (SPV) into which was placed its AIU subsidiary. Kristian P Moor was appointed as President and Chief Executive Officer of the new business, which was rebranded as Chartis. Chartis is headquartered in New York, and combines commercial insurance, foreign general insurance and private client group operations. The company suggests that the formation of the SPV, the appointment of Mr Moor and the development of the new brand (whose name is derived from the Greek word for map), will ‘advance its reputation as a pre-eminent global insurance organisation and showcase its strengths’. The strengths include its experienced management, financial stability, product innovation and geographic reach.

‘Chartis is a world leading property-casualty and general insurance organisation serving more than 40 million clients in over 160 countries and jurisdictions. With a 90 year history, one of the industry’s most extensive range of products and services, deep claims expertise and excellent financial strength, Chartis enables its commercial and personal insurance clients alike to manage virtually any risk with confidence.’

Within the Middle East and North Africa, Chartis is present in Bahrain, Egypt, Kuwait, Lebanon, Oman, Qatar, Saudi Arabia, and the UAE. Nearby, it is also present in Turkey.

In Sub-Saharan Africa, Chartis has operations in Kenya, South Africa and Uganda.

Commercial insurance lines include: Accident & Health; Aerospace/Aviation; Commercial Auto; Captive Management Services; Commercial Umbrella & Excess Liability; Directors’ & Officers’ Liability; eBusiness Risks; Environmental/Pollution Liability; Extended Warranty; General Casualty; Marine & Energy; Multinational Liability; Political Risk & Trade Credit; Professional Liability; Property; Risk Finance; Transaction Liability; Travel, and; Workers Compensation.

Personal insurance lines include: Accident & Health; Auto; Homeowners/Renters; Extended Warranty; Private Client Group Offerings; Travel, and; Specialty Short-term Products.

Corporate Highlights Highlights in 2009 included:

The launch of 180 new products and services worldwide.

Gross Written Premiums for US and Canadian operations of US$22.8bn (down from US$27.9bn in 2008). Net Written Premiums fell from US$21.2bn to US$18.4bn.

International Gross Written Premiums of US$18.2bn (down from US$21.8bn in 2008). Net Written Premiums fell from US$14.4bn to US$12.3bn.

Globally, the statutory surplus in 2009 was US$38bn, versus US$36bn the previous year.

The combined ratio in North America increased from 101.0% in 2008 to 112.7% in 2009.

For the international businesses, the corresponding figures were 91.6% and 100.2%.

Within the US/Canadian business, the three largest lines were: Property (19% of Gross Written Premiums), General/Auto Liability (16%) and Workers’ Compensation (13%).

Within the international business, the three largest lines were: Accident & Health (22% of Gross Written Premiums), Marine & Energy (19%) and Specialty Lines (17%).

Regional Operations Bahrain – New Hampshire Insurance Co, CHARTIS Takaful Enaya BSC, Manama.

Egypt – CHARTIS Insurance Co, SAE, Cairo.

Kenya – Chartis, Nairobi

Kuwait – Chartis, Kuwait.

Lebanon – CHARTIS Lebanon SAL, Beirut

Oman – Chartis, Jibroo.

Qatar – Chartis, Doha

Saudi Arabia – Chartis , Jeddah.

South Africa – Chartis, Parktown.

Turkey – CHARTIS Sigorta AS, Istanbul.

UAE – American Home Assurance, Dubai.

Uganda – Chartis, Kampala.

Company Details Parent company: AIG

Home country: US

Status: Public listed company

Web: www.chartisinsurance.com

Allianz

Company Overview Allianz Group describes itself as ‘one of the leading global financial services providers.’ Worldwide it has around 75mn customers. It ranks as a ‘top-five’ player in 32 countries. Its core businesses are Property-Casualty insurance, Life/Health insurance and Asset Management. Its subsidiaries also include Euler Hermes (credit insurance) and Mondial Assistance.

Corporate Highlights Total revenues grew by 5% (on an internal basis) to EUR97,385mn in 2009. Life/health premiums rose by 10.4% to EUR50,773mn, while property/casualty premiums slipped by 0.9% to EUR42,523mn. Revenues from Asset Management and Corporate/Other amounted to EUR3,689mn and EUR517mn respectively.

As at the end of 2009, total assets and shareholders’ equity amounted to EUR584,045mn and EUR40,166mn respectively.

In 2009, operating profit fell by 2% to EUR7,182mn. In the property/casualty business, profits fell by 28% to EUR4 064mn. This was partly due to lower investment earnings (thanks, in turn, to lower interest rates and dividend yields relative to those of 2008). It was also the consequence of deterioration in the underwriting result – particularly in Germany, Italy, France and Euler Hermes.

However, operating profit from the Life/Health business more than doubled to EUR2,808,mn. Investment income was helped by the recovery in capital markets. The business also benefited from inflows.

Thanks to increased management fees and improved cost control, operating profits from Asset Management rose by 51% to EUR1,401mn.

In the Middle East and North Africa (MENA) region, Allianz is present in Bahrain, Egypt, Qatar, Lebanon and Saudi Arabia. Nearby, it has operations in Turkey. In each of these countries, Allianz is active in both Property/Casualty (broadly, non-life as we have defined it) and Life/Health insurance.

In Turkey, Allianz’s two subsidiaries offer life insurance (together with pension solutions) and property/casualty products. The latter are sold mainly by agents in retail markets and mainly by brokers in commercial markets. HSBC is s key distribution partner.

Bahrain is the regional headquarters for Allianz’s businesses in MENA as well as South Asia (India, Pakistan and Sri Lanka). The Indian operation accounts for 90% of total gross written premiums written by Allianz’s subsidiaries in MENA and South Asia. Allianz Life Egypt was the fourth largest life player in that country in 2008/09. Allianz SNA has a top three position in Lebanon.

Regional Operations Bahrain – Allianz Takaful

Egypt – Allianz Egypt; Allianz Life Egypt

Lebanon - Allianz SNA (Lebanon)

Morocco – WAFA Assurances, Casablanca

Saudi Arabia – Allianz Saudi Fransi

Turkey – Koc Allianz Hayat ve Emeklilik AS, Istanbul; Koc Allianz Sigorta, Istanbul

UAE – Allianz SE (Dubai Branch)

Company Details Parent company: Allianz SE

Home country: Germany

Status: Public listed company, based in Germany but structured as a Societas Europaea

Main source for press releases: www.allianz.com/news

Contact position: Head of group communications

Tel: +49 89 3800 2114

Contact email: [email protected]

Aviva

Company Overview Aviva is the world’s fifth largest insurance group in terms of gross written premiums and the largest insurance services provider in the UK. Its main activities are long-term savings, fund management and general insurance. The company has premium income and investment sales of GBP49.2bn, and GBP364bn of funds under management. Approximately 57,000 employees serving around 45mn customers.

At the end of April 2008 the company announced that Aviva would be the customer brand for the group worldwide. The Norwich Union, Commercial Union Poland and Hibernian brands were replaced with Aviva.

Corporate Highlights Aviva is in the process of creating a single global brand. Two major brands will be unchanged: RAC breakdown services in the UK and in the Benelux countries Delta Lloyd’s governance means that it operates more independently than other Aviva businesses and so it will not take part in the change.

Aviva’s Middle Eastern operations come under its Asian division. The company has entered a strategic partnership with Dubai-based National General Insurance (NGI), a leading insurance company in UAE, ‘to address the growing insurance requirements for both locals and expatriates alike. Policies issued in the UAE are insured by NGI & administered by Aviva Ltd’.

Aviva said: ‘NGI is a growing composite national company based in Dubai. NGI is listed on the Dubai Financial Market and has enjoyed outstanding growth, having built its business on a reputation of excellence and trust.’

Regional Operations Turkey – AvivaSA Emeklilik ve Hayat AŞ (50%), Istanbul; Aviva Sigorta, Istanbul. AvivaSA is a joint venture with AK Emeklilik, part of Aksigorta AS, which is a part of the Sabanci Holding conglomerate.

UAE – National General Insurance, Dubai (strategic partnership)

Company Details Parent company: Aviva plc

Home country: UK

Status: Public listed company

Main source for press releases: www.aviva.com/media

Contact position: Press office

Tel: +44 20 7283 2000

AXA

Company Overview AXA is one of the largest global insurance companies, with businesses in 57 countries and 96 million clients.

In terms of geographic balance, France and NORCEE (Northern Central and Eastern Europe) each account for a little over one quarter of revenues. The Mediterranean/Latin America, North America and Asia Pacific regions account for 16%, 13% and 11% respectively. UK/Ireland is the source of 8% of revenues.

Corporate Highlights In 2009, 38% of revenues were derived from property/casualty insurance (roughly non-life insurance, as we have defined it). A further 54% came from life/savings products. The remaining 8% was generated by AXA Investment Management.

In 2009, the group generated revenues of EUR90.1bn, and underlying earnings of EUR3.9bn.

During the year, total revenues fell by 3%. Life & Savings revenues fell by 4% to EUR57,620mn – mainly because of developments in the USA and the UK businesses. Net Inflows remained at around EUR8,600mn. Thanks to higher volumes in personal lines and tariff increases, Property/Casualty revenues rose by 1% to EUR26,174mn. Volumes in commercial lines fell. Asset management revenues were down by 25% relative to those of 2008, at EUR3,074mn, thanks mainly to lower average Assets Under Management (AUM).

Underlying earnings fell by 25% to EUR3,854mn. A recovery in Life & Savings (51%) was more than offset by the adverse movement in the Property/Casualty cycle and the slump in profits from the Asset Management business.

Regional Operations Bahrain – AXA Insurance Gulf, Bahrain

Lebanon – AXA Middle East, Beirut

Morocco – AXA Assurance Maroc, Casablanca

Oman – AXA Insurance Gulf, Muscat

Saudi Arabia – AXA Insurance Saudi Arabia, Riyadh

Turkey – AXA Oyak, Istanbul

UAE – AXA Insurance Gulf, Dubai

Company Details Parent company: AXA SA

Home country: France

Status: Public listed company

Main source for press releases: www.axa.com/en/press/pr/

Contact position: Media relations

Tel: +33 1 4075 4674

Generali

Company Overview Generali is one of the largest composite insurance companies worldwide, with 70mn clients in 68 countries. In 2009 its gross written premiums amounted to EUR70.5bn.

‘The group is not only the market leader in Italy, but also a primary player in Germany, France, Austria, Spain, Switzerland, Israel and Argentina.’ Through the Generali/PPF Joint Venture, the group has a dominant position in Central and Eastern Europe.

Corporate Highlights In 2009, 30.7% of gross written premiums came from the non-life segment, while 69.3% came from the life segment. Generali is primarily a European insurer. Italy, France, Germany, other Western Europe and Spain account for 29%, 23%, 21%, 12% and 3% respectively of gross written premiums.

In world terms, Generali is one of the largest players in the assistance sector through Europe Assistance, which is active in over 200 countries. Generali Investments, the group’s asset management business, has assets under management of EUR400bn.

Despite of the volatility in the global economy and financial markets in 2009, Generali achieved a 9.5% rise in life premiums (to EUR48,894mn). Property/casualty premiums fell by 0.5% to EUR21,636mn. Annual premium equivalent (APE) increased by 27% to EUR5,188mn. Net profit grew from EUR861mn to EUR1,309mn.

The investment assets of Generali’s insurance operations amounted to EUR299bn.

Regional Operations Israel – Migdal Group, Tel Aviv

Tunisia – Assurances Maghrebia Societe d’Assurances et de Reassurances SA, Tunis

Turkey – Generali Sigorta AS, Istanbul

UAE – Licence granted in April 2009

Company Details Parent company: Assicurazioni Generali SpA

Home country: Italy

Status: Public listed company

Main source for press releases: http://bit.ly/4s0FGG

Contact position: Head of Corporate Press Office

Tel: +39 040 671180

Contact email: [email protected]

HSBC Insurance

Company Overview HSBC Insurance, part of the HSBC Group, claims to be the 13th largest insurer in the world, serving 30mn customers globally through underwriting, agencies and insurance brokers.

HSBC describes its UAE-based HSBC Insurance Brokers Ltd as ‘one of the leading insurance brokers in the Middle East. It provides a full insurance broking, consultancy and risk management service including corporate, commercial, marine, construction, aviation and personal insurance’.

HSBC Amanah, the bank’s global Islamic finance division, is headquartered in Dubai.

HSBC has a 40% holding in The Saudi British Bank (SABB) and through that a share in the joint stock company SABB Takaful, offering Islamic insurance products.

Corporate Highlights Reported gross written premiums of HSBC Insurance’s global business amounted to US$10,991mn in 2009. This compared with US$12,547mn in 2008 and US$11,001mn in 2007.

Net insurance premiums in the three years were respectively US$10,471mn, US$10,850mn and US$9,076mn.

Premium income rose last year in Asia (thanks to the launch of new products across the region and higher sales of unit-linked and whole life products in Hong Kong), Brazil (thanks to switching of pension annuities to HSBC) and France. Premiums were down, however, in the US and the UK. In the UK, the business was affected by the lower demand for the Guaranteed Income Bond savings product. In North America, the closure of the consumer finance business led to lower sales of credit protection insurance.

HSBC’s reported operating income for 2009 was US$2,788mn, 54% higher than in 2008. It said increased insurance income in Hong Kong, higher gains on property disposals and lower losses on foreclosed properties in the US drove an underlying US$1.5bn rise in other operating income.

Over the course of 2009, reported net insurance claims and movement in liabilities to policyholders rose by 81% to US$12.5bn. Higher investment gains were largely matched by movements in liabilities to policyholders on unit-linked and, to a certain extent, participating policies. Liabilities were boosted by the growth in new business in Singapore and Hong Kong.

Regional Operations Saudi Arabia – SABB Takaful

UAE – HSBC Insurance, Dubai

Company Details Parent Company: HSBC Holdings plc

Home country: UK

Status: Part of HSBC Holdings plc

Main source for press releases: www.hsbc.com/1/2/newsroom

Contact position: Press office

Tel: +852 2822 4929

Contact email: [email protected]

MAPFRE

Company Overview MAPFRE is an independent Spanish business group operating in insurance, reinsurance, financial, real estate and service activities in Spain and another 44 countries. The activities are carried out via 258 companies, grouped in divisions and wide-ranging units with ample management autonomy, under the coordination and supervision of the senior management bodies and governing bodies, which establish the general guidelines and common policies for the group.

Following corporate restructuring in 2006, all group business activities are integrated under listed holding company, MAPFRE SA. The majority control of the latter is held by FUNDACIÓN MAPFRE, a private foundation which undertakes non-profit activities through five specialised institutes (social work; insurance science; culture; prevention, health and environment; and road safety).

Corporate Highlights MAPFRE accounts for about 17% of the Spanish non-life and 8% of the life market. Its key Spanish businesses are: MAPFRE SA, Madrid; MAPFRE Vida, Madrid; MAPFRE Caja Madrid Vida (51%), Madrid; CCM Vida y Pensiones, Madrid (50%); Bankinter Vida, Madrid (50%); Union Duero Vida, etc, Madrid (50%); MAPFRE Familiar, Madrid; MAPFRE Empresas, Madrid; MAPFRE Caucion y Credito, Madrid.

Outside Spain, the three key businesses are the International Direct Insurance Division, MAPFRE RE and MAPFRE Asistencia.

In July 2008, MAPFRE expanded its Middle Eastern presence. MAPFRE Asistencia will offer assistance services to the insurance, finance and automobile sectors in Dubai. The new office will be a base to launch new programmes and services in the region, MAPFRE said. MAPFRE Asistencia operates in 43 countries and already had offices in the Middle East and North Africa, including Bahrain, Jordan and Egypt. The offices provide claims management, specialty risk management, travel assistance and other services.

Regional Operations Algeria – SPA Roadside Assist Algerie, Algiers

Bahrain – Gulf Assist BSC, Bahrain

Egypt – MAPFRE Asistencia, Cairo

Jordan – MAPFRE Asistencia, Amman

Tunisia – Afrique Assistance SA, Tunis

Turkey – Turk Assist Yardim ve Servic Ltd Sirketi, Istanbul; Genel Sigorta, Istanbul; Genel Yasam, Istanbul

UAE - MAPFRE Asistencia, Dubai

Company Details Parent company: MAPFRE SA

Home country: Spain

Status: Public listed company

Main source for press releases: http://bit.ly/5SH3B5

Contact position: Media contact

Contact tel: +34 91 581 8196

Contact email: [email protected]

MetLife ALICO

Company Overview On March 8 2010, MetLife Inc announced a definite agreement to ALICO from the American International Group (AIG) for about US$15.5bn. The MetLife/ALICO transaction is one of the most important merger and acquisition deals ever to have taken place in the global life insurance industry. It will transform MetLife into a global business that derives well over one-third of its premiums and other considerations from outside the US. As a result, MetLife will become a more diverse and over the long-term almost certainly a faster growing company than it otherwise would have been. Among much else, MetLife has become the leading cross-border life company in Latin America. It has also become a very large and – perhaps surprisingly – steadily growing player in Japan.

ALICO previously described itself fairly as ‘one of the largest and most diversified international insurance companies in the world.’

ALICO traces its origins to Shanghai in 1921, where Cornelius Vander Starr, the founder of the global AIG group, had already been active for about two years. What makes it unusual in global terms is that it is large by any measure, has long been established as one of the largest foreign life insurers in Japan and has a global footprint that spans dozens of countries. Together with MetLife, ALICO serves 90 million customers in 60 countries worldwide.

In an 8-K statement on March 8 2010 filed with the US Securities and Exchange Commission (SEC), MetLife said that the purchase of ALICO represents a ‘unique opportunity, not replicable, either organically or by M&A’.

The new style of the company is MetLife ALICO.

Personal products include: life insurance; savings products; retirement planning; accident insurance; travel insurance and; health insurance.

Corporate solutions include: group life, medical and accident plans; annuities and pensions, and; credit life insurance. Source: www.ALICO.com

Corporate Highlights Within the Middle East and North Africa, MetLife ALICO has a presence in Bahrain, Egypt, Jordan, Kuwait, Lebanon, Oman, Qatar, Saudi Arabia and the UAE. It also carries out business in the Palestinian National Authority.

Regional Operations Although MetLife ALICO is present in over 60 countries (which includes micro-states in the Caribbean and the Palestine National Authority) it is perhaps more helpful to think of the company as having a substantial presence in six areas: USA; Japan; Latin America and Caribbean; UK, France, Italy, Spain and Portugal; Middle East (mainly Gulf Co-operation Council countries, but also Egypt, Lebanon and Jordan); Central and Eastern Europe (including Greece).

ALICO claimed to have a top five position in 23 of the 55 national markets in which it operated. Of course, market share in terms of gross premiums is only one measure of relative importance.

In the year to November 30 2009, ALICO’s total premiums and other considerations in terms of GAAP were US$6,200mn. However, ALICO has leveraged its products, brand and distribution to

achieve both leadership positions in particular niches – and double-digit growth.

Regional Operations Bahrain Egypt Jordan Kuwait Lebanon Oman Palestine National Authority Qatar Saudi Arabia UAE

Company Details Parent company: MetLife Home country: US Status: Public listed company Main source for press releases: www.ALICO.com/ALICO/en/News/Press-Releases/index.html

RSA

Company Overview RSA is a FTSE 100 company listed on the London Stock Exchange. The company says it is the UK’s largest commercial insurer, the largest property and second largest liability and motor insurer while its personal business is the third largest in the UK.

Within personal, RSA is the UK’s second largest household insurer and fourth largest motor insurer. Through direct business, it provides 2.6mn covers for household, motor, travel and pet insurance.

RSA’s International division includes businesses in Sweden, Denmark, Norway, Finland, Canada, Ireland and Italy. Codan in Denmark and Trygg-Hansa in Sweden are the third largest insurers in their respective markets.

The company’s Emerging Markets division operates across 20 developing insurance markets and is RSA’s fastest growing region. Areas of operation include Latin America – its largest business in the Emerging Markets division, with operations in seven countries. The largest is in Chile, where it is the market leader, and RSA is also the largest private insurer in Uruguay.

It is also the largest general insurer in the Baltic region, with leading market positions in Latvia and Lithuania. Intouch, its business in Central and Eastern Europe, has market leading direct operations in Poland, Russia and the Czech Republic.

RSA operates in four countries across the Middle East and serves Asia through commercial hubs in China, Hong Kong and Singapore and through its associate, Royal Sundaram, in India.

Corporate Highlights In 2009, net written premiums rose from GBP6,462mn to GBP6,737mn. The underwriting result was more or less unchanged at GBP386mn. However, profit after tax slipped from GBP586mn to GBP419mn. RSA’s emerging markets business generated GBP833mn of the net premiums written by the group last year.

RSA began operations in Bahrain on January 1 2003, building on the acquisition of the Northern Assurance Portfolio, whose history in the Gulf dates back to the 1950s. In January 2009 its Bahrain office announced it was expanding and appointed three new executives.

RSA has been operating in Oman for more than 35 years. RSA Oman has been functioning as a branch office in Oman since 1972. In July 2004, a new joint venture company RSA Oman was started. In February 2010, RSA announced that it had bought al-Ahleia, one of the leading non-life insurers in Oman, from ONIC Holdings. ONIC will become a 20% shareholder of RSA Oman. The combined group will be the largest insurer in Oman in terms of net written premiums.

The UAE operations were RSA’s first in the Middle East. In addition to its main office in Dubai, RSA has offices in Abu Dhabi city and relaunched its Sharjah operation in 2004 to better support the emirates’ growing industrial and free zone sectors.

Regional Operations Bahrain – RSA Insurance plc, Bahrain

Oman – RSA Oman SAOC, Muscat

UAE – RSA Dubai

Saudi Arabia – Al-Alamiya Insurance, Jeddah

Company Details Parent company: Royal & Sun Alliance Insurance Group plc

Home country: UK

Status: Public listed company

Main source for press releases: www.rsagroup.com/news.aspx

Contact position: Head of UK External Communications

Tel: +44 20 7337 5146

Zurich Financial Services

Company Overview Zurich Financial Service (ZFS) is ‘an insurance based financial services provider with a global network of subsidiaries and offices in North America and Europe, as well as in Asia Pacific, Latin America and other markets. Founded in 1872, ZFS is headquartered in Zurich, Switzerland. It employs around 60,000 people, serving customers in more than 170 countries.’

Within the Middle East, ZFS has non-life operations in Bahrain, Morocco (and, a little further afield, Turkey).

In late 2010, the company announced that its subsidiary Zurich Insurance Company had signed an agreement to buy 99.98% of Cie Libanaise d’Assurances SAL, a privately owned Lebanese insurer with branches in the UAE, Kuwait and Oman. Cie Libanaise d’Assurances offers general and life insurance solutions through these three countries, and Lebanon. In 2009, its gross written premiums amounted to US$49.1mn and its net income after tax was US$5.1mn. The deal increases its ability to cross-sell its existing products to the Lebanese company’s clients and distribution partners in these markets.

ZFS’ main life insurance operation in the region is Zurich International Life (ZIL), which is present in Bahrain, the UAE (in the Dubai International Finance Centre and elsewhere) and Qatar. ZIL also has substantial operations in Hong Kong, Singapore and Taiwan.

ZIL’s products for individual clients include: regular premium savings and investments; single premium savings and investments, and; protection products. Solutions for companies and non- government organisations include: corporate savings and investments; international group protection; international risk pooling, and; corporate multi-national solutions.

Corporate Highlights On November 4 2010, ZFS released its results for the nine months to the end of September. Globally, its operating performance for the period was described as being ‘solid’. ‘Global Life and Farmers supported the Group’s profitability by delivering ongoing top line growth coupled with strong profit margins. General Insurance benefited from past rate increases, and managed to successfully continue targeted rate increases into Q310.’ However, ZFS had to cope with a high occurrence of catastrophe and weather-related losses in H110.

In 9M10, general insurance gross written premiums fell by 3% y-o-y, in US dollar and local currency terms, to US$25,528mn. The operating profit slipped by 22% to US$1,961mn. Global life gross written premiums rose, by 9% in US$ terms and by 10% in local currency terms, to US$18,894mn. Global life operating profit slipped by about 5% to US$1,098mn. Global life gross new business annual premium equivalent (APE) amounted to US$2,495mn: compared to the same period the year before, this was up by 4% in US$ terms and 7% in local currency terms. The company said: ‘The strong increase in new business value was driven by higher sales into Italy, Ireland and the UK, higher corporate life and pension sales volumes in the UK and Latin America, increased contributions from protection products in Spain and the Asia Pacific and Middle East regions, as well as a strong value contribution from Germany.’

ZFS’ average investment assets worldwide amounted to US$197,138mn in 9M10. Investment profits increased by 48% y-o-y in US$ terms to US$6,288mn.

Regional Operations Bahrain – Zurich Insurance Services (Middle East) EC, Bahrain; Zurich International Life, Bahrain

Qatar – Zurich International Life, Doha

Lebanon – Cie Libanaise d’Assurances, Beirut (with branches in Kuwait, the UAE and Oman)

Morocco – Zurich Compagnie Marocaine d’Assurances, Casablanca

Turkey – Zurich Sigorta, Istanbul

UAE – Zurich International Life Ltd, Dubai, Abu Dhabi, Sharjah;

Company Details Parent company: Zurich Financial Services

Home country: Switzerland

Status: Public listed company

Main source for press releases: www.zurich.com/main/media

Contact position: Media relations

Contact tel: +41 44 625 2100

Country Snapshot: Saudi Arabia Demographic Data

Section 1: Population Population By Age, 2005 (mn) Population By Age, 2005 And 2030 (mn, total)

70-74 75+

60-64 60-64 50-54

40-44 45-49

30-34 30-34

20-24 15-19 10-14

0-4 0-4 -2.0 -1.0 0.0 1.0 2.0 -4.0 -2.0 0.0 2.0 4.0 Male Female 2030 2005

Source: UN Population Division

Table: Demographic Indicators, 2005-2030

2005 2010e 2020f 2030f

Dependent population, % of total 42.6 40.8 33.1 31.8

Dependent population, total, ‘000 10,207 11,179 10,626 11,875

Active population, % of total 57.3 59.1 66.8 68.1

Active population, total, ‘000 13,740 16,169 21,463 25,439

Youth population*, % of total 39.8 37.9 29.0 25.2

Youth population*, total, ‘000 9,531 10,384 9,329 9,416

Pensionable population, % of total 2.8 2.9 4.0 6.5

Pensionable population, total, ‘000 676 795 1,297 2,459

e/f = estimate/forecast; * youth = under 15. Source: UN Population Division

Table: Rural/Urban Breakdown, 2005-2030

2005 2010e 2020f 2030f

Urban population, % of total 88.5 90.1 84.2 86.2

Rural population, % of total 11.5 9.9 15.8 13.8

Urban population, total, ‘000 21,744 24,920 27,022 32,178

Rural population, total, ‘000 2,829 2,744 5,067 5,135

Total population, ‘000 24,573 27,664 32,089 37,313

e/f = estimate/forecast. Source: UN Population Division

Section 2: Education And Healthcare

Table: Education, 2003-2005

2002/03 2004/05

Gross enrolment, primary 67 102

Gross enrolment, secondary 68 94

Gross enrolment, tertiary 28 29

Adult literacy, male, % na 87

Adult literacy, female, % na 69.2 na = not available. Note: Gross enrolment is the number of pupils enrolled in a given level of education regardless of age expressed as a percentage of the population in the theoretical age group for that level of education. Source: UN Educational, Scientific and Cultural Organisation (UNESCO)

Table: Vital Statistics, 2005-2030

2005 2010e 2020f 2030f

Life expectancy at birth, males (years) 69.9 71.1 72.8 74.5

Life expectancy at birth, females (years) 73.8 75.1 77.3 79.0

e/f = estimate/forecast. Note: Life expectancy estimated at 2005. Source: UNESCO

Section 3: Labour Market And Spending Power

Table: Employment Indicators, 1999-2006

1999 2000 2001 2002 2003 2006

Employment, ‘000 5,593 5,713 5,809 5,913 na 7,523

– % change y-o-y na 2.1 1.6 1.8 na na

– male 4,801 4,944 5,028 5,116 na 6,461

– female 792 770 781 797 na 1,061

— female, % of total 14.1 13.4 13.4 13.4 na 14.1

Unemployment, ‘000 254 274 281 327 na 502

– male 184 194 203 225 na 319

– female 70 79 79 104 na 183

– unemployment rate, % 4.3 4.6 4.6 5.2 na 6.3

na = not available. Source: International Labour Organisation

Table: Consumer Expenditure, 2000-2012 (US$)

2000 2007 2008 2009 2010e 2012f

Consumer expenditure per capita 3,367 3,921 4,220 4,451 4,635 5,042

Consumer expenditure per capita, purchasing power parity 4,744 4,373 4,595 na na na

e/f = estimate/forecast; na = not available. Source: World Bank, BMI

BMI Methodology

BMI’s insurance reports provide insights into the operating conditions in and prospects for insurance in over 60 mostly developing countries. The reports incorporate the latest information available from official sources such as regulators, international associations of regulators and trade associations; comparable information from other countries; and BMI’s economic and risk data. The reports focus on gross written premiums in two segments: non-life and life. Unless stated, ‘premiums’ refers to gross written premiums.

In BMI’s reports, non-life insurance includes health insurance premiums if these are normally considered by industry observers to lie within the mainstream insurance sector. Non-life insurance includes inwards reinsurance premiums if these would normally and reasonably be considered a significant part of the non- life segment. In practice, this means that we generally include inwards reinsurance in developed countries and offshore financial centres that specialise in insurance. We consider outwards reinsurance to be an expense. Life insurance includes all long-term savings products that are legally structured as insurance products. Life insurance premiums do not, therefore, include contributions to pension plans and other long-term savings schemes unless they are legally constituted as being within the insurance sector.

Non-Life Segment In making projections of premiums in the non-life segment, we consider two aspects: the likely development of nominal GDP and of non-life penetration (non-life premiums as a percentage of GDP). Typically, we forecast non-life penetration for 2015 (the end of the forecast period) and assume that non- life penetration changes evenly from 2011 to 2015. However, in some cases, an examination of the various lines (motor, accident/health, liability etc) that constitute the non-life segment indicates that the non-life penetration is not likely to change evenly over time. In such cases we forecast the non-life penetration from year to year. Forecasts of non-life penetration for 2015 typically take into account the following factors: non-life penetration in 2009 and 2010; penetration in nearby countries at a similar level of development; whether or not health insurance is generally considered to be within the insurance sector; and other factors promoting or retarding evolution of the non-life segment.

Life Segment In projecting life premiums, we consider two aspects: the likely development of population and of life density (life premiums per capita). Typically, we forecast life density for 2015 and assume density changes evenly from 2011 to 2015. In some cases there will be clear reasons why life density is not likely to change evenly over time. In such cases, we forecast life density from year to year. Forecasts of life density for 2015 typically take into account the following factors: life density in 2009 and 2010; density in nearby countries at a similar level of development; relative importance of life insurance in terms of overall retirement savings; and other factors promoting or retarding evolution of the life segment.

Insurance Business Environment Ratings

BMI’s Insurance Business Environment Rating has a threefold approach. First, we assess market attractiveness and risks to the predictable realisation of profits in each state, capturing operational dangers facing companies. Second, we identify objective indicators that serve as proxies for issues/trends in the industry to ensure consistent evaluation across states. Finally, we use BMI’s Country Risk Ratings to ensure the ratings capture broader issues relevant to the industry and that may limit market attractiveness or imperil returns. The ratings system – which integrates with all industries covered by BMI – offers an industry-leading insight into prospects/risks for companies. The ratings divide into two distinct areas:

Limits Of Potential Returns Evaluation of the industry’s size and growth potential in each state, and also broader industry/state characteristics that may inhibit its development.

Risks To Realisation Of Returns Evaluation of industry-specific dangers and those emanating from the state’s political/economic profile that call into question the likelihood of anticipated returns being realised over the assessed time period.

Indicators The following indicators have been used. Almost all indicators are objectively based.

Table: Insurance Business Environment Indicators And Rationale

Limits of Potential Returns

Market Structure Rationale

Non-life premiums, 2010 (US$mn) Indicates overall sector attractiveness. Large markets more attractive than small ones.

Growth in non-life premiums, five years to end-2015 Indicates growth potential. The greater the likely absolute growth in premiums the (US$mn) better.

Premiums expressed as % of GDP. An indicator of actual and (to an extent) potential Non-life penetration, % development of non-life insurance. The greater the penetration the better.

Non-life segment measure of openness Measure of market’s accessibility to new entrants. The higher the score the better.

Life premiums, 2010 (US$mn) Indicates overall sector attractiveness. Large markets more attractive than small ones.

Growth in life premiums, five Indicates growth potential. The greater the likely absolute growth in premiums the years to end-2015 (US$mn) better.

Premiums as % of GDP. An indicator of actual and (to a certain extent) potential Life penetration, % development of life insurance. The greater the penetration the better.

Life segment measure of openness Measure of market’s accessibility to new entrants. The higher the score the better.

Country Structure

GDP per capita (US$) A proxy for wealth. High-income states receive better scores than low-income states.

Those aged 16-64 in each state, as a % of total population. A high proportion suggests Active population that market is comparatively more attractive.

Corporate tax A measure of the general fiscal drag on profits.

Standard deviation of growth over 7-year economic cycle. A proxy for economic GDP volatility stability.

Measure of financial sector’s development, a crucial structural characteristic given the Financial infrastructure insurance industry’s reliance on risk calculation. Risks to Realisation of Returns

Market Risks

Barriers to entry Subjectively evaluates de facto/de jure regulations on development of insurance sector.

Regulatory environment Subjectively evaluates impact of regulatory environment on the competitive landscape.

Country Risk (from BMI’s Country Risk Ratings)

Short-term financial risk Evaluates currency volatility.

State’s vulnerability to externally-induced economic shock, which tend to be principal Short-term external risk triggers of economic crises.

Policy continuity Evaluates the risk of sharp change in broad direction of government policy.

Legal framework Strength of legal institutions. Security of investment key risk in some emerging markets.

Bureaucracy Denotes ease of conducting business in a state.

Source: BMI

Weighting Given the number of indicators/datasets used, it would be inappropriate to give all sub-components equal weight. Consequently, the following weight has been adopted.

Table: Weighting Of Indicators

Component Weighting, %

Limits of Potential Returns, of which 70, of which

– Insurance market, of which 65, of which

– Life – 50

– Non-life – 50

– Country structure – 35

Risks to Realisation of Returns, of which 30, of which

– Market risks: regulations and impact on development and competitive landscape – 40

– Country risks – 60

Source: BMI