UAE insurance sector to see double-digit growth till 2012

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Insurance business in the UAE is expected to grow sharply in the next four years, according to a report. Non-life insurance business is projected to grow 20 per cent every year to Dh12.28 billion by 2012, from Dh8.5bn in 2007, while life business is expected to grow at 16 per cent a year to Dh2.11bn.

The country has a moderately attractive market for foreign insurers in the Middle East and Africa, says the report by Business Monitor International (BMI), which tracks country risks and specialises in industry analysis.

Even as the industry becomes more open to new competitors, the UAE's attractiveness is held back by many factors despite its many strengths, says the BMI report, adding that penetration levels remain low.

The report states that although the UAE has a good economic outlook, inflation remains a risk. The country's insurance business environment rating has been pegged at 54.7 by BMI, which indicates a mid-to-high ranking in terms of attractiveness to foreign firms relative to countries surveyed by BMI in Middle East and Africa.

The report said that several factors were affecting the rating, including under-development of its financial infrastructure for life insurance business, the legal framework and the bureaucracy.

The key driver of growth in the life segment is expected to be a moderate rise in life premium density from $100 (Dh367) per capita in 2007 to $150 in 2012, as the UAE witnesses a major population growth.

The report states that in the next few years, non-life premiums are also set to grow by 20 per cent annually. The key drivers for the non-life segment from 2007 to 2012 will be a rise in nominal GDP from $186bn to $303bn and an expected increase in non-life penetration, the report says.

Currently, the UAE has a very small life segment and a larger, yet still small, non-life segment. This, the report said, is despite many strengths in the insurance sector such as low long-term financial risk, high GDP per capita, good odds of policy continuation and a reasonable taxation system.

However, in both life and non-life segments, the level of openness to foreign companies is not high.

There are seven foreign operators that offer non-life segment products in the UAE and there are three cross-border firms in operation, of which two - AXAAXA and AIGAIG - also offer non-life policies. In the case of the life segment, three cross-border firms are in operation.

Despite high GDP levels, penetration of life insurance in the UAE is low at about 0.3 per cent, but is similar to several countries in the Middle East. The BMI report says that by 2012, life penetration is likely to rise to 0.4 per cent. Non-life penetration in the UAE more than four times at 1.3 per cent. The market leader in the wider region is South Africa's with three per cent penetration.

BMI says the market shares of insurance companies in the country are difficult to identify as most local firms that publish figures do not separate their life from non-life business. Of the 23 local members of the Emirates Insurance AssociationEmirates Insurance Association, only nine companies quantified their premiums, accounting for about 60 per cent of total premiums.

Oman InsuranceOman Insurance and Abu Dhabi National InsuranceAbu Dhabi National Insurance each claimed to have a market share of 13-14 per cent last year. Three companies, Al Ain AhliaAl Ain Ahlia, Arab OrientArab Orient and Al Buhaira National InsuranceAl Buhaira National Insurance each claimed six to seven per cent. Dubai InsuranceDubai Insurance, Al Wathba National InsuranceAl Wathba National Insurance, Emirates InsuranceEmirates Insurance and Al Sagar National Insurance appeared to have about three per cent each, while Abu Dhabi National Takaful CompanyAbu Dhabi National Takaful Company had one per cent.

More cross-border firms are to come to the UAE, offering life insurance as the market is not overcrowded. And low penetrations mean there is still room for a lot of entrants, says the report.

By Rana Jimaa

© Emirates Business 24/7 2008