For decades, Bahrain has been a regional centre for insurance, with domestic and international firms taking advantage of the country’s robust yet accommodating regulatory structure to pursue business both locally and in rapidly emerging regional markets. The nation’s insurance industry faces increased competition on two fronts: at home, a crowded market makes for one of the most competitive insurance arenas in the GCC, while on a regional level the development of regulatory frameworks around the Gulf has led to the narrowing of Bahrain’s competitive advantage as a focal point for the industry. Nevertheless, continued regulatory development, the prospect of more mandatory insurance lines and Bahrain’s reputation as a financial hub underpins hopes for further expansion.
Steady Development
Bahrain’s insurance sector is one of the most well developed in the region, with a history which extends back to the 1950s. During that decade, the Bahraini insurance industry became increasingly sophisticated, attracting the first foreign players to the market. In 1961 the newly arrived American Life and Insurance Company began to roll out its savings and personal accident schemes for individuals and corporations in Bahrain, and the first licence to offer life assurance was granted. Another significant industry first came in 1969, when the Bahrain Insurance Company was established as the first public shareholding company to be incorporated in the country. A wave of similarly formulated institutions followed, such as Al-Ahlia Insurance Company, established in 1976, and the Bahrain Kuwait Insurance Company, which opened for business the same year.
The 1980s saw the birth of one of the most dynamic segments in today’s sector – takaful, or sharia-compliant insurance. Bahrain Islamic Insurance Company was incorporated in 1989, offering takaful products to Bahrainis for the first time. The cumulative effect of this steady development has been to make Bahrain a focal point for insurance activity in the region, a status that is perhaps best symbolised by the presence of Arig House in Manama’s Diplomatic Area. Established in 1980 by the governments of Kuwait, Libya and the UAE, ARIG (Arab Insurance Group) is the largest Arab-owned reinsurer in the world and is run by Bahraini national Yassir Albaharna.
Today’s Market
One of the legacies of Bahrain’s history as a financial centre is an insurance industry which contains local, regional and international insurers competing for business within Bahrain and beyond its borders. As of July 2015, some 25 locally incorporated insurers were licensed by the Central Bank of Bahrain (CBB) to operate in the country, seven of which are run along sharia-compliant lines, and one of which is a captive insurer for its parent company, Masheed. A second category of 22 locally incorporated firms are restricted to pursuing business outside Bahrain, four of which are sharia-compliant, and all of which entered the market in the 1980s and 1990s. A further 10 overseas firms are licensed to operate in Bahrain’s domestic market, and include operators from the US, Germany, Switzerland, the UK, Iran, Lebanon and India.
Leveraging on Bahrain’s financially literate workforce and favourable business environment, many of these companies also use Bahrain as a base to extend their operations into regional markets. The domestic market also contains a number of reinsurance companies which, like some of the locally based standard insurance companies, have established themselves in Bahrain thanks to its utility as regional centre. Finally, the industry is supported by a number of ancillary service providers, including the 31 brokers through which much of the sector’s premiums are channelled, four brokers restricted to seeking business outside of Bahrain, 27 registered actuaries, and the numerous loss-adjusters, insurance consultants and managers that combine to bring depth to the local sector. With a population of just over 1.3m people as of 2015, the domestic insurance market is small in size, and therefore competition for business is strong.
The presence of larger multinationals in the market has done much to raise the profile of insurance in the country, but their extensive balance sheets and the amount of business they are thereby able to retain has further heightened the level of competition faced by the locally incorporated insurers. In 2011, the challenges caused by the 2008 global economic slowdown, a downturn in the region’s real estate sector, regional unrest and the restructuring of number of large Saudi Arabian family firms prompted the current CBB governor, Rasheed Al Maraj, to call for Bahrain’s insurers to consider mergers in order to “provide new services and products for customers to compete at the same time with big companies”. Since that time there have been some modest moves towards sectoral consolidation – such as the 2011 announcement of a partnership which saw Allianz Takaful transfer 75% of its takaful business to Med-gulf Bahrain – but the market retains its fragmented character and the CBB has not moved to induce amalgamation by increasing capital requirements or through other means. The issue of consolidation returned briefly to the spotlight in April 2015 when the Bahrain Kuwait Insurance Company announced it had raised its stake in its rival, Takaful International, to 40.9%, though whether the move heralds a period of wider sector consolidation remains to be seen.
The Leading Players
Bahrain’s “Big Five” insurers, measured by total assets, are very diverse in terms of ownership structure and business model, with the domestic players sharing the market with locally incorporated subsidiaries of international concerns to compete for business.
The largest of them, the Life Insurance Corporation International, is a locally incorporated subsidiary of Life Insurance Corporation of India, and according to its most recent company report it held total assets of BD391m ($1.03bn) at the close of 2013. It set up its Bahrain operation in 1989, establishing a joint venture with the Bahraini-owned holding company Intercol. One of the earliest suppliers of life products to the Bahraini market, today it offers US-dollar-denominated policies to Bahraini residents and insurance services to holders of its Indian-registered policies currently residing in the Gulf. Axa Gulf, with total assets of BD298.2m ($785.61m) at the close of the same period, is another well established player; having been present in the region for over 60 years, it is the largest international non-life insurer in the GCC, and operates in Bahrain on a local licence. Medgulf Group, with assets of BD246.8m ($650.19m), is one of the leading regional insurance companies. Having started operations in Lebanon in 1980, it has expanded into the Gulf primarily through its operations in Bahrain and Saudi Arabia, providing risk coverage solutions to both the retail and institutional markets. Zurich International Life, with assets of BD119.6m ($315.9m), is the largest firm in Bahrain operating on an overseas licence. The global insurer has been present in the region for nearly 30 years, maintaining offices in Bahrain, the UAE and Qatar from which it oversees the distribution of its protection, savings and investment products. Bahrain Kuwait Insurance, with total assets of BD97m ($255.55m), is the fifth-largest insurer in Bahrain. The locally incorporated company was founded in 1975, and thanks to its Bahraini and Kuwaiti ownership structure, with shares listed on the stock exchanges of both countries, it is the only firm to enjoy national status in both jurisdictions. Since 2008, the company has become the market leader in Bahrain in terms of gross premiums and net profits, bringing in total gross premiums of nearly BD39.8m ($104.85m) in 2014.
Reinsurers
One of the more interesting developments in the Bahraini market over recent years has been a sustained expansion of reinsurance activity. Reinsurers are using Bahrain as a base for the whole MENA market, and while they do cover the comparatively small Bahraini domestic sector, the bulk of their focus is on the wider region. Reinsurance firms licensed to operate from Bahrain have grown steadily in number since 2006, with five conventional players currently established: Arig, Hannover Re, HDI-Gerling Bahrain, New Hampshire Insurance and Trust International Insurance and Reinsurance Co (Trust Re). Trust Re was the largest reinsurer in the MENA region in 2013 in terms of written premiums, with $389m for the year, and was the fourth- largest regionally in terms of net profits, posting $18.9m for 2013.
The emerging reinsurance segment has also begun to tap into the demand for sharia-compliant cover in Bahrain and the wider region. The CBB issued its first retakaful licence in 2006 to Hannover ReTakaful, which has since been joined in the market by ACR Retakaful. Despite being smaller in number and beginning from a lower base, the retakaful players made considerable gains in terms of annual gross premiums between 2013 and 2014 compared to their conventional counterparts, thus demonstrating their growing prevalence in the industry. In 2014 the retakaful firms took in BD92.5m ($243.7m) for the year, compared to BD58.9m ($155.2m) in 2013, representing an substantial increase of 57%. In contrast, the gross premiums of the five conventional reinsurers increased by just 15.3%, from BD277.6m ($731.3m) in 2013 to BD320m ($843m) in 2014.
Health Changes
As of 2015 companies operating in Bahrain will be obliged to show they can provide private health coverage or pay an annual fee for their local and expatriate workers in order for them to access state medical services. Besides motor coverage, this is the only compulsory insurance in the kingdom, and the new requirement follows on the introduction of a health care system for the private sector. Companies with less than 50 employees are required to use the facilities provided by the Ministry of Health, while companies with more than 50 workers have the option of registering with the ministry, purchasing health insurance through a licensed company or opening their own clinics. Companies that use the health care services provided by the ministry will have to pay an annual BD72 ($190) fee per expatriate worker and BD22 ($58) per local employee. Under the new system, the fees for expatriate employees are paid during the process of commercial registration for companies operating in the kingdom, and the payments for Bahraini workers are to be included in monthly social insurance fees.
Market Segments
As with many emerging insurance markets, compulsory lines are the single biggest growth driver in Bahrain. The nation’s insurance industry was born from the requirement to secure cover for motor vehicles, and the premiums derived from this market segment continue to represent the largest share of the market – accounting for 27% of the combined gross premiums in 2014, the most recent year for which the CBB has published aggregate data. Unlike some jurisdictions in the region, the government does not set the premium level for motor insurance, and therefore prices are market-driven. Competition is intense, with insurers looking to push comprehensive coverage to motorists in order to secure higher margins. By regional standards, long-term insurance, which includes group life and children’s education policies, plays a relatively large role in the sector; in 2014 it accounted for 21% of the aggregate gross premiums. However, in terms of single lines, the two second-largest contributors to sector premiums are fire, property and liability insurance, and medical insurance, each of which accounted for 18% of gross premiums in 2014.
Performance
As with other markets around the Gulf, the Bahraini insurance sector has had to contend with significant challenges in recent years. The global financial crisis of 2007-08 forced the delay or cancellation of infrastructure projects across the region, while the precipitous drop in global capital markets had a negative impact on investment income.
The onset of the Arab Spring and subsequent regional unrest have also limited growth in some markets served by Bahrain’s insurers, while more recently the sharp drop in oil prices has emerged as a new challenge to an industry which has grown on the back of large development projects financed by petrodollars. Despite these issues, the growth rates of Bahrain-based insurance companies have historically demonstrated their resilience to strong economic headwinds. Gross premiums derived from the important motor segment dipped slightly in 2011 but quickly rebounded, rising from BD55.6m ($146.48m) in 2011 to BD72.2m ($190.2m) in 2014. Long-term insurance, meanwhile, dipped in 2010 and 2011 as the ripples of the 2007-08 global economic crisis continued and the region experienced civil unrest. By 2012, it was firmly established on a growth trajectory once again: the BD62.7m ($165.18m) of premiums taken in 2013 compares favourably with the BD51.3m ($135.15m) taken in 2010. However, in 2014 the sector once again witnessed a drop, with premiums down 9% from the previous year at BD56.9m ($149.9m). Other segments such as medical, fire, property and liability insurance have shown continuous growth across the period, with no retrenchment at all.
Looking to the investment side of insurers’ ledgers, the financial turbulence of 2008 forced insurance companies in Bahrain to alter their strategies in a bid to offset losses and ensure future revenue stability. This more conservative approach to investment included a greater emphasis on liquid or quasi-liquid assets such as bank deposits and money market instruments and – where equities were still attractive – a more diversified investment strategy. Regional bourses have shown greater potential for sustained yield, but the declines following the drop in oil prices in 2015 were a reminder of the challenge of maintaining stable income through investment. The focus of insurers, therefore, has been on selective underwriting and a sharpening of bottom-line figures as a means to sustained profitability – a welcome trend with respect to the sector’s long-term future.
Regulation
This prudential approach to growth is underwritten by a robust regulatory framework, which has historically provided the most comprehensive oversight in the region. After a half-century of gradual expansion, the regulatory framework governing the insurance sector entered a new stage of development in 2003, when the Bahrain Monetary Agency (BMA, now the CBB) began to develop Bahrain’s first insurance rulebook, formulated in line with the International Association of Insurance Supervisors. The new rules came into effect in 2005, and the following year – at a time when the region was enjoying rapid economic growth – the CBB took over the regulatory and supervisory duties of the BMA, retaining its predecessor’s insurance rules and guidelines. This framework remains largely in place and addresses core areas such as business standards, reporting requirements, enforcement, redress and industry definitions. Through quarterly updates and ad hoc communications transmitted via the rulebook, the CBB is able to provide timely responses to market events and provide clarification on existing rules where necessary. As financial institutions, Bahrain’s insurers are also subject to the Central Bank of Bahrain and Financial Institutions Law of 2006, Part 3 of which addresses the long-term insurance segment and general insurance provisions.
The flexibility and clarity provided by Bahrain’s regulatory regime largely account for both the country’s popularity as a base for foreign insurers and the history of consistent growth enjoyed by its domestic firms. Crucially, the CBB’s oversight of the sector has prevented the development of damaging price wars that other jurisdictions in the region have suffered. Its chief safeguard in this respect is its insistence that insurers undergo an actuarial review across all lines every two years, to ensure that their pricing is sound.
This well-established framework has seen few significant changes over recent years, although the rules governing takaful activity have been revisited over the past year; a new solvency framework for takaful providers came into effect in 2014 after a period of industry consultation, and aims to strengthen the solvency position of sharia-compliant insurers, ensuring they have adequate liquidity and are able to generate surplus through operational efficiency (see Islamic Financial Services chapter).
Market Potential
Bahrain’s insurance sector interacts with markets across the region and beyond, and is therefore subject to the economic cycles and trends of many jurisdictions. Traditionally, a number of the Bahrain-based firms carrying out business outside the kingdom have focused on the large Saudi Arabian market, but this has changed as that country has developed its own regulatory framework for insurance activity. Many firms have amended their licences to allow them to operate within Bahrain and are now categorised as locally incorporated insurance firms. Others have obtained licences from the Saudi Arabian authorities and transferred their portfolios to the neighbouring country.
Looking to the domestic market, Bahrain’s insurance penetration rate of around 2.1%, compared to rates of around 8% in more developed European markets, suggests that there is room for further growth in-country. Since the turn of the century, the growth of life and medical insurance has shown particular promise, driven by corporates in Bahrain offering group schemes to their employees. According to the CBB, between 2001 and 2010 long-term business registered a compound annual growth rate (CAGR) of 16%, with annual premiums increasing from BD13m ($34.25m) to BD51.36m ($135.31m). Gross premiums for medical insurance increased at an even faster rate over the same period, from BD1.76m ($4.64m) to BD31.75m ($83.65m) in 2010, yielding a CAGR of almost 38%. By 2013, medical insurance growth had slowed to a still impressive year-on-year growth rate of 10%. However, the government’s implementation of a compulsory health insurance scheme for expatriates, which was first mooted in 2005 and formulated into a draft law by 2007 but was put on hold while the market adjusted to the effects of regional unrest, is providing the segment with a boost. By the end of 2014 the segment’s year-on-year growth had risen to 19% and the CBB expects further growth in 2015.
Outlook
The sector is seeing robust growth overall despite obstacles such as low oil prices, which threaten to slow project development and volatile capital markets with the potential to undermine the investment side of insurers’ balance sheets. Nevertheless, among other things, low penetration rates and the continued support from regional neighbours with respect to Bahrain’s capital investments (see Economy chapter) continue to buoy sector prospects. Moreover, Bahrain continues to benefit from a well-established legal system and a regulatory regime that has in recent years been particularly successful in establishing the country as a global centre for Islamic insurance (see Islamic Financial Services chapter). These fundamental market characteristics mean that the nation is likely to maintain its status as a significant player in the insurance industry.
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