Country review: Bahrain – Middle East’s pocket-size powerhouse

Bahrain can justly lay claim
to having one of the world’s most progressive economic policies,
which includes the full support of development of its financial
services sector. This has been especially evident in the rapid
advance of its life insurance industry in recent years which,
although small, has solid potential.

Small in size, Bahrain covers
an area of 727 square kilometres and has a population of 729,000,
of which about a third are foreign nationals. But, what it lacks in
size, Bahrain has made up for in economic development. According to
the US Central Intelligence Agency, Bahrain is the world’s
25th-wealthiest country in terms of GDP per capita, which stood at
$38,400 in 2009.

Much of Bahrain’s early development
was based on oil. It became the Gulf region’s first producer in the
early-1930s. But this early start has also means oil reserves are
nearing the end of their lives, with the US State Department
estimating they will run out in 10 to 15 years time.

Dwindling oil reserves prompted
Bahrain to embark on an ambitious economic diversification policy
in which financial services feature prominently. Notably, over 40
years ago Bahrain became the first country in the region to
establish a financial services industry which today boasts 400
licensed institutions and, according to the Bahrain Economic
Development Board (BEDB), contributes 27% of the kingdom’s GDP, the
largest of any sector. Oil and gas account for about 10% of
Bahrain’s GDP.

Life insurance first took root in
Bahrain in 1961 when then unit of American International Group,
American Life Insurance Company (ALICO) became the first company to
be granted an insurance license. ALICO was acquired by US insurer
MetLife in March 2010 in a deal worth $15.5bn.

But despite its four-decade history
in the kingdom, life insurance has only really come to the fore in
recent years, backed by strong support from the Bahrain government
which has as a major strategy development of Bahrain as a regional
financial centre.

Within this strategy, insurance is
a key focus of attention, with consultancy Booz & Company
commenting in a recent study: “Bahrain has developed the most
elaborate insurance market in the Middle East.”

Playing a major role in the
insurance market’s development is the Bahrain Insurance Association
(BIA) spearheaded by its Insurance Market Development Committee
which in 2005 initiated its first awareness campaign aimed at
increasing insurance penetration. Results, aided by strong economic
growth, have been marked, particularly in the life insurance
market.

This is reflected in substantial
growth in gross premium income off what was a small base of
BHD16.4m ($43.5m) in 2005 to BHD57.1m in 2009, according to the
Central Bank of Bahrain (CBB). This represented a CAGR of 36.6%
despite growth slowing to 14% in 2009.

Gross life claims increased from
BHD7.88m in 2005 to BHD13.85m in 2009, a CAGR of 15.1%.

General insurance gross premium
income, excluding health insurance, increased from BHD71.73m to
BHD116.23m in 2009, a CAGR of 12.8%.

Last year also marked the first in
which life insurance premium income exceeded that of motor
insurance. The Central Bank of Bahrain (CBB) reported gross premium
income of BHD57m. Until 2009 motor insurance was Bahrain’s biggest
insurance sector.

LIC leads the
pack

Bahrain’s 10 life insurers,
top position in 2009 was held by LIC Bahrain, a joint venture (JV)
between Intercol, a Bahrain conglomerate, and the international
unit of state-owned Life Insurance Corporation of India (LIC).

LIC Bahrain’s gross premium income
of BHD21.06m in 2009 was little changed from 2008, giving it a
market share of 36.9%, down from 42.6% in 2008.

Founded in 1989, LIC Bahrain was
LIC’s first international JV. A big attraction for LIC is the more
than 200,000 expatriate Indians working and living in Bahrain.

Coming in second in 2009 was Alico,
trailing LIC Bahrain by a big margin with gross premium income of
BHD11.9m. This gave Alico a market share of 20.8% which was down
significantly from 19.7% in 2008. In third place in 2009,
experiencing a sharp fall in market share, was Swiss insurer Zurich
Financial Services’ (ZFS) international division’s branch in
Bahrain which saw gross premium income slip 11.7% compared with
2008 to BHD11.48m.

This cut its market share from 26%
to 20%. ZFS, which has had a presence in Bahrain for some two
decades, was this year also granted a general insurance
licence.

Making significant inroads into
Bahrain’s life market in 2009 was newcomer, Legal & General
Gulf BSC, a JV equally owned by UK insurer Legal & General and
Bahrain’s largest commercial bank, Ahli United Bank (AUB). AUB was
established in 2008 with an initial paid-up capital of $25m.

The JV was granted a license and
commercial registration by the Central Bank of Bahrain in 2009 and
got off to a flying start, recording gross premium income of
BHD5.39m to give it a market share of 9.4%.

This strong start was even more
impressive given that AUB reported that Legal & General Gulf
only launched products “towards the end of 2009.” According to the
bank other regional markets are targeted in a phased manner,
beginning with the countries in which AUB is active, especially
Qatar and Kuwait.

In fourth position in 2009 was
Bahrain National Life Assurance Company (BNLA), a wholly-owned
subsidiary of Bahrain National Holding Company (BNH) launched in
July 2000.

BNLA recorded gross premium income
of BHD1.75m in 2009 to give it a market share of 3%. BNH is also
active in Bahrain’s general insurance market where it held a 19.4%
market share in 2009.

Takaful gaining
momentum

Another key objective of Bahrain’s
government is to grow the kingdom’s status as a centre of
takaful (Islamic Sharia law-compliant insurance), building
on the kingdom’s already powerful position in Islamic banking of
which it became a pioneer in the mid-1970s.

According to the BEDB Bahrain has,
“by far the largest number of Islamic banking entities in the
world”.

Total Islamic banking assets in
Bahrain stood at $24.6bn at the end of 2008, according to the
BEDB.

Though far less significant than
Islamic banking, Bahrain’s takaful market is growing with
gross family premium income recorded by the three companies active
in the market in 2009 increasing by 38% from BNH3.97m to BNH5.48m.
This increased the share of family takaful premium income
from 8% of the total life insurance market in 2008 to 9.6% in 2009.
General takaful gross premium income increased by 19.4%,
from BHD22.78m in 2008 to BHD27.19m in 2009.

Leading the family takaful
field in 2009 was Solidarity Family Takaful (SFT), a wholly-owned
subsidiary of Solidarity Group Holding, a Bahrain company focused
on takaful insurance.

Solidarity Group, a unit of Bahrain
bank Ithmaar Bank, also owns Solidarity General Takaful in Bahrain
and also owns Takaful Islamic Insurance Company in Saudi Arabia and
Solidarity Takaful in Luxemburg. In addition, Solidarity Group has
strategic stakes in takaful companies in Oman, Jordan,
Malaysia and Saudi Arabia.

In 2009, SFT reported gross premium
income of BHD3.28m, up 73% compared with 2008, while its share of
the Takaful segment increased from 48% to 60%. In the general,
Solidarity General Takaful recorded gross premium income of
BHD15.58m in 2009 to give it a 47.7% share of the segment which
contained a total of six players.

SFT’s closest rival in 2008 and
2009 was Takaful International Company (TIC), which recorded a 16%
rise in gross premium income in 2009 to BHD1.64m, giving it a 30%
share of the takaful segment.

Signalling that Bahrain’s family
takaful market is set for significant growth, competition
is on the rise with two new foreign entrants during the past two
years.

First to make the move was European
insurer Allianz which officially launched its Bahrain family
takaful operation in March 2009.

At that time Allianz commented:
“Due to the sophistication of the regulatory framework that take
into consideration the unique characteristics of takaful
industry and facility provided by government to facilitate foreign
investment, Allianz has chosen Bahrain as its global hub for
takaful.

“Thanks to the friendly economic
policies and continuing reforms process, Bahrain commands a special
place in the GCC [Gulf Cooperation Council] bloc as the financial
capital of the region.”

The GCC is a political and economic
union involving the six Arab states in the Persian Gulf region:
Bahrain, Kuwait, Saudi Arabia, Qatar, United Arab Emirates and
Oman.

In its first official year of
operation Allianz Takaful got off to a slow start, producing gross
premium income of BHD562,000 and giving it a 10% share of the
family takaful segment. Notably, the Central Bank of
Bahrain reported that Allianz had achieved higher gross premium
income of BHD658,000 in 2008.

Clearly aiming to bolster its
position in the market, Allianz Takaful announced in March 2010
that it had forged a distribution alliance with UK bank Standard
& Chartered’s Bahrain unit, the oldest bank in the kingdom with
a history this year dating back 90 years.

The distribution alliance is
focused on serving Bahrain’s significant small and medium
enterprise sector with products such as key man insurance, group
health insurance and group savings and pension schemes.

Hard on Allianz’s heels, UK insurer
Legal & General Gulf received a family takaful licence
at the same time it received its conventional life licence in 2009.
The takaful unit was launched in January 2010 with all its
products unit-linked plans with the exception of one pure life
policy.

Medical insurance makes big
strides

Undoubtedly making the most
impressive progress in Bahrain has been medical, which off a
similarly low base as life insurance in 2005 of BHD5.62m increased
to BHD27.02m in 2009, a CAGR of 48%, according to the CBB.

Sealing medical insurance’s growth
leadership since 2005, gross premium income in 2009 increased by
27% compared with 2008, making it the fastest-growing insurance
sector that year. Between 2005 and 2009 gross medical claims
increased from BHD3.46m to BHD17.09m, a CAGR of 49%.

Another potentially major boost for
medical insurance in Bahrain would be compulsory medical insurance
for all expatriates in the country, a move first mooted in June
2006. This would follow Saudi Arabia’s introduction of compulsory
medical insurance for expatriates and similar moves planned in
Kuwait, Oman and Qatar.

While no precise indication of when
Bahrain will introduce compulsory medical insurance for all
expatriates, Bahrainian media reports indicate that a legislative
move in this direction could be made in 2010. The CBB estimates
that with compulsory medical insurance for expatriates in place,
total medical health insurance premium income could reach BHD90m in
2015.

Medical insurance is a
hotly-contested market with 10 conventional and five
takaful insurers serving Bahrain. Notably, the largest
takaful medical insurer Takaful International boasted
15.4% share of the total market in 2009, just short of conventional
insurer Al Ahlia Insurance (AAL). Formed in 1976 AAL is a
Bahrainian general insurer.

In the conventional market Alico
held a 15.2% market share in 2009, followed by Bahrain National
Life (11.3%) and Bahrain Kuwait Insurance Company (10.4%), a
Bahrain general insurer.

Bright future

Given the Bahrainian government’s
strong backing and a still low penetration growth the kingdom’s
insurance appears set for continued robust growth.

According to Swiss Re, life
insurance penetration in Bahrain stood at a mere 0.6% of GDP in
2009 and general insurance, including medical insurance, at
1.6%.

Underscoring Bahrain’s aim to
become a key regional insurance hub, in the World Economic
Forum’s Global Competitiveness Report 2009, Bahrain ranked
38th overall and fifth in terms of macroeconomic stability.

Bahrain has also come through the global economic crisis well
with the EDB forecasting that the kingdom’s real GDP will increase
by 4% in 2010, rising to 7.2% in 2015.

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