Bahrain Insurance Report Q3 2012

Includes 3 FREE quarterly updates

The Bahrain Insurance Report considers the prospects for both life and non-life insurers in the country.

The latest results and comments indicate that 2011 was a highly challenging, but not universally disastrous, year for Bahrain’s insurance sector. We believe that premiums in the non-life segment actually contracted. This was partly the result of the ‘Arab Spring’ unrest in the first half of the year. It was also the consequence of a lacklustre economic environment (and the slump in the real estate and construction sectors). Further, price competition in what is, by any standard, a small and fragmented segment has been fairly intense. If this were not enough, particular players suffered from increased claims, whether because of damage relating to the unrest or other problems. The report of Bahrain National Holdings, published in mid-May 2012 in relation to its operations in Q112, suggests that these problems have persisted into this year.

Nevertheless, there are grounds for optimism. The government of Bahrain and its institutions have long been proponents of Islamic finance and takaful. The reports from the leading takaful (and retakaful) players suggest that this part of the market has been growing reasonably quickly. Further, the Central Bank of Bahrain (CBB) has, over the years, shown itself to be a first class regulator and agency for the general promotion and development of financial services.

If takaful is one part of the market that is still growing, life insurance is another. Media reports and other (admittedly quite scant) data suggest to us that premiums have been rising. However, this growth has been concentrated in particular companies: several of the local life companies have suffered a contraction in their business. The companies that are expanding their life businesses in Bahrain are doing so as a result of bancassurance deals and product innovation. Both major segments can benefit from growing demand for insurance among the Kingdom’s population of Indian expatriates.

Reinsurance is something of a wildcard for Bahrain. Bahrain is not a major reinsurance centre like Singapore (let alone Bermuda), but it is an unusual market in that the reinsurance premiums that are booked are about 50% larger than the direct insurance premiums written. In early 2012, ARIG reported that its reinsurance premiums for the first three quarters of the year were about 7% higher than they had been in 2011. The company’s profitability had been hurt by disappointing investment returns and by higher claims (thanks, in part, to damages relating to ‘Arab Spring’ unrest throughout the Middle East and North Africa but mainly because of exposures to the massive natural catastrophes that took place last year). Other major reinsurers writing business in Bahrain include local group Trust International, Hannover Re, Hannover Re Takaful and ACR Retakaful. If the CBB is able to entice one or two more substantial insurance groups to commence operations in Bahrain – or the existing players dramatically increase their volumes of business – Bahrain could emerge as an important provider of reinsurance cover to insurance companies that are operating throughout the region.

Over the last quarter, BMI has made the following changes:

• The analysis incorporates BMI’s latest forecasts for Bahrain’s economy, including details in relation to auto sales and trends in the healthcare sector.
• The analysis incorporates the latest comments on developments of Bahrain National Holdings, as well as data pertaining from Ernst & Young’s World Takaful Report, which was published in Q212.