Gulf region insurance market expanding due to growing wealth, stronger regulation

Three drivers of change have prompted rapid growth in insurance, however, for both individuals and companies across the region: growing wealth, which is leading to a significant increase in insurable assets and activities in the region; authorities' commitment to stronger insurance regulation and the widespread introduction of compulsory insurance covers; and the practical development of an Islamic insurance alternative (Takaful).

Standard & Poor's currently has published interactive insurer financial strength ratings on 12 Gulf region insurers, compared with four in July 2004, and none in 2003.

"The growth in interest in our ratings is sponsored by: first, the move to more robust regulation of the insurance sector, where the rules now being implemented by the various governments impose minimum security ratings requirements on usage of reinsurance and placement of investment portfolios by insurers; and second, recognition by the local insurers of the benefits that accrue from having an authoritative independent opinion on credit quality being offered to policyholders," said Standard & Poor's credit analyst Kevin Willis.

"The Gulf insurers that receive our insurer financial strength ratings demonstrate strong capitalization, and we consider that levels of capital are well able to support the current rapid growth in underwriting risks through the rating horizon," he added.

Although the overall picture for Gulf insurance companies is positive, there are some pressures on the insurance community that need to be recognized. Risk management and corporate governance generally across the region are unsophisticated practices, and the more demanding regulatory environment now being imposed requires companies to be more proactive in both areas. The size of the insurance markets will remain small in global terms and to some extent of lesser interest to more sophisticated international insurers, but the apparently inherent profitability of these markets does make them attractive to new players. As the markets open up in response to trade agreements, for example, competitive pressures from new providers may undermine the benefits to insurers of the strong growth in risk awareness.