JEDDAH, 9 January 2006 — Major economic reforms and a growing population in Kuwait have turned the country into an insurance market with tremendous potential.
According to a report by the Kuwait-based Global Investment House (Global), the growing economic activity in Iraq presented opportunities to insurers in Kuwait which provide insurance coverage for international companies working in Iraq. National insurance companies have also benefited from the relaxed market environment of having a virtual monopoly over government insurance contracts plus low risk levels as well as almost no natural disasters. Increases in economic activity resulting in new projects along with the implementation of the new compulsory medical insurance scheme for expatriates has led the local insurance industry to grow by more than 58.5 percent in the last three years. Another positive development in this period has been the introduction of Takaful companies which have created their own demand in the market.
Kuwait’s insurance industry witnessed continuous growth since 1999 as total direct premiums for general and life insurance had a CAGR of 16.8 percent through to 2004. According to the Global report, the total market size reached 130 million Kuwaiti dinars in 2004, 18.5 percent higher than the previous year. The report said local insurance industry will see another phase of extensive growth, catapulting the overall market size to around 150 million. The growth was led by the life insurance segment, which improved its share from 15.7 percent in 1998 to 26.5 percent in 2004.
National companies continued to have a stranglehold over the insurance market, representing 87.7 percent of all insurance segments in 2004, slightly higher than its share of 86.2 percent in the previous year. The five national conventional insurance companies are public shareholding companies listed in the Kuwait Stock Exchange (KSE), including Bahrain Kuwait Insurance Company (BKIC), which is included as a part of the non-Kuwaiti category company at the KSE. Total direct premiums written by the national insurance companies grew by 20.51 percent to 114 million dinars in 2004. This growth was led by the 31.6 percent growth of life insurance segment which outperformed that of non-life insurance segment at 16.83 percent. However, premium written in non-life insurance constituted the bigger share (73.1 percent) of total premium written by national companies. General accidents segment, which accounts for more than 50 percent of the overall insurance premium market, dominates the general insurance segment.
This growth of the non-life insurance segment was backed by the growth rate in both general accident and marine and aviation segments, growing by 22.4 percent and 7.5 percent, respectively. Size of the general accident segment increased to 67.2 million dinars in 2004, more than twice its level of 33.4 million dinars in 2000 boosting its share to 70.3 percent of total non-life premium. On the other hand, marine and aviation segment had a slowdown in 2004, compared to its growth of 17 percent in 2003 and an even better 37 percent in 2001. At the same time fire segment’s premium income continued its declining trend since 2003 to 12.6 million dinars in 2004, a 6.67 percent drop. However, this is still 20 percent above its level in 2000 when it stood at 10.5 million dinars.
The Global report said there has been a clear improvement in profitability of insurance companies across the segments. Loss ratio (calculated as claims by premiums) declined over the years to 44.62 percent in 2004. Claims, declined at 16.47 percent CAGR, as compared to the premiums, which increased at 14.31 percent CAGR rate. Among the non-life insurance segments, general accident segment was the least profitable with the highest loss ratio of 49.85 percent in 2004. Marine insurance segment was the most profitable since 2002 and had a loss ratio of 23.42 percent in 2004. Fire insurance was also extremely profitable with a loss ratio to 29.37 percent in 2004, after years of huge claims in 2001 and 2002.
Over the past five years, direct written premiums by the life insurance segment had a CAGR of nearly 28.29 percent to 34.4 million dinars in 2004. Within this segment, medical insurance accounted for 9.4 million dinars representing 27.33 percent of the total life insurance premiums. As for claims in this segment, it witnessed a fluctuating trend since 2000. As for loss ratios in life insurance, the segment used to be one of the most profitable since 2001 with loss ratios ranging from 24.7 percent to 36.6 percent. However, in 2004 the loss ratio was higher at 49.71 percent.
Out of the total 34.4 million dinars total life premium, national companies accounted 30.7 million dinars.
Talking about the performance of the insurance sector on KSE, all the 5 national insurance companies, as well as the sole reinsurer Kuwait Reinsurance Co. are listed at KSE contributing nearly 1 percent (413 million dinars) of the total Kuwait market capitalization at the end of third quarter 2005. In contrast to 7.1 percent decline in the sector’s total profits in 2004, the sector’s profits more than doubled in the first three quarters of 2005 compared to the corresponding period in the previous year to 55.7 million dinars. This helped the sector to increase its share of aggregate market profits to 2.5 percent in the first three quarters up from 2.1 percent in the same period last year.
Activity on insurance stock counters followed the same trend as profitability. After a period of minimal interest in 2004, the first ten months of 2005 encountered a rebound in both volume and value of shares traded. Volume of shares traded grew by 25.6 percent since the beginning of the year, as it increased to 117 million shares in the period, while value of shares traded had a corresponding growth of 11.1 percent. The increased profitability helped the sector’s overall performance as Global Insurance Index increased by 16.87 percent during the first nine months of 2005.
