New insurance rules aim at consolidation of Oman's takaful segment

The insurance industry in Oman has been going through a period of change in recent years, alongside its continued expansion. The authorities have recently made regulatory alterations aimed primarily at encouraging consolidation in the somewhat crowded sector. Penetration levels are low by Western standards, leaving a great deal of room for growth in general and in the life segment in particular, though the sector’s contribution to GDP is comparatively high by regional standards.

Health insurance has been expanding rapidly and is widely seen as the most promising conventional line within the sector, although some industry figures are becoming cautious about its prospects, arguing that companies’ eagerness to enter the segment has now pushed prices too far down.


Total premiums volume in 2014 stood at OR396.5m ($1bn), up 10.1% from OR359.9m ($931.8m) in 2013, according to figures from the sector regulator, the Capital Market Authority (CMA). Sales have been rising at a rapid pace in recent years; between 2008 and 2014, premiums grew at a nominal compound annual growth rate (CAGR) of approximately 12%. Indeed, the industry continues to witness strong growth: gross written premiums for the first half of 2015 stood at OR246.4m ($637.9m), up 9% on the same period in 2014, according to latest available CMA data.


According to Swiss Re’s “Sigma World Insurance in 2014” report, per capita insurance premiums stood at $266 in 2014, consisting of $24 worth of life insurance premiums per capita and $242 of non-life insurance premiums. The overall figure was up from $220 five years previously and ranked Oman 55th in the world and sixth in the MENA region as a whole.

Figures from the Central Bank of Oman (CBO) indicated that per capita insurance premiums in local currency terms were worth just under OR100 ($260) in 2014, compared to an average figure of OR140 ($362.50) for GCC states.

As regards economic penetration, insurance premiums represented 1.3% of GDP (0.1% for life insurance premiums and 1.2% for non-life premiums) in 2014, up from 1.2% in 2009 and placing Oman 77th internationally, as well as second (behind the UAE) among GCC states and eighth in the MENA region. As a proportion of non-oil GDP, premiums were more or less steady at around 2% of the total between 2009 and 2013, before jumping to 3% in 2014, according to data from the CMA.

Motor Insurance

Motor coverage is the largest insurance line in the sultanate by premium value, taking up a 40% market share in 2014. The motor segment continues to see strong growth, having expanded at a CAGR of 14% between 2008 and 2014, but is highly competitive, which has pushed prices down to levels that some industry figures say are uncompetitive.

However, this is changing with the launch of a new initiative in the segment known as e-insurance, under which insurers have access to a Royal Oman Police database containing the traffic history of all vehicle owners in the sultanate. This is helping companies to establish policy costs for individual drivers. According to Ali Abduladheem Al Lawati, chairman of the Oman Insurance Association, this has been a major boon for the segment. “E-insurance provides insurers with the data they need to properly assess every driver and offer them the right premium rates; we cannot stop firms from underselling but this will provide them with the tools to do things properly,” he told OBG. “Given that the segment accounts for close to half of insurance industry premiums, the initiative should have a major impact on companies’ bottom lines.”

Health Insurance

Medical insurance saw the largest growth of any industry branch in 2014, at 34%, raising premiums to approximately OR83m ($214.9m). The segment again led the pack in the first half of 2015 with a growth rate of 32%, bringing up its share of total premiums to 26%, from 21% a year earlier. Expansion in the line has mostly been taking place in group medical insurance, and some companies do not yet provide health products aimed at individuals.

The segment is also widely viewed as one of the most promising in the country in terms of further opportunities in coming years, boosted by factors such as rising treatment costs and plans announced in April 2015 to implement a rule mandating that all private companies provide health insurance for their employees. “Medical insurance remains one of the most promising insurance branches, thanks to factors such as rising awareness and the government’s desire to see more provision by employers,” Al Lawati told OBG. The sultanate’s second-largest insurer by premiums, Al Dhofar, claims to be the market leader in health insurance, with a 65% share of premiums.

However, there are also some emerging indications that growth in the segment may be starting to slow down as growing competition puts increasing pressure on margins. “Newer companies want the top-line growth available in the medical segment, but competition has pushed prices down too far,” said A R Srinivasan, CEO of Falcon Insurance, adding that it was the only major insurance line for which the company had not seen significant growth in 2015. Similarly, Gautam Datta, CEO of Al Madina Takaful Insurance, echoed these concerns about profitability in the segment. “The challenge is to get the price right and maintain profitable margins, which are very low in the medical segment. At present companies do not create provisions for major claims that can arise out of a serious ailment,” he told OBG.

Life Insurance

As the country’s insurance penetration figures indicate, life insurance is particularly under-developed in Oman, and the CBO has called on the industry to work to build up the segment to diversify its revenue sources. Factors explaining the segment’s low level of development include the fairly generous social security provision by the Omani government, and religious and cultural issues, such as a tendency for Omanis to turn to extended families for support. As a result, most firms operating in the segment are focused primarily on expatriates who do not benefit from state-provided social protection.

However, group life insurance premiums outpaced wider market growth in 2014, increasing in volume by 13%, and the segment grew even more strongly in the first half of 2015, at a rate of 26%. In both cases group life insurance was the second-fastest market, in terms of growth, after health. While the smaller individual life products market has done less well, rising by 0.35% in 2014 and shrinking by 3% in the first half of 2015, Datta said he believed the situation is set to improve. “Companies that have entered the segment are now starting to do well,” he said. “The challenge will be to develop the right products for the market and ensure they are properly distributed and easily available; banks have a role to play, as do insurance companies in terms of expanding their branch networks, but there may also be a need for the development of networks of insurance agents and financial advisers.”

Alternative Products

Al Lawati told OBG that there was also scope for companies to develop more products geared to low-income Omanis. “Retirement products could be very attractive in particular,” he said. Compulsory loan-based policies for individuals are also growing, and cultural changes are expected to see the wider individual life market start to take off in coming years. “Traditional life policy premiums are still quite low and are held back by cultural attitudes and the country’s youthful population, as younger employees earn less and often have little left after consumption to invest in savings products,” Srinivasan told OBG. “However, over the medium term traditional life policies should start to grow as family structures become more dominated by nuclear families and people plan more and become less reliant on extended family networks for support.”

He added that he expected unit-linked savings products, which are not currently permitted, to be authorised soon, which would further help to boost the development of the market. The launch of takaful (Islamic insurance) in 2014 also bodes well for the development of the segment, as several companies identified a previous lack of availability of sharia-compliant life products as a significant constraint.

Retention & Reinsurance

The industry’s insurance retention rate stood at 57% in 2014, according to CMA data, up from 54% in 2013. Retention rates vary substantially by insurance branch, from highs of 88% and 85% in comprehensive motor insurance and third-party motor insurance, respectively, to 0.9% in property insurance. Meanwhile, other lines vary between rates of 50% for health and 21% for marine.

“Companies need to be encouraged more to retain insurance; many are small and their mindset has traditionally been to avoid holding on to risk,” said Srinivasan, noting that until an increase in capital requirements in the last decade, some companies had less than OR5m ($13m) in capital. “Firms of that size are not going to hold much risk on their books, and that attitude remains prevalent in parts of the industry,” he told OBG.

Industry figures indicated that retention is particularly low for large commercial projects. “Insurers tend to pass business on major projects straight on to reinsurers, who decide the rates,” Al Lawati told OBG. The CMA views rates of less than 50% as unsatisfactory and its decision to raise industry capital requirements is aimed in part at boosting retention ratios in the sultanate, which industry figures say would boost the sector’s wider development (see analysis).

“New regulations should be aimed at increasing retention and ensuring better utilisation of capital, which would mean less premium is exported to foreign brokers and reinsurers,” Datta told OBG. “A lack of retention leads to a vicious cycle, as the lack of professional capacity acts as a constraint for higher retention rates. Ceding business to reinsurers in turn deprives companies of the profits they need to invest in building up that capacity.”

Market Actors & Market Share

There are 22 insurance firms active in the sultanate, including 11 foreign companies, as well as 36 brokerages and a single reinsurer, Oman Reinsurance. Despite the large number of companies in the industry, premiums are concentrated relatively heavily among a small number of insurers, leaving others with comparatively small operations; the five largest insurance firms accounted for 59% of premiums in 2014, according to the CMA’s 2014 “Insurance Sector Performance” report, based on figures using audited and unaudited company data. The figure was down from 62% the previous year.

National Life and General Insurance, in which Omani investment firm Ominvest owns a 98% stake, had the largest market share in 2014, on 17%. The firm’s share of premiums was up from 15% in 2013, an increase that led it to overtake Al Dhofar Insurance, which was the market leader in 2013. Al Dhofar’s market share stood at 16% in 2014, down from 17% the previous year. Among the company’s main shareholders are Dhofar International Development and Investment Company, one of the largest holding companies in the country, with a 35% stake; shares in the insurer also trade on the Muscat Securities Market (MSM), the Omani stock exchange. Completing the line-up in the sultanate’s top five firms are Oman United in third place on 10%, and Al Ahlia Insurance and New India Insurance in joint fourth place on 8% each.


Industry profits stood at OR26m ($67.3m) in 2014, according to CBO data, down from OR28m ($72.5m) the previous year. The central bank attributed the decline to reduced investment income (the MSM’s benchmark MSM30 index lost 7.2% of its value in 2014) and increased administrative expenses. The industry’s return on assets stood at around 3%, while return on equity was around 9%; this compared to an average of 12% for major companies across the GCC in 2012, according to Alpen Capital’s 2013 “GCC Insurance Industry” report. Srinivasan told OBG that 2015 is likely to have been a good year, if perhaps slightly below expectations due to the fall in the price of oil and the knock-on effect on the wider economy.


As is the case in a number of other GCC countries, industry figures say that with 22 insurance firms operating in the sultanate, there are too many companies competing for business in Oman. “The market is over-crowded, both in terms of insurance companies and brokers,” said Srinivasan. Partly in order to address this, the authorities in 2014 issued a number of amendments to the insurance law, including one that raises companies’ minimum capital requirements from OR5m ($13m) to OR10m ($26m) (see analysis).


In 2014 the Islamic insurance segment formally launched in Oman, when the country’s first takaful firm, Al Madina Takaful, began issuing takaful polices. A second firm, Takaful Oman Insurance, followed it into the market in June of that year. The sector is off to a running start; takaful premiums stood at OR23.7m ($61.3m) in 2014, representing 6% of total insurance premiums in the sultanate, according to CMA data. As with conventional insurance, the segment is dominated by motor insurance, which accounted for 43% of premiums in 2014, followed by property on 20% and health on 11%.

The expansion of the takaful segment in the sultanate is largely a result of the fact that Al Madina Takaful had previously operated as a conventional insurer and converted existing clients’ conventional contracts into sharia-compliant products. The firm was initially established as a mutual company – which was at the time the closest available model to takaful status – and pursued sharia-compliant investments, intending to convert to sharia-compliant status from the moment of its establishment in 2005 as soon as such a move was permitted, according to Datta. “The takaful segment is just another number in the game; the only difference is that we have a storyline to sell. At the end of the day customers will chose their insurance products on price and service,” Datta told OBG.

Growth Prospects

If regional trends are anything to go by, the segment’s growth trajectory looks set to continue. Some industry players are hopeful that the segment could obtain an insurance market share of as much as 20% in the medium term, roughly in line with other GCC markets. Islamic insurance across the GCC achieved a CAGR of 16% between 2009 and 2014, according to figures from global consultancy EY, cited by the CMA in its 2014 annual report.

Omani takaful operators’ experience to date also points to heavy demand. “We witnessed very strong growth when we converted to takaful status,” Datta told OBG, though he said that it would become easier to gauge interest in the segment as it developed. “We plan to launch a unit-linked life insurance product by the end of 2015, which is a classic takaful product, so its uptake will be a good indicator of wider interest,” he said.

Lo’ai Badie Bataineh, head of investment management and chief investment officer at Oman Arab Bank, said that takaful firms could struggle to gain market share based solely on their religious credentials. “There is demand for takaful but customers will not turn a blind eye to pricing and service,” he told OBG. Even so, Datta said that the status could nonetheless provide an advantage. “Some of our growth has definitely been due to our sharia-compliant status, and in some segments Islamic providers may be given first right of refusal, which is a significant edge in a market of 22 companies,” he said, adding that while the status was not perceived a major advantage in the corporate market, it could nonetheless gain firms a small premium in price in the retail market.

Nevertheless, Datta told OBG that he thought it unlikely that many more companies will come into the segment in coming years. “The market is already over-supplied with insurance providers; furthermore, most existing conventional firms are unlikely to convert as the process would be disruptive and costly and they are already well established as conventional firms,” he said. Unlike in the banking sector, conventional insurance firms are not able to open takaful windows but could convert to a takaful company if they wish to issue sharia-compliant insurance.

Costs are also a potential obstacle; takaful companies face operating expenses in addition to those incurred by insurance firms, such as the requirement to bear the costs of implementing, supervising and auditing sharia-compliant processes through sharia audits and sharia committees. “New firms entering the market may find these costs to be a constraint,” Datta told OBG.


The insurance sector employed 2437 people in 2014, according to CMA figures, with an Omanisation rate of 65%; national firms employed 1446 people, foreign firms 447 people and brokers 544 people. Industry figures say that finding the right staff for insurance companies can be difficult. “Recruiting qualified staff is a challenge across the board, for both conventional and takaful firms,” Datta told OBG, adding that this was a particular challenge in under-developed areas such as life insurance. “For the segment to grow there may be a need to recruit people from more developed regional markets in these product lines such as Lebanon, the UAE or Bahrain.”

Al Lawati told OBG that this was the case as regards local staff and that efforts to increase the rate of Omanisation in the sector still had a long way to go. “Training of Omanis needs more efforts from all players, as currently the situation is not really improving,” he told OBG. “In recent years there has been no real increase in the proportion of Omani technical and reinsurance managers, for example,” he added. Improving training in the industry is therefore one of the key elements of a two-year strategy launched by the Oman Insurance Association in early 2014. O.G. Ravishankar, general manager of Takaful Oman Insurance also made clear the importance of training and talent in the industry. “Training processes for the insurance sector need to be revised and include the CMA. Omani and expat talent is hard to come by which effects the way we as an industry can do business,” he told OBG. “Reinsurers need to be very confident in the risk management and underwriting of the companies they work with; therefore, we need to upskill the Omanis working in the sector to make sure they can meet these standards,” he went on to add.


The total number of insurance company branches at the end of 2014 was 139, including 50 in the capital Muscat. Brokers dominate sales overall; this is especially the case in the capital, though elsewhere in the country customers often buy retail insurance direct from companies, Srinivasan told OBG. Bancassurance is a distribution channel for insurance companies in the sultanate given the much larger size of the banking branch network. Banks have sold insurance products on behalf of underwriters since 2004, but sales via bank branches largely failed to take off in subsequent years. However, new tie-ups between banks and insurers continue to be announced in the sector, with the sultanate’s largest financial institution, Bank Muscat, signing a 10-year deal to distribute insurance products for AXA Gulf in May 2015. The internet has yet to become a major distribution channel, despite support for the initiative from the relevant regulatory authorities.


The CMA imposes rules on how much insurance companies can invest in different asset classes, which some players describe as challenging. These include a 30% cap on the proportion of investments made up by government bonds and a 40% limit on equity and mutual fund investments. The difficulty of finding opportunities to invest funds is due to the domestic corporate bond market. While insurance firms are at present able to invest in foreign assets, these are limited to 25% of total investments, and there are further restrictions for investments abroad such as minimum credit rating requirements.

In practice, however, companies keep most of their funds within the country; 95.3% of Omani firms’ investments and 82.3% of those of foreign firms were in Omani assets in 2013, according to CMA data. Such challenges may help to explain the fact that 59.2% of national insurance companies’ funds were held in cash and deposits in 2013. Another 18.8% were held in listed equities, 9.8% in real estate, 4.6% in unlisted shares, 3.8% in corporate bonds and 2.3% in government bonds.

Foreign firms held a higher still proportion of their funds in cash and deposits, at 82.1%, though they also kept a greater share in bonds than Omani firms, with government debt accounting for 4.9% of the total and corporate bonds for 10.8%. Datta said that the challenges faced by conventional insurers, with regard to investing their funds, were even greater for takaful firms, due to restrictions on the assets in which Islamic companies can invest (for example, firms cannot invest in conventional interest-bearing bonds, and can only buy shares in companies deemed to be sharia-compliant.


The evolution of oil prices in particular will play a major role in determining sector performance in the medium term. “Penetration is likely to rise gradually and growth will be partly dependent on oil prices; with lower prices fewer major commercial and infrastructure projects will go ahead and oilfield services firms will reduce their operations, which will have a trickle-down effect on the industry,” Srinivasan told OBG. The industry has ample room to grow over the longer term, and cultural changes should lead to rapid expansion in the life insurance segment. While questions remain as to whether the medical insurance market can maintain its rate of expansion, the takafulsegment should see strong growth in the coming years.

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The Report: Oman 2016

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Insurance chapter from The Report: Oman 2016

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