21 April 2004
A three-speed insurance sector looks set to emerge in the Arab world as growth prospects diverge between markets despite a growing demand for capacity across the region, according to Standard & Poor's Rating Services. Demand for insurance capacity in the area has risen exponentially due to the introduction of some compulsory lines, such as motor third-party liability and medical protection, and the expected rapid growth in infrastructure development in the Gulf Cooperation Council (GCC) member states over the next five to ten years.
"Those domiciles that prove attractive to international capacity will experience the fastest rate of growth," said S&P credit analyst Kevin Willis. In this context, the financial centres in Bahrain and Dubai look set to dominate the international wholesale insurance market in the Middle East, while Saudi Arabia, due to its size, and despite its high capital requirements, continues to promise the best growth possibilities to both domestic and international insurers focused on the retail market. A more moderate rate of growth is expected in Qatar, Abu Dhabi, Kuwait, Oman and Egypt, commented S&P.
Despite experiencing levels of demand for new capacity similar to those in Dubai, Bahrain and Saudi Arabia, the rate of insurance growth is expected to be slower due to a lack of progress in the liberalisation of their regulatory and legal environments. Slower still will be the level of growth in Jordan, Lebanon, Iran, Iraq and Yemen, which constitute the third speed in S&P's assessment of the rate of insurance growth in the Arab world.
These countries lack either the natural advantages of the GCC countries' oil and gas infrastructure, or an economic environment able to support strong insurance growth. "Some Arabic markets are further prepared for liberalisation than others. Even among those expected to show the biggest rise in demand for insurance capacity over the next few years, there are some that remain unprepared and unlikely to attract foreign interest," said Mr Willis.
Questions remain over the level of commitment to liberalisation of some of the protected national markets in the Gulf. "Uncertainty continues over the willingness of some Gulf states to fully embrace liberalisation, potentially restricting the ability of GCC insurers to cross borders.
Some domiciles appear to lack conviction and are introducing hurdles in the form of high capital requirements, which will prohibit all but the most strongly capitalised of GCC insurers from expanding," added Mr Willis.
Meanwhile, in tandem with the liberalisation of markets across the GCC, there has been a significant rise in Takaful (Islamic, not for profit) insurance. Initially thought to be addressing mainly the needs of the private individual, this specific sector is now targeting the wider commercial insurance and reinsurance demands of the Islamic insurance marketplace.
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