S&P Analyzes Jordanian Insurance Sector

April 13, 2009

Standard & Poor’s Ratings Services has issued a report, “Growing Supply Chases Slowing Demand In The Jordanian Insurance Market,” on its RatingsDirect web site.

The report states: “The “insurance sector in the Hashemite Kingdom of Jordan (foreign currency BB/Stable/B; local currency BBB/Stable/A-3) comprises 28 companies, which together write (according to the most recently available summary market statistics for 2008) an estimated Jordanian dinar (JOD) 331.6 million [$467.7 million] of gross premiums (JOD296.6 million [$417.8 million] non-life; JOD35.0 million [$49.3 million]life), a 13.7 percent increase on the 2007 total of JOD291.7 million [$411.3 million] (JOD262.5 million [$370.2 million] non-life; JOD29.2 million [$41.2 million] life), which was in turn an increase of 12.7 percent on the JOD258.7 million [$364.9 million] total in 2006.”

S&P added that, “assuming some slowdown in growth during 2009, we expect that gross premiums for the current year will likely struggle to reach JOD350 million (approximately US$495 million).

“The ‘SWOT’ analysis (Strengths, Weaknesses, Opportunities, Threats) of the Jordanian insurance sector undertaken in the full article published today indicate that the balance has in our opinion recently moved more toward a slight preponderance of threats and weaknesses over opportunities and strengths. We believe this shift is the result of the combined local effects of the economic downturn and the steadily increasing levels of competition as the market’s many players seek to win a growing share of the now only slowly rising “cake” that is the sector’s total, annually available premium income.”

In essence, the article identifies the following “SWOT” factors:
— Strengths: Long-established Insurance sector and infrastructure; effective, proactive regulatory supervision; relatively unconstrained, open marketplace; and good supply of well-educated, well-trained staff.
— Weaknesses: Increasingly crowded market of 28 insurance companies; size of total market relatively modest with below $495 million of gross premiums; uncertain strategies on the part of some core private shareholders; and a business style at some larger insurers that can lack focus for small retail policyholders.
— Opportunities: New areas of insurable activity being developed, particularly medical and life protection; growing cross-border expansion into neighboring markets; currency link to the U.S. dollar that facilitates diversified investments; and room still remains for insurers to further improve their operational and marketing activities
— Threats: The most immediate threat is, in our opinion, the local impact of the global economic downturn; competition may also still increase from foreign and other new entrants; there is a degree of dependence upon foreign reinsurers to maintain capacity for larger risks, natural perils (earthquake), and periodic security concerns are also a consideration; while the Unified motor contract regime may in the long run reduce competition and service quality.

Nevertheless, the report concludes that as long as investment losses do not increase significantly during 2009, we believe that it may still be possible for well-managed, risk-conscious insurers in Jordan to achieve overall results in 2009 that exceed those now being reported for 2008.”

The report is available to RatingsDirect subscribers at: www.ratingsdirect.com. If you are not a RatingsDirect subscriber, you may purchase a copy of the report by calling (1) 212-438-9823 or sending an e-mail to: research_request@standardandpoors.com. Ratings information can also be found on Standard & Poor’s public Web site at: www.standardandpoors.com.

Source: Standard & Poor’s

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