GCC Insurance Industry | December 13, 2017 Page | 1 GCC Insurance Industry | December 13, 2017 Page | 2 Table of Contents 1. EXECUTIVE SUMMARY ....................................................................................................... 8 1.1 Scope of the Report ..................................................................................................................... 8 1.2 Sector Outlook.............................................................................................................................. 8 1.3 Key Growth Drivers ...................................................................................................................... 8 1.4 Key Challenges ............................................................................................................................ 9 1.5 Key Trends ................................................................................................................................... 9 2. THE GCC INSURANCE INDUSTRY OVERVIEW .............................................................. 10 2.1 Country-wise Insurance Market Overview .................................................................................. 15 3. THE GCC INSURANCE INDUSTRY OUTLOOK ................................................................ 29 3.1 Forecasting Methodology ........................................................................................................... 29 3.2 GCC Insurance Market Forecast ................................................................................................ 30 3.3 Country-wise Market Size Forecast ............................................................................................ 32 4. GROWTH DRIVERS ............................................................................................................ 37 5. CHALLENGES .................................................................................................................... 42 6. TRENDS .............................................................................................................................. 45 7. MERGER AND ACQUISITION (M&A) ACTIVITIES ........................................................... 49 8. FINANCIAL AND VALUATION ANALYSIS........................................................................ 51 8.1 Financial Performance ............................................................................................................... 53 8.2 Valuation Analysis ...................................................................................................................... 60 COUNTRY PROFILES ........................................................................................................................ 62 COMPANY PROFILES ........................................................................................................................ 69 GCC Insurance Industry | December 13, 2017 Page | 3 Glossary Insurance: A mechanism of contractually shifting burdens of pure risks by pooling them Gross written premium: Total premium written and assumed by an insurer before deductions for reinsurance and ceding commissions for a policy that has already become effective Insurance penetration: Gross written premium measured as a percentage of gross domestic product Insurance density: Gross written premium measured per capita Net written premium: Gross written premium less reinsurance ceded plus reinsurance assumed Net Earned Premium: Total premiums collected over a period that have been earned based on the ratio of the time passed on the policies to their effective life Cession rate: The percentage of written premium transferred to a reinsurer by a primary insurer (ceding company) Retention rate: The percentage of written premium retained by a primary insurer Net underwriting profit/(loss): Excess/deficit of premium earned after providing for all expenses directly attributable to underwriting activities and excluding investment income Claims ratio: Net claims incurred as a percentage of net earned premium Expense ratio: Underwriting and administrative expenses as a percentage of net earned premium Combined ratio: The sum of claims ratio and expense ratio. A combined ratio of less than 100 indicates an underwriting profit Investment returns: Calculated by dividing gross investment income over investments in securities, affiliates and property Takaful: Follows Islamic religious principles such as bans on interest and pure monetary speculation. Here, risk is pooled among policyholders rather than being borne entirely by the company Bancassurance: Involves the distribution of insurance products through the banking channel Bancatakaful: Involves the distribution of Islamic insurance/ Takaful products through the banking channel GCC Insurance Industry | December 13, 2017 Page | 4 “Oman’s insurance sector is poised to register strong growth over the medium term spearheaded by health insurance which is being made compulsory for all private workers in 2018. Rising awareness amongst nationals, growing urbanisation and establishment of sharia compliant takaful companies will drive growth in life insurance in the near term. Other growth drivers include continuing economic diversification and infrastructure development and growth of small & medium enterprises sector. Recent regulatory changes increasing the minimum capital base for all insurers has positive connotations. The UAE insurance market’s long term growth prospects also remain positive. A spike in the number of construction and infrastructure projects, expected ahead of major events such as the World Expo 2020 are set to stimulate the industry in the long-term. Apart from above, law requiring compulsory health insurance for all Dubai residents, which was implemented in 2015 is expected to be a key driver for the industry. One key challenge facing the sector is the shortage of skilled workforce and high attrition rates. There is need to put in place infrastructure to train and develop local talent pool for the insurance sector. Certain regulatory restrictions on investments specially in fixed income asset class need to be reviewed to encourage companies to make more investments in Bonds / Sukuk and other fixed income securities. Going forward, we see technology playing a key role in the way insurance is marketed to individuals with smart phones and social media likely to emerge as primary marketing channels lowering acquisition costs in the process. We are also seeing regulators focusing on increasing customer awareness about their rights by stipulating that insurance companies provide more details and transparency in their marketing & policy documentation. New rules relating to actuarial driven pricing being implemented in some countries will enhance the overall health of the sector. These positive trends bode well for the sector both in terms of instituting healthy growth levels as well as improving the financial strength of insurance firms.” S. Venkatachalam Chief Executive Officer National Life & General Insurance Co. SAOG, Oman “As the UAE seeks to change course from oil-reliance and move towards a more diversified economy, the country is taking great innovative strides, not only in sectors like logistics and transportation, linked to its traditional role of a trading hub, but also other high-growth sectors such as tourism & hospitality, healthcare, education, high-tech and renewable energy. The success of such ambition rides on the confidence of reliable local insurers, their financial stability, broad risk appetite and ability to support national aspirations with solid insurance protection. The insurance industry here, and in the region, is well-equipped to support such plans and will continue to retain a positive outlook for the way ahead. Several intertwining factors pave the way for future success in the insurance field – the indispensable technological advancements that digitalization, AI and blockchain promise; a redefined HR outlook seeking agile talent for tailored roles; data driven underwriting; robust risk management frameworks. The industry grapples with the sea of transformation that comes with new but necessary regulations, disruptive technology and ever-evolving risk. Combating these challenges, and securing long-term profitability, can only come from collaboration and connected ecosystems.” Christos Adamantiadis Chief Executive Officer Oman Insurance Co., UAE GCC Insurance Industry | December 13, 2017 Page | 5 “We are quite optimistic about the prospects of GCC insurance industry. While the rapid growth of recent past may no longer be available, we believe that the Insurance industry in the GCC is entering a more mature phase where good companies delivering value differentiation with cost discipline are going to stand out from the rest. This presents an opportunity for the winners to create a lot of shareholder value in the years to come. In addition, comparatively lower insurance penetration and density, vis-à-vis global markets signal further room for organic growth in almost all countries. Key areas such as healthcare, savings, pension and public housing are likely to witness increased participation from the private sector which will necessarily open up more opportunities for related insurance products and services. The sector, however is not devoid of challenges. Development of life insurance remains an area of concern, but with the wider reshaping of GCC economies, it is a space that is likely to see increased traction. Low interest rates