Best Finds Gulf Growth Outpacing Developed and Other Emerging Markets

March 11, 2014

A new report from A.M. Best concludes that “growth rates in the insurance markets of Gulf Cooperation Council (GCC) countries remain higher than those of developed markets and have kept pace with those of some key emerging markets. The GCC markets of Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates are now growing as fast as Brazil and China.”

Best said its research comparing the GCC’s insurance markets with developed markets and those in the BRIC (Brazil, Russia, India and China) countries “analyzed 1,766 companies in 19 countries over the past nine years, finding that growth in the GCC compares favorably against most markets.

“Gross premiums written (GPW) in the GCC countries had a compound annual growth rate (CAGR) of 21 percent from 2002 through 2012, the same as Brazil and China, while Russia was at 18 percent and India at 16 percent. A market that is growing at 21 percent enables companies to more easily sustain the shocks associated with emerging markets.

By contrast, Best found that “Far East and developed markets, the CAGRs were 14 percent and 4 percent respectively. Interestingly, growth of GPW in the GCC markets continues to accelerate from 2010, and despite depressed financial markets the GCC insurance sector is continuing to outpace most other markets in the analysis.”

The report also stressed that the “insurance business in emerging markets is extremely competitive, with many companies complaining that there are more players than their markets can effectively sustain. Best’s study of more than 1,180 of the companies showed that they are “in the developed markets of France, Germany and the United Kingdom. While far fewer companies operate in emerging markets, developed markets are seen to be much more congested.”

However, the report also indicated that “developed markets have far more companies with niche strategies focusing on specific products or segments. By contrast, all companies within smaller, emerging markets tend to operate across all segments and product lines, creating broad-based, intense competition.

“Insurers in emerging markets are further constrained by the existence of ‘national champions’ that dominate their respective markets. The problem is not that the market is too congested, but that the GCC markets have a large number of small insurance companies. This small size makes companies more susceptible to volatility in operating performance.”

The study also concludes that “general economic growth and public spending in the GCC are likely to increase in the short to medium term, providing further impetus for the insurance market. However, much of the recent growth in insurance has come from compulsory covers.

“Companies had looked at high growth rates as a given, but governments are running out of opportunities to rely on compulsory business to stimulate the market. In this environment, premium growth is likely to be more subdued than the historical highs, which in turn puts more pressure on insurers to segment the market and identify strategies for growth.”

Source: A.M. Best

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