Global Investment House: Insurance sector - Kuwait economic & strategic outlook

Global Investment House – Kuwait Economic & Strategic Report -Insurance Sector- Among the Gulf Cooperation Council (GCC) countries, Kuwait was one of the earliest to witness the establishment of insurance companies, while in countries like Oman and Qatar they were established as late as the 80s and the 90s. Kuwait Insurance Company, established in 1960, is one of the oldest in the GCC region. Being relatively young, the insurance industry in the region is very small in size compared to that in other countries. Life insurance has been extremely late to take off in the Arab and GCC region.

Economic development, strong economic structure, and growing population of Kuwait have turned the country into an insurance market with tremendous potential. There are a number of major industries in Kuwait that require extensive insurance coverage. Increase in the economic activity resulting in new projects along with the implementation of the new compulsory medical insurance scheme for the expatriates has led the local insurance industry to grow. Another positive development has been the introduction of Takaful companies, which has created its own demand in the market.

The non-life or the general insurance segment dominates the GCC market. Life insurance segment has been extremely late to take off in the Arab and GCC region due the belief that life insurance contravenes some of the Islamic tenets. However the share of life insurance segment has been growing gradually over the past few years.

There are three types of insurance companies operating in Kuwait: national companies, Arab companies and foreign companies. The national companies dominate the market accounting for 86.3% of the overall insurance market in 2006, with total direct premiums at KD153.5mn. There are ten national insurance companies operating the country. Among them, prominent players are Gulf Insurance Company, Kuwait Insurance Company, Al-Ahleia Insurance Company and Warba Insurance Company. The four companies accounted for more than 70% of direct premiums during the year 2006. Arab companies accounted for 5.9% of the overall insurance market in 2006 with direct premiums standing at KD10.5mn. There are eight Arab insurance companies operating in Kuwait which includes players like Al-Ittihad Al-Watani Insurance Company, Al Daman Insurance Company, and Lebanese Suisse Insurance Company etc. Foreign companies accounted for the rest 7.8% of the insurance market in 2006 as compared with 7.3% during 2005. There are three foreign insurance companies operating in Kuwait which includes New India Insurance Company, Oriental Insurance Company, and American Insurance Company.

The general (non-life) insurance segment has grown by 10.8% in 2006 on top of 17.8% of growth reported for 2005. By the end of 2006, direct premiums for the segment stood at KD124.8mn. This growth was backed by 18.8% growth in the fire segment premiums and 13.8% growth in general accident segment. However, the marine segment reversed its upward trend from last year to decline by 9.8% in 2006. On CAGR basis, the overall general insurance segment has grown at 15.4% over the period 2001-06, backed by a strong growth of 20.1% in the general accident segment and 10.4% growth in fire segment over the same period.

Growth accelerating in life insurance segment

Life insurance segment premiums had seen higher growth rates in recent years thus increasing its share in total premiums from 23.9% in 2001 to 29.8% by the end of 2006. Over the same period, life insurance segment reported a CAGR of 23.7%. It is important to note that over the same period, general accident segment has been growing at high rates as well reporting a CAGR of 21.4% while both Fire and Marine segments reported lower growth of 11.7% and 3.1% respectively. As a result, general accident share in total premiums has been increasing from 45.2% in 2001 to more than 50% in 2006. This came on account of the declining shares for both fire and marine segments. During 2006, life insurance premiums have grown by 28.6% on top of 19.8% growth reported during 2005 to stand at KD53mn.

Total Premium and Claims

Source: Insurance Department, Ministry of Commerce & Industry

Generally, the insurance market witnessed declining loss ratios (calculated as claims by premiums) over years from as high as 112% and 110% during 2001 and 2002 to stand at 43.9% by the end of 2006. Over years fire segment has been the main reason affecting loss ratios. By the end of 2005, loss ratio has increased to 56.4%, up from 44.6% in 2004 mainly due to the fire segment where loss ratio increased to 149%, up from 29.4% in 2004. Entering the year 2006, fire loss ratios declined significantly to 36.7% thus allover loss ratios stood at 43.9%. Among the other segments of non-life insurance segments, general accident segment and marine segment continued to have moderate loss ratios of 44.2% and 33.1% respectively in 2006.

On the profitability front, out of the big four insurance companies, three have reported spectacular profitability by the end of 2007. Namely, Gulf Insurance, Kuwait Insurance and Al Ahleia Insurance reported huge increases. Gulf insurance net profits grew the most by 350.4% reaching KD39.1mn followed by 173.9% growth in Kuwait insurance company profits to KD13.3mn. Finally, Al Ahleia Insurance Company reported KD16.3mn of profits that was 15.4% increase over profits recorded by the end of 2006. On the other side, the profitability of Warba Insurance Company declined by 5.1% to KD8.6mn by the end of 2007.

The industry growth rates are expected to remain high over the short to medium term due to the oil prices driven boom in GCC economies. The growth of the sector will also be boosted by factors like increasing awareness and growing population due to the influx of expatriates.