Pandemic ‘to hit insurance sector’

MANAMA: Covid-19-driven financial market volatility is expected to negatively impact solvency levels of Bahraini insurers this year, according to a new AM Best report, adding to the challenges faced by the kingdom’s (re)insurance sector – the smallest among the GCC countries.

The special report titled Covid-19 Adds to Challenges for Bahrain’s Fragmented Insurance Market notes the Bahraini (re)insurance market is very competitive, with a large number of companies vying for a limited amount of premium. The US-based credit rating agency that focuses on the insurance industry has assessed that in 2018, 36 insurers (24 of which were locally domiciled) competed for approximately $750 million of premium in the kingdom.

Conventional insurance dominates the market, although Takaful (Sharia–compliant insurance) business has been growing in recent years, accounting for 28pc of the market in 2018, among the highest penetration levels in the region.

Notwithstanding the highly competitive nature of Bahrain’s market and the impact this has on top-line growth and pricing, the performance of most AM Best-rated Bahraini insurers has been good over the underwriting cycle.

Insurance companies in Bahrain generally have robust risk-adjusted capitalisation with good capital buffers that underpin their balance sheet strength, it said.

Bahrain’s listed insurers – Arab Insurance Group; Bahrain National Holding Company, the parent of Bahrain National Insurance Company; Bahrain Kuwait Insurance Company (gig-Bahrain); Solidarity Bahrain and Takaful International Company (gig-Bahrain Takaful) – recorded an aggregate net income of BD18.7m in 2019.

This represented a strong turnaround from the BD9.5m loss posted in 2018, with only gig-Bahrain seeing weaker performance in 2019. However, the expansion of the Bahraini insurance market has slowed in recent years, with gross written premium (GWP) between 2014 and 2018 increasing only by a compound annual growth rate (CAGR) of around one per cent, compared with 5pc between 2010 and 2014.

Premium stagnation (growth rates in real terms have been negative since 2015) implies that the size of Bahrain’s insurance sector has fallen further behind the other GCC markets, which have grown at a faster pace. The AM Best report explains Bahraini insurers typically take more asset risk than their peers in mature markets.

In particular, exposures to equities and real estate are generally higher among Bahraini insurers than among insurers in developed economies.

As a result, their performance is heavily influenced by investment results and prone to volatility driven by financial market movements.

While the good solvency buffers of the large Bahraini insurance companies will allow them to absorb financial market shocks, there is concern as to how insurers with lower solvency levels will cope with additional stresses in the short term, particularly in the event of a second wave of Covid-19 infections later in the year.

The decrease in oil prices could materially reduce government expenditure, impacting the level of insurable risk and therefore the amount of insurance business written in the country.

The roll-out of a compulsory medical insurance scheme, approved by Bahrain’s government in 2016, is expected to boost the medical line of business and partly revitalise the non-life insurance sector.

However, while the scheme was planned to come into force in 2020, the Covid-19 pandemic may delay its implementation.




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