GCC Insurance Industry Poised for Strong Growth

GCC Insurance Industry
August 21, 2011
Alpen Capital was awarded the Best Research House at the Banker Middle East Industry Awards 2011
GCC Insurance Sector | August 2011
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TABLE OF CONTENTS
1. 2. 3. GLOSSARY ............................................................................................. 4 AT A GLANCE ......................................................................................... 6 EXECUTIVE SUMMARY............................................................................ 7
3.1. Scope of Report ............................................................................................. 7 3.2. Investment Positives ...................................................................................... 7 3.3. Investment Negatives ..................................................................................... 8
4.
GLOBAL INSURANCE INDUSTRY ............................................................ 9

4.1. Market Size ................................................................................................... 9 4.2. Trends......................................................................................................... 11
5.
GCC INSURANCE MARKET .................................................................... 14

5.1. Overview ..................................................................................................... 14 5.2. Market Size .................................................................................................. 15 5.3. Market Structure ........................................................................................... 16 5.4. Reinsurance ................................................................................................. 19
6.
GCC GROWTH FORECAST ..................................................................... 20

6.1. Methodology ................................................................................................ 20 6.2. Forecasts ..................................................................................................... 23
7.
KEY GROWTH DRIVERS ........................................................................ 27

7.1. Favorable Demographics ................................................................................ 27 7.2. High and Rising GDP per Capita....................................................................... 28 7.3. Economic Diversification................................................................................. 28 7.4. Complusory Insurance ................................................................................... 28 7.5. High Savings Rate ......................................................................................... 29 7.6. Sharia Compliant Products ............................................................................. 30
8.
TRENDS ............................................................................................... 31
8.1. New Distribution Channels .............................................................................. 31 8.2. Changing Investment Mix ............................................................................... 31 8.3. Increased Use of Captives .............................................................................. 32 8.4. Mandatory Health Insurance ........................................................................... 33 8.5. Industry in Consolidation Mode ....................................................................... 33
9.
CHALLENGES........................................................................................ 34
9.1. Fragmented Supply Base................................................................................ 34 9.2. Challenging Investment Markets...................................................................... 34
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9.3. Shortage of Skilled Labor ............................................................................... 34 9.4. Lack of Awareness ........................................................................................ 34 9.5. Non-Standardized Regulations ........................................................................ 35 9.6. Solvency II Capital Requirements .................................................................... 36
10. 11. 12. 13.
CORPORATE GOVERNANCE .................................................................. 37 CAPITAL MARKET ACTIVITY IN THE SECTOR ....................................... 38 PORTERS FIVE FORCE ANALYSIS ........................................................ 39 FINANCIAL PERFORMANCE & VALUATION ........................................... 41
13.1. Financial Performance .................................................................................. 41 13.2. Comparative Financial Performance ................................................................ 47 13.3. Valuation Analysis ....................................................................................... 48 13.4. Valuation Comparison .................................................................................. 51 13.5. Stock Liquidity ............................................................................................ 51
TAKAFUL .......................................................................................................... 52
World Market Size ............................................................................................... 53 GCC Opportunity ................................................................................................. 53 Constraints of Players/ Business Risks .................................................................... 54 Performance Analysis ........................................................................................... 54 Conventional vs. Takaful Snapshot ...................................................................... 56
COUNTRY PROFILES ......................................................................................... 58 COMPANY PROFILES ........................................................................................ 71
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1. Glossary
Life Insurance: provides the beneficiary a stated benefit in the event of the holders death, subject to certain conditions Non - Life Insurance: provides the holders monetary coverage in the event of a financial loss. It provides coverage for property, health, accident, etc. Takaful: is a type of Islamic insurance in which the members pool their money and guarantee each other against loss or damage. Insurance Density: is the premium amount per capita and is derived by dividing gross written premiums by the population. Insurance Penetration: is the ratio of the premium and GDP. It is derived by dividing gross written premium by GDP. Captive Insurance companies: are formed to insure the risk arising from the business of the parent, or the group, when the parent is unable to find outside insurance firms to insure its risk. Captive insurance companies do not cater to the general public. Cession Rate: is defined as the proportion of premium ceded (to reinsurers) of the total gross premium. It also represents the amount of reinsurance in the company Net Underwriting Profit: consists of earned premium minus losses, if any, and administrative expenses. Expense Ratio: denotes the operating expenses as a % of the net premium earned. Claims Ratio: is the total claims owed by the company as a % of the net premium earned. Combined Ratio: It is the most popular measure of profitability used by insurance companies. We have calculated Combined Ratio by dividing the expenses of the companies (operating and underwriting, including net claims and commission paid) by the net earned premiums. A ratio of more than 100% implies that the company is paying out more in claims & expenses than it is receiving in premiums. Claims to Reserves & Net Premium Ratio: is another measure of solvency of a company. This ratio is calculated by dividing the Total Claims by the combination of the Net Premiums Written and the Total Reserves of a company. This ratio shows the financial capability of a company to meet the total claims it owes to its policyholders.
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The GCC insurance industry is going through a challenging phase. There are a large number of players in the
market and innovative capability, product diversity including ability to tailor-make products and client focused claims management will be the distinguishing success factors
Abdul Muttalib M. Al Jaidi Chief Executive Officer Oman Insurance
To fully capitalize on the growth opportunities in the sector, the GCC insurance companies need to enhance their risk management capabilities and also better manage their investment book.
Sandeep Nanda Executive Vice President, Investments and Treasury Qatar Insurance Company
In todays volatile environment, Investment Management is of critical importance to insurance companies

worldwide and the situation is no different in the GCC. In doing so, they need to select a partner that focuses not only on growing their money but can also keep it safe and secure. On another note, anticipated consolidation of the insurance sector could trigger some interesting M&A opportunities in the region
Rohit Walia Executive Vice Chairman & CEO Alpen Capital and Bank Sarasin-Alpen
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2. At a Glance
Insurance premium to grow at a CAGR of 20% over the next four years to reach USD 34 billion. Alpen Capital estimates premiums from the Insurance industry in the GCC to be approximately USD 16 billion in 2011 and rise to USD 34 billion in 2015 registering a CAGR of 20%. UAE and Saudi Arabia are the two biggest markets in the region with 73% (2015) combined share while Qatar is expected to register the fastest growth at a CAGR of 30% from 2011-15
$33,633
$23,399 $16,484
2011
2013
2015
In Million
Non-life segments will continue to comprise approximately 85% of total premiums in 2015. Most GCC countries are experiencing rebounding economic activity. The region continues to diversify away from hydrocarbon dependence and have invested across varied sectors. The diversification has given way for robust growth in non-life insurance segment. With substantial projects underway in multiple sectors, the demand for financial services, especially insurance, is expected to rise steadily in the coming years. Non-life premium penetration is expected to increase from 1.03% in 2011 to 1.63% in 2015
GDP, USD Bn
1,800 1,600 1,402
GDP
Non-Life
Life
1,485
1,539
1,630
1.47%
Penetration % 1,741 2.50% 1.63%
1,400
1,200 1.15% 1,000 1.03% 1.31%
2.00%
1.50%
800
600 400 200 2011 2012 2013 2014 2015
1.00%
0.15%
0.18%
0.21%
0.25%
0.30%
0.50%
0.00%
Increasing GDP remains the primary growth driver. While non-life insurance is expected to comprise a significant portion of the total premiums, life insurance premiums will grow at a higher CAGR, albeit from a smaller base. Non-life segment is expected to grow at a CAGR of 18.6% from 2011-15 while life premiums will grow at a CAGR of 25.1% during the same period. Life insurance will gain momentum with rising population and increasing per capita income. Our forecasts show that Life insurance density will grow at a CAGR of 22.2% from 2011 to 2015 increasing to USD 113.5 from USD 50.8 in 2011
GDP per Capita USD 39,000 38,000 37,000 36,000 35,000
GDP per Capita
Non-Life
Life 623.4
Density USD 800.0 700.0 600.0 500.0 400.0
535.3
462.0 401.2 345.9
38,133
34,000 36,529 33,746 50.8 2011 2012 300.0
33,000
32,000 31,000
34,896 61.3
35,321
74.8
91.7
113.5
200.0
100.0 0.0
2013
2014
2015
Takaful Premium, USD Million
Increasing acceptance of Takaful will provide a strong growth impetus to the Insurance Sector. Takaful, being Sharia-compliant, has significant appeal amongst the local population in the region. Takaful insurance increased by 31% in 2010 on a year-over-year basis. E&Y estimates GCC Takaful market to continue to grow at 31% reaching USD 8.3 billion in 2011
9,000 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1,000 -
31%
6,380
8,330
CAGR 32% 3,742

2,846
4,886
2,088
2006
2007
2008
2009
2010
2011E
Source: E&Y World Takaful Report, 2011
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3. Executive Summary
Insurance industry in the GCC has not been immune to the financial crisis. The accelerated pace prior to 2007 hit the speed breaker as oil prices troughed on receding global activity and tightening credit markets. While the sector has been resilient, and has registered a modest growth when most other markets were in the red, the pace of growth has shifted to a lower gear. As the region recovers from the downturn, diversified economic growth of the GCC countries, supportive government regulations and favorable demographics are creating an environment that is conducive for growth. We expect the sector to see higher levels of growth during the period 2011 - 2015. The GCC insurance industry is relatively small with significantly low levels of insurance penetration and density. While this points to the size of the growth opportunity, GCC insurers continue to face a number of challenges. The region has very high cession rates showing a high dependence on reinsurers. At the same time, the investment portfolios of the insurance companies are heavily tilted towards equities and real estate, making them vulnerable in a volatile market.
3.1. Scope of Report

This report is an update to our 2009 study and objectively assesses the current market scenario through insurance density and penetration in order to understand demand-supply dynamics, growth drivers and future outlook. Challenges and threats of the industry are also discussed at length. We have included a separate section on Takaful (Islamic insurance) market which has great potential. The report covers individual countries in the GCC separately to gauge specific aspects that might impact the insurance market there and also profiles major players from the region.
Economic growth the single most important driver of insurance business in GCC
3.2. Investment Positives

The sector is expected to grow manifold due to economic growth, right mix of population and low penetration. Listed below are some of the investment merits for the sector:
Macro Economic factors

Economic Growth: Insurance sector has a strong positive correlation with GDP. As per IMF, the nominal GDP growth for the region stood at 17.8%1 in 2010 up from a negative 18.8% in 2009. GDP is expected to grow at a CAGR of 5.6% during our forecast period (2011-15) Demographics: The region has very young populace with approximately 70% of the population in the 15-64 years bracket. According to IMF forecasts, the total population of the GCC will grow by an average of 2.4% per year in the next 5 years taking it to 45.6 million in 2015 Government Spending: Governments across the GCC have been proactive in supporting economic growth primarily through investments in infrastructure sector. According to National Bank of Kuwait (NBK), GCC government spending 2 could rise approximately 22% in 2011, underpinned by ambitious medium-term development programs in Saudi Arabia, Kuwait, and Qatar Diversification of Economy: Governments in the region, in an attempt to reduce dependence on oil revenues, invested across varied sectors including financial
Approximately 70% of the population falls in the 15-64 years bracket which represents the working age population
IMF GCC Economic Outlook, April 2011
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services, education, tourism, and property. The diversification will encourage the adoption and distribution of financial services, including insurance
Industry specific factors

Growth of Takaful: Greater availability of Takaful and Islamic finance products is expected to provide a strong impetus for growth to the insurance industry. Takaful premiums have grown at a rapid CAGR of 45% during the 2004 09 period Wider Distribution: New distribution models including business-to-business, enterprise models such as worksite marketing, and further tie-ups with banks (bancassurance) will drive growth in the insurance market Reforms and Structural Changes: A significant portion of the recent growth in premiums can be attributed to the introduction of mandatory cover in both non-life and life segments. Governments across the region are re-aligning local regulations with global standards and best practices to foster confidence Consolidation: The local markets are saturated with numerous players and we expect consolidation in the industry for efficiency gains and economies of scale. Consolidation will also reduce predatory pricing and increase profitability and will provide opportunities for other players to enter the market through acquisitions Industry Valuations: The industry is attractively valued at current rates with GCC companies trading at an average PE ratio of 16.1x versus the world average of 11.6x given its rapid growth rate (see section 13)
Significant portion of the recent growth in premiums can be attributed to the introduction of mandatory cover in both non-life and life segments
3.3. Investment Negatives

Fragmentation: The insurance industry in the GCC is highly competitive with predatory pricing in the region negatively impacting profitability and growth Low Efficiency: The sector is developing and requires significant investment in technology and manpower to realize its true potential Lack of Awareness: A significant portion of the population lacks understanding of insurance products and its benefits. Lack of compliance of conventional insurance products with Sharia is also a reason for slow adoption in the region Lack of Skills: Shortage of skilled manpower and high employee turnover continues to plague the industry. With improvement in demand, attracting and retaining skilled manpower will become increasingly important High Cession Rates: The region has a significant number of small insurers that lack sufficient capitalization and skills to underwrite or invest funds. The region therefore is highly dependent on reinsurers and has significant cession rates Decline in Oil Prices: While there is an effort to diversify, the regional economy is dominated by the oil industry. A sharp decline in oil prices could strain resources and government spending putting a break on the developments that are currently underway Overall, the outlook for the sector is positive. Low penetration and density reflect tremendous growth opportunity for insurance companies. There are a number of positive drivers for growth and GCC insurers need to gear themselves by enhancing their investment management and underwriting skills to enhance their profitability and fully capitalize on this growth opportunity.
The industry has high dependence on reinsurers leading to low profitability
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4. Global Insurance Industry

4.1. Market Size
The global insurance market for 2010 was worth USD 4,339 billion, registering a CAGR of 6.7% from 2001-10. Insurance premiums have strong positive correlation with GDP growth and the emerging and developing markets have been growing faster than the advanced economies. During 2001-10, advanced economies registered a GDP growth of 5.6% (CAGR) and emerging and developing economies grew at higher a CAGR of 13.9%4 (See Exhibit 1). In context, the insurance markets in industrialized economies, which are in the mature phase, grew by 3.4% in 2010 on y-o-y basis compared to an impressive 20.2% in the developed economies for the same period. Exhibit 1: World Premium & Growth, 2001-2010
Total Premium USD
Gross Written Premium USD Bn
3
The global insurance market for 2010 is estimated at USD 4,339 billion
Advanced economies
Emerging & developing economies
5,000.0
4,500.0
25% 20% 15% 10% 5% 0% -5% -10%

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
GDP Growth (%)
4,000.0
3,500.0
3,000.0
2,500.0
2,000.0
1,500.0
1,000.0
500.0
0.0
Source: Swiss Re, IMF, Alpen Capital
Life Insurance: Global life insurance premiums amounted to USD 2,520 billion in 2010 5. This segment has rapidly recovered from the disappointing performance in 2009, recording a growth of 6% in 2010, compared to a negative 3% in 2009. Latin America & Caribbean region led the way with an annual growth rate of 29% followed by South-East Asia and Oceania that grew 27% and 24% respectively. In 2010, industrialized countries contributed 85% to the world premium while share of emerging markets was 15%. NonLife insurance: Despite a macroeconomic environment characterized by marginally slower economic growth and rising inflation, the world non-life insurance segment increased 4% on an annual basis in 2010 versus a 2% decline in 2009 to reach USD 1,819 billion. The non-life segment grew at a CAGR of 6.9% from 2003 to 2008. The non-life segment is dominant in the developing economies including Central/Eastern Europe, Middle East and North Africa, Latin America, and other Developing Asian Economies. Industrialized countries contributed 85% to the world non-life premium while share of emerging markets was at a much lower 15% in 2010. The emerging markets have seen a steady growth in insurance premium over the years as a result of higher GDP growth. Of the emerging markets, South & East Asia comprised the largest percent of the insurance
3 4
Swiss Re
IMF Swiss Re World insurance in 2011
5 &11
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market while contribution from the Middle East & Central Asia was the lowest (See exhibit 2 & 3). Exhibit 2: Emerging vs. Industrialized Markets, 2010
Industrialized Countries 100% 90% 14% 34% 16% Emerging Markets
Exhibit 3: Share of Emerging Markets, 2010

100% 90% 80% 5% 18% 6% 10% 22% Central & Eastern Europe 65% 43% 34% South & East Asia Life Premium, (USD 368 Bn) Latin America & Caribbean 2% 10% 8% 9% Middle East & Central Asia Africa
7%
24%
13% 5% 15%
80% 70% 60% 50% 40%

30% 20% 10% 0% Population, (6.95 Bn) 15% 85%
70%
60% 50%
16%
26%
61%
86% 66%
84%
40% 30%
20%
10% 0%
GDP, Non Life Premium, (USD 64,390 Bn) (USD 2,520 Bn)
Life Premium, (USD 1,819 Bn)
Population, (5.8 Bn)
GDP, (USD 21,250 Bn)
Non Life Premium, (USD 284 Bn)
Source: Swiss Re, Alpen Capital
The total insurance premium, including life and non-life segments, as a percent of the global GDP stood at 6.9% in 2010 while the premium per capita of the world insurance market was USD 627.3. Total insurance penetration in the developed countries was high ranging from 7.2% to 13.8%. On the other hand, the emerging and developing markets were significantly lower, with penetration between 0.5% and 6.0% (Exhibit 4). Taiwan was at the top of the list with the highest insurance penetration of 17.7% while Switzerland reported the highest insurance density of USD 6,633.7. The global life insurance penetration was 4.0% while the density stood at USD 364.3 in 2010. On a regional basis, Japan and the newly industrialized Asian countries reported the highest life insurance penetration of 8.2% with an insurance density of USD 2,885.5. The global Non-life insurance penetration was 2.9% and density was USD 263.0 in 2010. The highest non-life insurance penetration and insurance density was witnessed in the North American region at 4.5% and USD 2,103.5, respectively6 . Exhibit 4: Insurance Penetration in Global Regions, 2010
Source: World Bank. Mena Insurance Review, Alpen Capital
Swiss Re World insurance in 2011
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4.2. Trends
Ageing population in advanced economies will be a significant growth driver In 2009, the global old age population- defined as persons over 60 years of age- was more than 700 million, and this number is expected to rise to 2 billion7 by 2050. While developed economies have a higher percent of the aged population, China and India are expected to have the highest numbers based on sheer size of their population. Ageing population can be a significant growth driver for the insurance sector pushing demand for life products such as retirement and health provisions The ageing population can be a significant growth driver for the insurance sector pushing demand for life products such as retirement and health provisions. Additionally, as more and more people move into the retirement bracket straining government resources in advanced economies, the shift to private pension schemes will provide a strong impetus for insurance industry growth in those countries. Young demography of the developing world will push demand for non-life insurance In the short to medium term, the young and educated demographic disposition in emerging and developing economies coupled with strong GDP growth will push demand for non-life products. Growing affluence and greater demand for financial and other luxury products will lead to demand for insurance cover for motor, property and wealth. In the long term, demand for life products will gain momentum as societies begin to age in these countries. Weaker insurance portfolios due to the financial crisis The debt crisis and ensuing credit freeze has had a significant impact on the balance sheet of the global insurance companies, particularly those investing in the European countries. Insurance companies (globally) are one of the three biggest classes of investor of the European sovereign debt and hold approximately 30%8 of the total outstanding debt. The significant exposure to this class poses a great threat to their sustainability as most of the debt instruments mature in the next three years. In the event of a failure to refinance, the insurers can lose a substantial portion of their investments. The crisis has left portfolios vulnerable to these risks which may cause a sizable impairment. Debt crisis is expected to have significant impact on the balance sheet of the global insurance companies The recent downgrade of the US sovereign bonds added to the woes of insurers. Many emerging and developed economies are heavily invested in US sovereign debt. While, despite the downgrade, the ratings remain investment grade there is general panic in the markets and has led to poor equity and currency market performance. The recent development can have manifold impact on insurance companies leading to instable and weak portfolios. Recovery to continue in developed and emerging markets The global economy has been on a recovery path since early 2010. The growth momentum achieved in 2010 is expected to continue in developed markets on the back of continued government support. While there remain concerns such as US debt downgrade, economic slump in the Euro zone, the broader market theme is positive with emerging and developing economies leading the change. These markets are expected to continue to grow at a robust pace, driven by population, consumption and favorable market conditions. In 2011, GDP in advanced economies is projected to grow by 6.8% while emerging and developing economies are expected to grow at a much impressive 13.6% on a year on year basis. Monetary and fiscal tightening in emerging economies will help curb inflation.
7 8
UN: World Population Ageing, 2009 Fitch Ratings: Credit Market Research link
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There is growing interest in emerging and developing economies due to their strong growth rate compared to the developed nations. International insurers, with stunted growth in their home turf are looking for newer markets. Also, Emerging economies represent a significant portion of the world population and an increasing portion of the world GDP, however, the emerging economies account for only 15.0%9 of the world premiums. Among the emerging countries, China is the largest contributor and is also the 6 largest contributor globally to the world insurance market. The share of emerging countries is expected to increase strongly from the current 15% over the next 10 years. During this period, China is expected to be the second largest insurance market globally. There is growing interest in emerging and developing economies due to their strong growth rate compared to developed nations Equity markets have rebounded and expected to scale upwards Equity market indices across regions have bounced back from the lows of 2009 (See Exhibit 5) and are scaling upwards based on renewed investor confidence and increasing business activity. While the trend is upwards, the markets will remain vulnerable to events like oil price movement, credit shocks and fears of double dip in the advanced economies, especially on the back of the recent downgrade in the US sovereign ratings. Exhibit 5: Comparative Equity Markets: BRICs and GCC, 2008- June 2011
80.00% 60.00%
th
40.00%
20.00% 0.00% -20.00% -40.00% -60.00% -80.00% Jan-08 May-08 Sep-08 Jan-09 May-09 Sep-09 Jan-10 May-10 Sep-10 Jan-11 May-11
India
China Brazil Russia KSA Qatar UAE Kuwait Oman Bahrain
Source: Capital IQ, Alpen Capital

Indices Included, Bahrain All Share Index, MSCI Kuwait, UAE General Index, MSCI Oman, QE Index , Saudi Arabia All Shares Index , Shanghai Stock Exchange Composite , Brazil IBOVESPA Index , RTS Index, S&P/CNX NIFTY Index
Oil Price Scenario The performance of the insurance sector largely depends on the GDP growth and continued diversification of the economy in the region. While most countries in the GCC have initiated efforts to transform their economy from single commodity based to a more diversified one, they continue to be significantly dependent on oil revenues. Robust growth in developing markets should push the demand for oil offsetting the decline in developed economies. Demand for oil will fetch higher prices which will facilitate free flow of funds into the region channeled into multiple sectors, especially the infrastructure sector. Oil prices are also sensitive to turmoil and economic events such as US debt downgrade or ongoing crisis in the Euro region will push the prices for oil higher. The insurance sector
Demand from emerging economies like India and China have resulted in surging oil prices which are expected to sustain in the near future
Swiss Re
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is expected to do well in the coming days as the growing business would also boost the general insurance and the rise in disposable income would boost the life insurance segment. Natural Calamity Losses The insurance industry has been severely impacted by natural calamity losses in 2010 and 2011. According to reports, the 2011 earthquake in Japan and New Zealand, flooding in Australia and the unrest in the Middle East resulted in USD 60 billion of direct insured losses to insurers. Further, tornadoes and flooding in the United States is expected to cost upwards of USD 32 billion in insured and economic losses. The loss from natural calamities is expected to be one of the highest in 2011 and may weigh on insurers balance sheets. Impact of Solvency II The implementation of Solvency II is expected to have far reaching impact on the insurance industry worldwide. Some of the prospective effects on the Global insurance industry are: Solvency II is expected to stimulate the growth of traditional insurance business models It is expected to stimulate the growth of traditional insurance business models In the capital markets, balance sheet volatility is expected to increase cost of capital in the short term Reinsurance business would see growth in demand, especially from mutual and undiversified insurers There will be an increase in M&A activity driven by a number of factors including the need to diversify product portfolio from life insurance products, back book capital release and weakened competitors
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5. GCC Insurance Market

5.1. Overview
The GCC insurance industry is in a state of transition. The markets have gained critical volume and are evolving from a protected industry to a globally competitive sector. As economies in the region mature and diversification policies of the governments bear fruit, this sector is expected to expand rapidly. However, insurers in the region need to gear up significantly to capitalize on the opportunity and remain competitive in the evolving landscape. GCC markets are characterized by a small population (except KSA) that is young and include a high proportion of expatriates. These markets also have high per capita income and strong government spending. Insurance sector in most of these countries is small and relatively underdeveloped. Hence, insurance penetration and density is much lower than global peers. The growth potential of these markets has attracted many domestic and foreign players which in turn have led to over capacity in some countries. Consequently, there is considerable fragmentation and poor retention levels resulting in lower profitability. The outlook for the region remains buoyant on expected higher oil prices and continued expansionary fiscal and monetary policies. The confluence of economic and structural factors has created an environment conducive for steady growth of the insurance sector. The region has one of the lowest penetration and density in the world Insurance penetration in the region is much lower than global and emerging market average. While the penetration rate in the GCC region increased from 0.6% in 2000 to 1.3% in 2010, it remains significantly lower than the global average of 6.9%, Emerging Markets average of 3.0% and OECD average of 8.1% in 201010. Given the high correlation of penetration levels with GDP, the low regional penetration and density underscore the significant growth potential of the rapidly growing economies in GCC. Exhibit 6 provides a comparative review of the penetration levels in GCC countries against various other countries. Exhibit 6: GCC - Comparative Penetration, 2010
16%
14%
GCC Countries 20,466
The confluence of macroeconomic factors and regulatory reforms has created conducive environment for insurance sector to grow steadily
There are powerful industryspecific trends which suggest a bullish outlook for the regions insurance markets
UK
Other 1,265 Countries
Insurance Penetration
12% 10% Singapore
8%
6% 4% 2% 0% -10,000 0 10,000 India China Jordan Malaysia
US
High Penetration
New Zeland
Low Penetration
Lebnon Bahrain Oman
Eqypt KSA
Qatar Kuwait
UAE 60,000 70,000 80,000
20,000 30,000 40,000 50,000 GDP per Capita (USD)
Source: Swiss Re, IMF, Alpen Capital; GCC countries are represented in dark blue
10
Swiss Re World Insurance Report 2011
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UAE is ahead of other GCC countries with a density of USD 1,360
GCC region has very high per capita income as a result of strong economic growth and relatively small population in most countries. Despite the small population base, the insurance density level in the region is much lower than global peers in both emerging and advanced economies. Exhibit 7 provides a comparative review of the density levels in GCC countries against various other countries. The insurance density in the GCC region was USD 336.1 in 2010. UAE leads the region with a density of USD 1,162.2. Exhibit 7: GCC - Comparative Density, 2010
5,100 4,500 3,900
Insurance Density
UK GCC Countries 20,466 Other Countries 2,789 Singapore US Australia High Density
3,300 2,700 2,100 1,500 900 300 -300 -10,000
Low Density
UAE Malaysia Bahrain Lebanon China Oman Jordan KSA India Egypt 0 10,000 20,000 30,000 Kuwait
Qatar
40,000
50,000
60,000
70,000
80,000
GDP per Capita (USD)
Source: Swiss Re, IMF, Alpen Capital; GCC countries are represented in dark blue
The potential of the insurance market across the GCC, and Qatar in particular, is evident when insurance penetration levels are compared against countries with similar GDP per capita. Low insurance penetration and density suggests major growth potential for the industry as the market remains largely untapped.
5.2. Market Size

The total gross written premiums in GCC amounted to USD 13.6 billion in 2010, an increase of approximately 14.3% on a yearly basis (See Exhibit 8). Non-life insurance and life insurance have grown at CAGR of 21.3% and 22.9% respectively during 2006-10. Non-life insurance comprises approximately 87% of the total premiums in 2010. UAE is the largest insurance market followed by Saudi Arabia contributing 43% and 34% respectively to the total premium in 2010 (See Exhibit 9). Exhibit 8: GCC Premium & Premium Growth (2006-2010)
Non - Life 16,000 14,000
Premium (USD Mn)
Exhibit 9: GCC Premium Contribution by Country, 2010

Oman 6%
Life
Growth 35.0% 1,787
32.8%
26.5% 22.1% 1,203 1,314
30.0% 25.0% 20.0%

Growth (%)
12,000 10,000
1,595
Kuwait 5% Baharain 5%
Qatar 7% Saudi Arabia 34%
8,000
783 6,000 4,000 2,000 0 2006 2007 2008 2009 5,470
13.6%
14.3% 11,845
15.0% 10.0% 5.0% 0.0%
9,186 7,099
10,329
UAE 43%
2010
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5.3. Market Structure

The GCC insurance market is fragmented with large number of domestic and foreign players. The region is seen as attractive to international companies and there have been many entries in the recent years. Non-life continues to dominate the markets with approximately 85-90% of the premiums derived from this segment alone. In terms of distribution, agents and brokers are the primary channels for sale while bancassurance continues to grow rapidly in the region. Exhibit 10 provides a quick glance at the current industry structure. Exhibit 10: Industry Structure, 2010 Number of Insurers Country Total Non Life Life Composite % of market held by top three insurers Top three companies (by market share)
Bahrain Kuwait Insurance Co. Bahrain 36 29 3 4 29 Bahrain National Al-Ahlia Insurance-Bahrain Gulf Insurance Co. Kuwait 29 14 2 13 N.A. Kuwait Insurance Co. Al-Ahleia Insurance Co. Oman Insurance Co. UAE 57 NA NA NA 21 Abu Dhabi National Insurance Co. Arab Orient Insurance Co. Oman National Investment Oman 23 12 2 9 22 Oman United Insurance Co. Dhofar Insurance Co. The Company for Cooperative Insurance Saudi Arabia 26 NA NA NA 53 The Mediterranean & Gulf Cooperative Insurance & Reinsurance-Saudi Arabia Bupa Arabia for Cooperative Insurance Qatar Insurance Co. Qatar 9 6 3 65 Qatar General Insurance & Reinsurance Co. Doha Insurance Co.
Source: World Bank. Mena Insurance Review, Alpen Capital Analysis
Non- Life Insurance Dominates The nonlife insurance segment is the key contributor to the growth of insurance in GCC, with motor and property coverage accounting for majority of the premiums. Comprising approximately 87% of the total gross premiums, non-life premiums were USD 11.8 billion in 2010. Life insurance segment premium contribution stood at USD 1.8 billion (13%) in
P a g e | 16
2010. This is in stark contrast to the global market share of around 58% for life and 42%11 for non-life insurance. There is significant growth potential in the region. Exhibit 11: Percent Contribution, GCC vs. Global Markets, 2010
GCC Region
Life insurance 13%
Non - Life Insurance 42% Life Insurance 58%
World Market
Non - Life Insurance 87%
The nonlife insurance segment is the key contributor to the growth of insurance in GCC, with motor and property coverage accounting for majority of the premiums
Looking ahead, non life segment is expected to continue to dominate during our forecast period (2011 to 2015) as more asset categories are made mandatory for insurance. Fire and property insurance is expected to increase as the property market evolves further as a result of increased diversification. Exhibit 12 shows the composition of the non life insurance segment across the GCC countries. Exhibit 12: Constituents of Non-Life Insurance, 2009
Motor 100% 15% 80%
28% 14%
Property & Misc Accidents 17%
Marine & Avation 13%

8%
9%
29%
33%
60% 40%
50% 66%
44%
59%
59%
62%
20% 0%
35% 21%
40%
UAE*
Qatar*
Kuwait*
Saudi Arabia
Bahrain
Oman
Source: Central bank Of Bahrain ;Capital Market Authority Oman ;Saudi Arabian Monetary Authority
UAE, Kuwait, and Qatar : data for 2008,source AXCO
Foreign vs. Domestic The contribution of foreign insurers was limited till a few years back. This was on account of market entry restrictions and regulations requiring insurers to invest a large proportion of premiums in the local markets. However, with entry restrictions being relaxed in countries like Saudi Arabia and Qatar and legal reforms allowing foreign investment in the sector, presence of foreign players has increased manifold in the region. The trend of increased foreign participation is likely to continue as growth remains sluggish in developed markets across the globe (See Exhibit 13).
11
Swiss Re World Insurance Report 2011
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The large expatriate population might prefer foreign insurers over the other lesser known local companies
Foreign players bring in greater skills and experience which will improve underwriting and asset management of the local insurers. Also, the large expatriate population prefers foreign insurers over the other lesser known local companies. Besides the structural factors, most foreign insurers have focused exclusively on the life segment which remains significantly under penetrated. Increased interest in the segment will boost life premium growth. Exhibit 13: Foreign Players in GCC, 2010
Country
Qatar UAE Bahrain Saudi Arabia Kuwait Oman Zurich, RSA and AIG. Friends Provident, Zurich, RSA and American Home ACE Chartis / ALICO AXA Royal / Sun alliance Zurich FS Allianz Takaful Generali, Gulf Re, Alliance, Marsh, Aon and Tokio Marine. Chartis / Alico Chartis / Alico Axa Royal Sun Alliance
Prominent International Players
Source: Qatar Financial Center, Alpen Capital
Distribution channels Non life distribution in GCC is dominated by direct sales and brokers, while life insurance is split between agents for individual business and brokers for group life. Although the traditional channels continue to bring in the bulk of business, bancassurance is emerging as a significant channel of distribution. Bancassurance refers to selling of insurance products either individually or as a bundled product along with banking products through a single distribution channel, usually the bank's branches. This channel allows insurance companies to access ready customer bases, while the banks get to provide diversified service to its customers. Though the prominent insurers have provided insurance services to their customers through banks in past as well, bancassurance has gained importance in recent times with more and more insurers preferring to sell through banking institutions. Exhibit 14 shows some of the recent tie ups of insurance companies with banks. Exhibit 14: Bancassurance Deals, 2010-11 Year 2011 2010 2011 2010 2011 2011 Country Bahrain Kuwait Qatar Qatar UAE UAE Details Bahrain-based retail and commercial bank BBK inked an MoU with Bahrain Kuwait Insurance Co (BKIC) to expand their partnership Gulf Bank signed a distribution agreement with American Life Insurance Co (Alico) to provide its customers with a wide range of bancassurance products HSBC and Allianz Takaful partnered to promote Islamic insurance products. Allianz Takaful announced an exclusive five-year partnership with Standard Chartered Bank to promote and sell its insurance products under Standard Chartered Banks bancassurance portfolio. Watania, a takaful company, was formed through a partnership between Abu Dhabi National Islamic Finance, a subsidiary of the National Bank of Abu Dhabi; Abu Dhabi National Insurance Co Bank partnered with ADNIC Energy Co; and Aldar Properties. Abu Dhabi Commercial(ADNIC); Abu Dhabi Nationalto provide their customers with banking and insurance services.
Source:
MENA Insurance Club, Alpen Analysis
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5.4. Reinsurance
The potential for the reinsurance industry in GCC countries is significant as most local insurance companies rely heavily on reinsurance. As a result of shortage of underwriting skills, the regional insurers are forced to reinsure significant if not all of the policies written. This dependence is reflected in the high cession rates in the region. In 2009, the aggregate cession rate in the non-life segment was 46% resulting in approximately USD 4.8 billion in volumes. The cession rate in the region is higher than prevailing rates in emerging markets with similar levels of wealth and also significantly higher than developed market average of approximately 8%. Exhibit 15 shows the composition of net premium and the ceded premium in the region in 2009 while Exhibit 16 shows the cession rate by the GCC countries for the same year. Qatar has the highest cession rate of 57% while Saudi has the lowest at 40% due to significant growth of medical business which is largely retained by domestic insurers. Exhibit 15: GCC Non-Life Premium Ceded, 2009
GCC Average
100%
Exhibit 16: GCC Non-Life Premium Ceded by Country, 2009

Net Premiums Ceeded Premiums
80%
43%
44%
52%
45% 57%
40%
Net Premiums , 54%
Ceded Premiums , 46%
60% 40% 57% 56%
20%
0% Bahrain Kuwait
48%
55%
43%
60%
Oman
Qatar
UAE
KSA
Source: ISIS
Source: ISIS
Robust economic and insurance industry growth momentum, strong broker community and presence of professional reinsurers in the region are some of the most relevant strengths of the reinsurance industry. With the industry growing rapidly, the reinsurance segment requires more leadership in terms of collection and dissemination of market data. The reinsurance industry in the GCC countries is expected to outpace the GDP growth in the region. The market potential has attracted many reinsurers primarily foreign players located in Europe and Bermuda. A number of international reinsurers have established presence throughout the region by taking advantage of the low claims vis--vis mature insurance markets. Despite low pricing levels in the region due to strong competition, reinsurance is a profitable line of business in the GCC countries in the absence of major natural calamities. Additionally, lack of product diversity and the growth in premiums have also attracted reinsurers to the region. Qatar has identified the opportunity and taken the lead, striving to establish a regional hub for reinsurance in the Qatar Financial Center (QFC). The countrys liberal policies, such as special tax concessions for reinsurers and 100% foreign ownership, offer distinct advantages. Taking cue, a number of global reinsurance companies are expected to establish a presence in Qatar.
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6. GCC Growth Forecast

6.1. Methodology
The GCC market is currently in its Late development and transition stage focus on Health and accident, group medical, comprehensive motor vehicle insurance Growth potential of the insurance industry in GCC is tremendous given the relatively low insurance penetration levels, growing population and infrastructure development. We have projected premiums for the sector for a five year period from 2011 to 2015. Insurance Growth Cycle The insurance industry follows a defined pattern based on the population and income dynamics. As per a study conducted by Swiss Re in 2000, the early stages of development are dominated by non-life products especially coverage of transportation and trade risks. As income increases and households acquire capital goods such as vehicles, real estate, etc. the need for non life insurance increases as people look to protect their valuable assets and avoid any losses on the same. Governments encourage insurance penetration through mandating certain insurance classes such as motor. With maturing population, the next stage is focused on life insurance and pension-like products (See Exhibit 17). The GCC market is currently in its Late development and transition stage. Exhibit 17: Stages of Insurance Growth Stage Early development Need Transport Trade Agriculture Motor vehicle accident Motor vehicle credit coverage Construction Mortgage debt Industrial Commercial & Industrial Health/ Medical Motor vehicle Tort exposure Catastrophe Households Consumer credit purchases Class of Insurance Marine, Aviation, Transport (MAT) Trade credit Crop, rainfall Compulsory motor vehicle liability Motor vehicle loss/damage Construction liability Fire, boiler etc. Health and accident insurance, group medical Comprehensive motor vehicle Flood, Earthquake General and professional liability Multi coverage householders insurance Consumer credit insurance, warranties
Mid development
Late development & transition
Industrial
The insurance industry follows a defined pattern based on the population and income dynamics
Source: Swiss Re
Economics of Insurance Insurance growth is impacted by a number of factors (see Box below). Economic growth, population, regulation, and awareness are some of the most important ones.
General Factors
Economic growth Religion: Culture Property Rights, legal certainty Distribution channels Insurance regulation Distribution of income Education Products offered Risk awareness Trust in insurance
Non Life Insurance

Compulsory Insurance Natural Catastrophe exposure Public role in health and compensation Claim awards
Life Insurance
Economic Stability Savings rate Demography Tax Benefits Pension System
workers'
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Non-life Insurance Non-life Insurance refers to property and liability insurance including motor, marine, health, fire, and other such insurance. By nature, the underlying determinant for non-life insurance is directly related to the level of income of the individual/group seeking insurance. As income increases, a portion of it is spent on acquiring capital goods. Another portion of the income is spent on the consumption of financial goods and services, such as insurance. This pattern is in line with the insurance development models presented by Swiss Re and also the World Bank. Income and wealth is positively correlated to the GDP of a country. Given the above, it can be concluded that as per capita GDP increases, an increased portion of the income will get allocated for insurance related products and services. Therefore at higher levels of GDP, insurance penetration is expected to increase rapidly with small increases in GDP. This pattern can be observed in advanced economies, which have high penetration and high GDP levels. GCC region is characterized with high GDP. Over the last decade, in line with the global pattern, the change in non-life premium has been higher than the change in GDP. There are exceptions and deviation. In 2010, non-Life segment reported a premium growth of 14.7% versus 17.8% growth in GDP (Exhibit 18). Non-life penetration, however, has been on the rise since recession standing at 1.1% 2010 versus 0.8% in 2008. Exhibit 18: GCC- GDP Growth Vs Non-life Premium Growth, 2001-10
Non-Lif e Penetration
% Change (GDP / Non-Life Premium)
Therefore at higher levels of GDP, insurance penetration is expected to increase rapidly with small increases in GDP
Change in GDP
30.1%
40.0%
30.0%
28.0% 17.1%
8.0%
Change in Non-Lif e Premiums 1.2% 29.8% 29.4%

1.0%
% Penetration
17.2%
18.9%
20.2%
26.5% 19.4% 13.3% 26.1% 17.8%
20.0%
10.0% 0.0% -10.0% -20.0%
12.4%
14.7%
0.8%
0.6%
14.9%
-2.4% 5.0%
0.4%
0.2% -18.8%
-30.0%
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
0.0%
Life Insurance Life insurance forms a part of savings and is treated as a financial product. Following the same pattern, life insurance consumption begins after meeting basic necessities and demand for capital goods. Thus at lower levels of GDP growth life penetration will be low, as incremental portion of the wealth will be spent on acquiring capital goods, but this increases with higher GDP growth levels. There can be a diversion to this theory due to cultural biases and lack of awareness about the utility of insurance. Hence, life insurance follows divergent trends in different countries. GCC is governed by Islamic laws. Since conventional life insurance is not acceptable under Islamic law, insurance density is significantly low and falls below the GDP growth rate in the region. Life insurance premium grew by 12.0% in 2010 whereas the GDP grew at 17.8% in the same year. While life density has been on a rise, the density is much lower than other countries with similar GDP per capita level. Life density reached USD 44.1 in
Life insurance forms a part of savings and is treated as a financial product
P a g e | 21
2010. There has been deviation from this trend on some ocassions as a result of government intermediation through regulatory policies (See Exhibit 19). Exhibit 19: GCC- GDP Growth Vs Life Premium Growth, 2001-10
Density
% Change (GDP per Capita / Life Premium)
Change in GDP per Capita
Change in Life Premiums
60% 50% 40% 30% 17% 36% 38%
54%
50 45
40
22% 21% 15%
Density (USD)
35 14% 10% 11% 9% 21% 16% 15% 10% 9% 30 25 12% 20
20%
10% 0% -10% -20% -30% -5%
2%
15
10 5 -22% -
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
Basis of Projection Our projections are based on the following: The region has a very large young population and as it matures the demand for financial products would see a manifold increase GDP estimates of the six GCC countries from 2011 to 2015 as per International Monetary Fund (IMF). Exhibit 20 shows the five year CAGR for GDP Population estimates of the six GCC countries from 2011 to 2015 as per World Economic Outlook published by IMF. Exhibit 20 shows the five year CAGR for population Historical insurance penetration and density data, updated until 2010, is adapted from Swiss Re Exhibit 20: Projected GDP and Population, 5 Year CAGR
Population
UAE
GDP
8.5%
3.0%
2.1%
Saudi Arabia Qatar

Oman Kuwait
10.1% 4.0%
12.6%
3.2%
8.2% 2.0%
10.7%
8.3%
Baharain 0%
Source: IMF, Alpen Capital
2.0% 2% 4% 6% 8%
10%
12%
14%
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6.2. Forecasts
We have forecasted life density of the GCC region by regressing it against the per capita GDP of the region. We infer that life density is related to the population and GDP growth which is reflected by per capita GDP. We have used the regression equation under the Ordinary Least Square Method between GDP per capita (independent variable) and life density (dependent variable). Non-life penetration has been regressed against GDP using the same method. Given the varied dynamics, we have estimated revenues for each country individually. Total insurance premium (revenues) has been arrived at using = (Estimated Life Density * Estimated Average Population) + (Estimated Non Life Penetration * Estimated GDP). Total revenues for the region have been then derived by aggregating revenues generated by each country in the region. Exhibit 21: GCC Premium Growth Forecast, 2010-15
Life Premium 40,000
Insurance Premiums (USD Mn)
32,000 14.3% 24,000
3,262
2,609 4,093
Our estimate for total premiums is USD 17.8 billion in 2011 rising up to USD 36.7 billion in 2015 representing a CAGR of 20.2%.
Non Life Premium 20.9%

19.4% 18.9%
% Change in Premium (annual)
19.6%
20.2%
5,179
16,000
1,787
2,112 17,073
20,137
28,454
23,882
8,000
11,845
14,372
United Arab Emirates will continue to be the largest market in the GCC in 2015 comprising 50% of the total region.
2010
Source: Alpen Capital
22% 20% 18% 16% 14% 12% 10% 8% 6% 4% 2% 0%
2011
2012
2013
2014
2015
Base Case: Our estimate for total premiums is USD 16.5 billion in 2011 increasing to USD 33.6 billion in 2015 representing a CAGR of 20%. Non-life insurance will comprise 85% of total premium in 2015 while life insurance will be 15%, contributing USD 5.2 billion in 2015 (Exhibit 21). Non-life penetration is expected to grow at 1.63% in 2015 from 1.03% in 2011 (Exhibit 22). Life insurance density is expected to be USD 113.5 in 2015 increasing from USD 50.8 in 2011 (Exhibit 23). Our estimates are based on the current market situation and factors noted in the report. Given the volatile world economy, the GCC region may be affected adversely and the forecasts can change significantly (Exhibit 22). Exhibit 23: GCC Life and Non-Life Density, 2011-15
Density, USD 800 600 400 345.9 401.2 Life Non-Life 623.4 462.0 535.3
Exhibit 22: GCC Life and Non-Life Penetration, 2011-15

Penetration % 2.0% 1.5% 1.03% 1.0% 0.5% 0.0% 2011
Life
Non-Life
1.15%
1.31%
1.47%
1.63%
0.15%
0.18%
0.21%
0.25%
0.30%
200 0
50.8
61.3
74.8
91.7
113.5
2012
2013
2014
2015
2011
2012
2013
2014
2015
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Premium Growth (%)
Country Level detailed Forecasts

Exhibit 24: Bahrain Insurance Market Forecast (USD) Metrics Total Premium (USD Mn) Life segment Premium Contribution (USD Mn) Penetration (%) Density (USD) Non Life segment Premium Contribution (USD Mn) Penetration (%) Density (USD)
2011 733.88 212.81 0.80% 188.49 521.07 1.97% 461.53
2013 987.01 276.55 0.92% 235.56 710.46 2.36% 605.16
2015 1,316.49 354.29 1.05% 289.92 962.21 2.85% 787.40
CAGR (2011-15) 16% 14% 7% 11% 17% 10% 14%
Insurance sector in Bahrain is expected to grow at a CAGR of 16% during 2011-15
Bahrain: Insurance sector is expected to grow at a CAGR of 16% during 2011-15. The Non Life segment is expected to dominate in the coming years with a penetration growth of 10% and density growth of 14%. The Life segment will lag marginally with a growth rate of 14%. The country is in the process of making health insurance compulsory for all expatriates by the end of 2013 which will play a major role in driving the growth of insurance sector (Exhibit 24). Exhibit 25: Kuwait Insurance Market Forecast (USD) Metrics Total Premium (USD Mn) Life segment Premium Contribution (USD Mn) Penetration (%) Density (USD) Non Life segment Premium Contribution (USD Mn) Penetration (%) Density (USD)
2011 888.75 160.45 0.09% 43.63 728.30 0.42% 198.02
2013 1,216.85 203.83 0.11% 53.26 1,013.02 0.53% 264.70
2015 1,689.33 257.38 0.12% 64.64 1,431.95 0.66% 359.61
CAGR (2011-15) 17% 13% 6% 10% 18% 12% 16%
The Insurance sector in Kuwait is expected to grow at an impressive rate of 17% in the next 5 years
With the GDP registering CAGR of 10.7%, the Insurance sector in Kuwait is expected to grow at an impressive rate of 17% in the next 5 years. The Life segment is expected to grow at 13% while the Non Life segment is expected to grow at 18% (Exhibit 25). Despite the general underdevelopment of its insurance sector, Kuwait is expected to grow rapidly in the non-life segment due to the governments focus on promoting takaful insurance. The country has significant takaful operators and with growing acceptance of Islamic insurance, the non-life segment is expected to grow rapidly. The life segment will grow at a slower pace than non-life with no obvious catalyst for that market.
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Exhibit 26: Oman Insurance Market Forecast (USD) Metrics Total Premium (USD Mn) Life segment Premium Contribution (USD Mn) Penetration (%) Density (USD) Non Life segment Premium Contribution (USD Mn) Penetration (%) Density (USD)
2011 886.34 160.62 0.24% 52.10 725.71 1.10% 235.39
2013 1,224.10 218.84 0.31% 66.72 1,005.26 1.41% 306.48
2015 1,696.23 307.38 0.37% 88.02 1,388.85 1.68% 397.72
CAGR (2011-15) 18% 18% 11% 14% 18% 11% 14%
The insurance industry in Oman is expected to grow at a CAGR of 18%.
The insurance industry in Oman is expected to grow at a CAGR of 18%. The total contribution for the country is expected to reach USD 1,696.23 million by 2015. The Non Life insurance penetration rate is expected to be at 1.68% while the Density is expected to be approximately USD 400 by 2015 (Exhibit 26). With the government taking efforts to put in place policies and procedures to facilitate insurance, the industry will get a boost over the forecast period. The country is in the process of making medical insurance compulsory (only for expatriates at the moment). This will be a significant growth driver for the sector. The insurance sector is likely to look up further with better market scenario in 2010 and a development oriented state budget and 8th Five-Year-Plan. Exhibit 27: Qatar Insurance Market Forecast (USD) Metrics Total Premium (USD Mn) Life segment Premium Contribution (USD Mn) Penetration (%) Density (USD) Non Life segment Premium Contribution (USD Mn) Penetration (%) Density (USD)
2011 1,584.30 79.32 0.04% 44.87 1,504.97 0.77% 851.23
2013 2,675.30 100.03 0.05% 52.32 2,575.27 1.19% 1,346.90
2015 4,459.15 124.76 0.05% 60.33 4,334.40 1.85% 2,095.94
CAGR (2011-15) 30% 12% 7% 8% 30% 24% 25%
The Qatar Insurance Industry is expected to register the highest growth among the GCC countries at a staggering 30%.
The Qatar Insurance Industry is expected to register the highest growth among the GCC countries at a staggering 30%. The Non Life density is expected to reach USD 2,095.94 by 2015 with a penetration level of 1.85%. The Life segment is expected to grow at a moderate rate of 12% (Exhibit 27). Majority of the growth in the insurance sector is being driven by the rapid expansion of the economy. Additionally, in an attempt to diversify away from hydrocarbons, the country is witnessing growth in other industry segments including real estate, tourism, hospitality, etc. This is giving rising to insurance opportunity in diversified non-life lines. The development of the Qatar Financial Centre (QFC) is a very positive growth factor. The QFC Regulatory Authority is also promoting captive insurance extensively.
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Exhibit 28: Saudi Arabia Insurance Market Forecast (USD) Metrics Total Premium (USD Mn) Life segment Premium Contribution (USD Mn) Penetration (%) Density (USD) Non Life segment Premium Contribution (USD Mn) Penetration (%) Density (USD)
2011 4,767.89 389.32 0.07% 14.59 4,378.58 0.76% 164.11
2013 6,583.85 880.47 0.14% 31.60 5,703.38 0.91% 204.66
2015 9,235.37 1,883.02 0.26% 64.88 7,352.35 1.02% 253.35
CAGR (2011-15) 18% 48% 41% 45% 14% 8% 11%
The Insurance Industry in Saudi Arabia is expected to reach USD 9,235.37million by 2015 growing at a CAGR of 18%.
The Insurance Industry in Saudi Arabia is expected to reach USD 9,235.37 million by 2015 growing at a CAGR of 18%. In contrast to the other GCC countries, life insurance growth in Saudi Arabia is expected at a much higher rate than non-life at a CAGR of 48% while the Non Life sector will grow at a relatively stable CAGR of 14%. Life insurance density is expected to reach USD 64.88 by 2015 from the USD 14.59 in 2011 (Exhibit 28). Life insurance will get a boost from the ageing population. Other primary growth drivers include increasing awareness, burgeoning demand for health insurance, and regulatory initiatives. Compulsory insurance lines have witnessed significant growth over the last few years and will continue to drive penetration over the next five years. Private sector participation is another important factor in driving growth in the region. Exhibit 29: United Arab Emirates Insurance Market Forecast (USD) Metrics Total Premium (USD Mn) Life segment Premium Contribution (USD Mn) Penetration Density (USD) Non Life segment Premium Contribution (USD Mn) Penetration (%) Density (USD)
2011 7,623.12 1,109.81 0.31% 213.14 6,513.31 1.79% 1,250.88
2013 10,711.86 1,581.86 0.39% 286.36 9,130.00 2.27% 1,652.79
2015 15,236.79 2,252.66 0.50% 384.41 12,984.13 2.86% 2,215.72
CAGR (2011-15) 19% 19% 13% 16% 19% 12% 16%
Overall the UAE insurance sector is expected to grow at a CAGR of 19% reaching USD 18,300 million by 2015 with balanced contribution from both Life and Non Life segment
Overall the UAE insurance sector is expected to grow at a CAGR of 19% reaching USD 15,237 million by 2015. The Life insurance penetration is expected to grow at a CAGR of 13%, while non-Life at 12% for the period 2011-15. The Non Life insurance density would be around USD 2,215.72 while that of the Life is expected to be around USD 384.41 in 2015. In our previous report we had projected insurance market in the UAE to register a CAGR of 14.7% from 2008 to 2012 to reach USD 8.7 billion in 2012. We now expect the sector to reach $7.6 billion in 2011. Non-Life insurance is expected to register a CAGR of 19% with a number of the projects which were stalled or cancelled due to the recession, being started again. Rising population and increasing expatriate population will act as a catalyst for the growth of Life segment which is expected to grow at a CAGR of 19% (Exhibit 29).
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7. Key Growth Drivers

7.1. Favorable Demographics
Demographics play an important role in insurance demand generation. On a closer look, we see, there are two key aspects to demographics in the GCC first, the huge expatriate population and second the significant number of young/working age people. Both of these will have a significant impact on the demand for long term collective savings schemes. Population mix to drive insurance growth GCC countries have witnessed strong population growth over the last few years, growing 12 from 35.6 million in 2006 to 40.6 million in 2010 reflecting a CAGR of 3.3% . The young/ working age population, defined as 15-64 years, continues to be a large percentage of the total population. This large and young population, with access to education, media and new technologies, will push the demand for financial products such as insurance. Saudi Arabia has the largest total population but the country has the lowest working age/young population (people aged between 15 64 years). Qatar has witnessed fastest growth in population and has the highest percent of young population. Approximately 8590% of the population in the country falls in the 15-64 years age bracket. Other GCC countries fall between the two, with young population comprising 70-80% of the total population (Exhibit 30). Exhibit 30: Addressable Population (15-64 years) and Growth
16%
The young population, defined as 15-64 years, continues to be a large percentage of the total population.
Population CAGR (2006-10)
14% Qatar
12% 10%
8% 6% 4% 2% 0% Bahrain
Saudi Arabia
UAE
Kuwait Oman
60%
65%
70%
75%
80%
85%
90%
Pouplation between 15-64 (%)
Source: EIU, Alpen Capital; Bubble indicates size of population
The new regulations in most of the countries in the GCC now require mandatory insurance for expatriates.
Growing expatriate population will drive health insurance Given the strong project pipeline and shortage of skilled labor in the region, we expect an increase in expatriate population over our forecast period. The new regulations in most of the countries in the GCC now require mandatory health insurance for expatriates. The increasing expatriate population thus converts into higher revenues for the insurance sector. Also, in the medium to long term we expect the expatriate population to settle down and become increasingly interested in long term financial arrangements.
12
World Bank
P a g e | 27
7.2. High and Rising GDP per Capita

The economy of the GCC is placed amongst 20 largest in the world. GDP growth rebounded in 2010 with strong oil prices boosting the economy by nearly USD 164 billion GDP growth rebounded in 2010 with strong oil prices boosting the economy by nearly USD 164 billion. The combined total GDP of GCC surged to USD 1,084 billion (at current price) in 2010 from approximately USD 920 billion in 2009. GDP is expected to swell further to USD 1,402 billion in 2011. In 2010, the GDP per capita increased to USD 26,745 compared to USD 23,291 in 2009. We expect GDP per capita of USD 33,746 in 2011 representing 26% year over year growth, underpinned by strong infrastructure investment and a steady recovery in private sector activity. Given the strong correlation of insurance consumption with GDP, we expect the high growth to escalate demand for the sector (See Exhibit 31). Exhibit 31: GDP & GDP Growth, 2010
30% Qatar
GDP Growth 2010e (%)
25% 20% 15% China 10% 5% 0% -10,000 10,000 30,000 India Brazil Bahrain UAE
Kuwait
Oman KSA
Germany
USA UK 50,000 70,000 90,000
GDP Per Capita USD

Source: IMF, Alpen Capital
7.3. Economic Diversification

The sector has reported strong performance despite sluggish global economy The GCC economy is dominated by the oil revenues, though of late many countries in the GCC have fueled their efforts to transform their economy from single commodity based to a more diversified one. The industry is vulnerable to economic shocks as it is directly correlated with the performance of the oil sector GCC countries continue to diversify away from hydrocarbon dependence and have invested across varied sectors including manufacturing, retail, automobiles, tourism etc. The diversification has given way for robust growth in non-life insurance segment. The growth of these sectors is expected to bring in new projects which would increase the demand for non- life insurance.
7.4. Complusory Insurance

The introduction of compulsory health, third party motor and home insurance has resulted in significant premium growth in the non-life insurance segment. Third party (compulsory) motor insurance rates are frequently capped by the government and remain a low margin business in the many of the countries. Despite the cap, motor premiums in the GCC grew at a CAGR of 21.2% between 2003 till 2007.
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The number of mandatory insurance lines has been growing in the region. MTPL insurance is now compulsory in all GCC countries. Other common mandatory requirements include workmans compensation (WCA), and insurance brokers and medical professional indemnity (PI) (See Exhibit 32). Exhibit 32: Compulsory Insurance Lines, 2010 Stage Expatriate - Medical Expense Health insurance Third Party Liability Motor Liability Workmans Compensation Pleasure craft Professional Liability Engineers Medical Insurance consultants Bahrain Kuwait UAE Saudi Arabia Oman Qatar
Source: World Bank, AXCO, Alpen Capital Analysis
Some GCC countries like Saudi Arabia and UAE have introduced compulsory health insurance for expatriates that will provide significant growth in those insurance lines. Other GCC states are expected to follow shortly.
7.5. High Savings Rate

Savings rate in the region is significantly higher than the world average. Premiums as a percentage of savings in GCC is approximately 4%, which is much lower when compared to developed regions such as North America and Western Europe. Qatar had the highest savings rate of 49% in 2009 significantly higher than the world average of 22%. UAE had the highest private consumption rate of 48% (See Exhibit 33). Exhibit 33: National Savings Rate & Private Consumption, 2009 Savings rate in the region is significantly higher than the world average. in contrary to a lowest rate of premium as a percentage of savings of 4% when compared to South East Asia, North America and Western Europe.
Gross national Savings Rate 70% Private Consumption (% of GDP) World Average Private Consumption 60%
60%
50% 40%
46% 34% 30% 34%

37% 30%
49% 38% 35%
48%
31% World Avg Gross National saving 22%
30%
20% 10% 17%
0%
Bahrain Kuwait Oman Qatar KSA UAE
Source: Swiss Re, Qatar Financial Center, Alpen Capital
The average savings rate of the GCC region in 2009 was the highest at 37% whereas premium as a percentage of savings was only 4% which is the lowest as compared to the other markets (See Exhibit 34). Given the broadening product choice including Sharia
P a g e | 29
compliant options, a greater percentage of these savings is likely to be diverted to financial products, particularly insurance. Exhibit 34: Saving Rate vs. Premium as a % of Savings, 2009
Western Europe
19.0%
52.0%
North America
10.0% 86.0%
South East Asia
32.0%
57.0% Savings Rate Premium as a % of Savings
GCC
37.0% 4.0%
Conventional form of insurance is not acceptable under Islamic laws
Source: Qatar Financial Center publication, Alpen Capital
7.6. Sharia Compliant Products

The introduction of Sharia compliant insurance products such as Takaful has substantially changed the landscape in the middle-east region particularly the GCC. Conventional form of insurance is discouraged and largely prohibited under Sharia. Products compliant with the Islamic laws like Takaful would be an important growth driver for the sector in the GCC region encouraging adoption of insurance products. Global Takaful contributions have shown an impressive 31% growth in 2009 almost reaching USD 7 billion. The growth potential is expected to drive the total contribution to 13 USD 12 billion by 2011 . Given the importance of Takaful as a key driver in the growth of the insurance industry, it is covered in detail in a separate section in the report.
13
E&Y World Takaful report 2011
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8. Trends
8.1. New Distribution Channels
The primary distribution channels in the GCC region include agents, brokers and direct sales by insurers although bancassurance is a growing channel of distribution The primary distribution channels in the GCC region include agents, brokers and direct sales by insurers. Non life distribution in the GCC region continues to be dominated by direct sales and brokers while life insurance is divided between tied agents for individual business and brokers for group life (see Exhibit 35). Exhibit 35: Distribution Channels Motor, Non life, 2009
Agent 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 20 88 50 30 40 47 50 5 25 Broker 5 7 Direct 5 5
45
40
45
48
45
Bahrain
Kuwait
Oman
Qatar
Saudi Arabia
UAE
Source: AXCO , Alpen Capital
These traditional distribution systems are well established but are mostly unregulated. The region is expected to witness increasing efforts by the regulators with regards to the introduction of regulations to administer activities of these intermediaries. However, bancassurance, online and telemarketing are fast developing as alternate channels. Bancassurance is a growing business in the region, proving beneficial for both insurers and banks. Under bancassurance, insurers have access to the significant customer base of banks and can effectively leverage the banks distribution network to target a wider audience base. The legal framework encourages bancassurance in the region and Bahrain has recently introduced regulations allowing additional distribution channels.
8.2. Changing Investment Mix

The investment mix amongst the regional insurers is changing to adapt to the market dynamics. Insurers in GCC have a very high exposure to securities and real estate market. This has resulted in very volatile returns on investment as both the securities and the real estate market have gone through turmoil since 2008 resulting in significant erosion of capital. Given the lingering economic uncertainty, insurers have reduced their exposure in equities in favor of property and debt. The region has also invested significantly in property expecting a boom in the prices over medium to long term. Investment in Property increased from 19.0% in 2008 to 27.2% in 2009. The trend continued with 27.1% of the portfolio invested in property in 2010. (These percentages are based on our peer group as per Exhibit 41 in the Financial and Valuation section)
The investment mix amongst the regional insurers is changing to adapt to the asset dynamics.
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Exhibit 36: Investment Mix Trend, 2008-10

100.0% 2.6% 3.3% 4.1%
19.0%
80.0% 27.2% 27.1%
Investment in Debt Securities
60.0% Investment In Properties
40.0%
78.4%
69.4%
68.8% Investment In Securities
20.0%
0.0% 2008
Source: AXCO , Alpen Capital
2009
2010
GCC has also witnessed increased interest from captive management companies.
GCC insurers are continuing their aggressive investment strategies, though a shift in the trend has been noticed with insurers making investments in debt securities (approximately 3-5% of total portfolio as per Exhibit 36). This is in sharp contrast to the investment portfolios of insurers in developed markets with approximately 80-85% of total invested in debt securities. The shift will bring stability to the portfolios making them less volatile compared to a higher equities exposure.
8.3. Increased Use of Captives

GCC has also witnessed increased interest from captive management companies. Conducive environment has led to the establishment of large corporations in the region. With large family businesses going public, captives could prove attractive. Captives offer advantages, including better risk management programs, flexibility in contract plans, reduced operating costs, better matching of revenue and expense, direct access to wholesale reinsurance markets, and claims control. Captive also enhance the ability to meet bespoke needs and provide investments to fund any losses. There are approximately 5,00014 captive vehicles worldwide, but their concentration is primary in the U.S and Canada. The MENA region, including GCC, accounts for a small but growing portion. Some captives in GCC include the Dubai Holdings captive which was the first such captive in the DIFC in 2007, captive licensed in 2006 and domiciled in Bahrain for UAE-based Tabreed, Qatar Petroleum's Al Koot captive, etc. Industry-wise, National oil companies (NOC) in the GCC countries account for 25% of the global NOCs having captive insurance. The NOCs of Saudi Arabia, Qatar and Kuwait have captive insurance. The QFC is actively encouraging the development of the captive insurance market in Qatar. Captives are allowed 100% foreign ownership of financial services firms with no insuring risks and foreign currency trading restrictions. There are additional benefits from tax exempt status within the QFC.
14
Source: Captive Review Guide to Solvency II 2010
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8.4. Mandatory Health Insurance

Mandatory health insurance is at various stages of regulatory approval in the GCC countries. While some have initiated compulsory health insurance for expatriates others are debating the expansion to locals as well. This is expected to catapult the growth of insurance to different trajectory. Saudi Arabia is a case in context. The law also takes the burden off governments while helping private sector participation. Insurance companies will have access to a wider and diverse customer base including the lower income strata that may otherwise not have opted for insurance without the stimulus. Saudi Arabia and UAE have introduced obligatory medical insurance for expatriate staff. Bahrain is also considering introducing compulsory medical insurance, starting with expatriates. GCC countries have a very significant expatriate population, ranging from 15 around 30% in Saudi Arabia to 85% in the UAE.
Mandatory health insurance is at various stages of regulatory approval in the GCC countries.
8.5. Industry in Consolidation Mode

The Insurance industry in the GCC region is very fragmented. Regulatory authorities are advocating for a major consolidation in the industry. The new regulation for increased solvency requirements coupled with the rising sovereign risk has forced insurance companies to reassess their capital requirements. Also, the solvency regime in most GCC countries broadly follows the EU Solvency 1 regime. Solvency II which focuses on solvency capital requirements, supervision and internal governance and reporting and disclosure requirements is scheduled to come into effect in January 2013. If made mandatory, some of the domestic companies in the region could find it difficult to maintain the requirements and may be forced to consolidate. These factors are expected to result in a significant rise in M&A activities across the region.
15
Source: MENA Insurance Review
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9. Challenges
9.1. Fragmented Supply Base
Although the insurance sector in GCC is rapidly growing, it is still a very fragmented one. There are more than 180 insurance players operating excluding reinsurance companies in the region. As a result, insurance companies seem unable to generate scale, retain a sufficient volume of premiums, build meaningful risk pools and underwriting capacity, and innovate. Many insurance companies seem to act simply as brokers or front offices, reinsuring most of the business. The volume and levels of human capital also remains weak in most countries, also hindering the sectors development. This is a critical factor for the new players domestic or foreign entering the market16. Increased number of players, soft market conditions, and high dependence on reinsurers has taken a toll on the GCC insurance companies and most have reported a decline in their Return on Assets (ROA). There is severe price competition in the region as many players are attracting same set of small population. The market conditions are soft in the short to medium term and oversupply could be a potential risk for the industry.
Although the insurance sector in GCC is rapidly growing, it is still a very fragmented one. There are more than 180 insurance players operating excluding reinsurance companies
9.2. Challenging Investment Markets

Difficult financial markets coupled with slow global recovery continue to challenge insurance companies in the GCC. The volatility of assets and contraction in value of investments remains a risk to growth. This situation puts pressure on insurers solvency margins, and ultimately the stability of local industry. Companies find it difficult to implement a proper investment strategy due to the volatile nature of the investment landscape in the region. With a significant of insurance portfolios invested in real estate, the performance of the sector significantly affects the health of insurers. Soft market conditions continue to depress prices leading to poor portfolio performance. The value of the real estate has lost much ground post the recession and most insurers have reduced exposure to the sector.
9.3. Shortage of Skilled Labor

There is limited awareness about life insurance and its benefits across the region. The region continues to struggle with shortage of local talent and the rising cost of acquiring and retaining talented resources. The industry lacks the required expertise in underwriting skills and portfolio management skills which are crucial to the retain premiums in-house. As a result, most local insurance companies pass on their businesses to reinsurers with sophisticated tools and skilled manpower which impacts their profitability. There have been efforts to plug the knowledge gaps such as establishment of the Gulf Insurance Institute (GII) in Bahrain and similar training institute in Qatar which offers accredited courses for insurance. However, while some initiatives have been taken, there remains an urgent need to facilitate a wider base of students and professionals to contemplate a career in insurance.
9.4. Lack of Awareness

There is limited awareness about life insurance and its benefits across the region. While reliance on traditional state welfare benefits is one reason, the cultural and religious aspects are important reasons for the continued low awareness.
16
Source: Zawya
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Regulatory frameworks are being enhanced across the region. Saudi Arabia, Bahrain, UAE and Oman are leading the way with new licensing regimes and regulatory bodies
There have been significant efforts to raise awareness including introduction of Islamic insurance. The recent moves by many governments to make certain insurance types (like motor and health) compulsory is likely to raise awareness levels not only about the concept, but also the various products available in the market.
9.5. Non-Standardized Regulations

GCC insurance regulation is undergoing significant change and recent reforms are opening up the local markets. Regulatory frameworks are being enhanced across the region. Some countries are leading the way with new licensing regimes and regulatory bodies. However, as with some countries, the regulatory environment is still fairly underdeveloped and requires significant maturity to compare to international standards.
Exhibit 37: GCC Insurance Regulations Bahrain Kuwait Oman Qatar Saudi Arabia UAE
Insurance Companies Division at UAE. Ministry of Economy. Dubai Financial Services Authority for entities registered at the DIFC Emirates Insurance Association Federal Law No. 9 of 1984 concerning insurance companies Federal Law No. 6 of 2007 regarding the incorporation of the insurance authority and work regulation
Regulator
Central Bank Of Bahrain
Ministry Of Commerce & Industry
Oman Capital Market Authority
Qatar Financial Centre Authority
Saudi Arabian Monetary Authority
Association
Bahrain Insurance Association
Kuwait Insurance Companies Union
Oman Insurance Association
N.A.
N.A.
Regulatory Law or Reference Work
Insurance Rulebook, April 2005
Insurance Law, 1961
Insurance Companies Law, March 1979
Emiri Decree No. 1/1966, QFCRA regulations
Cooperative Insurance Companies Control Law, 2003
Capital requirements
Tier 1 capital: BHD 5 million (US$10 million) Tier 2 Capital: Max. 100% of tier 1 capital, Overseas and Captives not subject to minimum capital
Local insurers: KD50,000 (US$525,000) Foreign Insurers: KD225,000 (US$35 million)
OMR5 million (US$13 million)
US$10 million
Insurance services (only): SR100 million (US$27 million), Insurance and Reinsurance services: SR200 million (US$54 million)
AED50 million (US$14 million)
Source: The GCC Insurance regulators
Additionally, while regulatory frameworks are taking shape across GCC, there continues to be challenges in terms of lack of uniformity across the region. There has been talk of a unified insurance authority for long, but no progress has been made on that front and varied parallel insurance regimes still exist in the region.
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9.6. Solvency II Capital Requirements

The implementation of Solvency II is expected to have far reaching impacts on the insurance industry worldwide. While the regulatory initiative will strengthen the system as well as balance sheets, it is likely to impose higher capital requirements. For the small and fragile insurers in the region there is a risk that the regulation will be burdensome.
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10. Corporate Governance

Corporate governance is the set of policies and/or process which act as guidelines for maximizing shareholder value while ensuring fairness to all stakeholders. Since our last report, GCC insurers have made significant progress in this aspect. Some of the areas in which GCC insurers lagged were: publicly available account, availability of latest financial report on the website, investor relation contact details, etc. In our recent findings, we have noticed that out of the eighteen companies surveyed, most of them had last four to five years historical annual reports readily available. Also, the availability (time to publish) of the latest annual report has improved and twelve companies had issued their latest annual reports by end of June. Investor relation contact details availability improved since our last report. While GCC insurers are improving on multiple counts, they have a long way to go when compared with their foreign counterparts. Insurers in the region can work to provide greater details in their reporting including, composition of investment portfolio, revenue segments, etc. Almost all of the insurers are rated by an international rating agency, most commonly Standard & Poors or AM Best (Exhibit 38). Exhibit 38: Comparative Corporate Governance, 2010
Latest Availability Frequency Level of annual of Investor of Ratings by interim Date Of report relations reporting Standard results ratings availabile contact on the & Poor's disclosure on website details website
BBB+ A ABBB+ A N.A. BB+ BBB+ BBBpi NR BBB+ BBB+ BBB N.A. BBBA BBB+ BBB 1-Jul-09 23-May-06 24-May-07 24-Jun-09 22-Jan-10 23-Jun-09 26-Jul-11 2-Aug-11 28-Jul-08 6-Aug-10 8-Apr-10 16-Feb-06 31-Jul-08 12-Sep-06 14-Sep-10
Company Name
History of publicly available accounts
Oman Insurance Company Qatar Insurance Company Abu Dhabi National Insurance Company Gulf Insurance Company Arab Orient Insurance Company Bahrain National Holding Company Al Buhaira National Insurance Company Emirates Insurance Company Qatar General Insurance and Reinsurance Company Kuwait Insurance Company Al Ahleia Insurance Company Doha Insurance Company Bahrain Kuwait Insurance Company Oman National Investment Oman United Insurance Company The Company for Cooperative Insurance Islamic Arab Insurance Company Malath Cooperative Insurance and Reinsurance Company
Unfavourable
Least Attractive
Attractive
More Attractive
Most Attractive
N.A: Not Applicable NR: Not Rated
Source: Alpen Capital, Capital IQ
Source:
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11. Capital Market Activity in the Sector

Increasing regulatory intervention relating to licensing and solvency requirements coupled with rising levels of competition, is expected to result in more consolidation among local and regional players over the coming years. 2010 saw some M&A activity involving international companies, the latest of which was the acquisition of a major stake in the Kuwait-based Gulf Insurance Group by Fairfax. It is likely that local and regional players will also need to step up their M&A activity to become strong market players. The insurance sector in GCC has seen a lot of investment activity in the last two years. On th 17 May 2011, IDB Trust Services Ltd., which engages in Property and Casualty Insurance, went public and raised USD 750 million. There was a lot of buzz in the acquisition of 49% stake in The Mediterranean & Gulf Insurance & Reinsurance Company B.S.C., which operates as a Multi-line Insurer, by LFZ Holding for an approximate amount of USD 400 million and acquisition of Al Ahlia Insurance Company SAOC by Royal & Sun Alliance Insurance Oman SAOC for USD 49.34 million. There has been a total of 15 major financial transaction in the GCC region in the last three years out of which there were only four M&A transactions with the others being public offerings (Exhibit 39). Exhibit 39: Recent Investments in Insurance Markets, 2009- June 2011
Year Target Buyer Transaction Value (USD Mn) 750 400 33.33 34.13 8 59.2 49.34 34 2.73 79.99 21.33 13.87 16 10.67 Transaction Type
2011 2011 2010 2010 2010 2010 2010 2009 2009 2009 2009 2009 2009 2009
IDB Trust Services Ltd. The Mediterranean & Gulf Insurance & Reinsurance Company B.S.C. Allianz Saudi Fransi Cooperative Insurance Company Amana Corp Insurance Wataniya Insurance Company Solidarity Saudi Takaful Company Al Ahlia Insurance Company Al Fajer Retakaful Insurance Company Takaful International Company SABB Takaful Company Gulf General Cooperative Insurance Company Buruj Cooperative Insurance S.S.C. Al Alamiya for Cooperative Insurance Company ACE Arabia Cooperative Insurance Co.
LFZ Holding Royal & Sun Alliance Insurance Oman SAOC Financial Assets Bahrain W.L.L. -
Public Offering Merger/Acquisition Public Offering Public Offering Public Offering Public Offering Merger/Acquisition Merger/Acquisition Public Offering Public Offering Public Offering Public Offering Public Offering Public Offering
Source: Zawya, Alpen Capital
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12. Porters Five Force Analysis

Exhibit 40: Industry Forces
Barriers to Entry Medium Given the industry is significantly concentrated, governments in most of the GCC countries have high licensing requirements There is a minimum capital requirement for startups. Investment by foreign players is allowed with certain restrictions across the region Bargaining Power of Buyers High The industry is very fragmented providing buyers with a wide variety of choice of insurers Despite a high GDP per capita the insurance density is very low when compared to the world insurance density The insurance consumer is return oriented as well as price sensitive and can easily switch to other available products Industry Competition High The GCC insurance industry is characterized with significant number of players, low product differentiation and immature services levels Predatory pricing policy in the region High exit barriers given the high levels of capital and regulatory requirements Bargaining Power of Suppliers High Insurers are highly dependent on reinsurers who have a bargaining power The region lacks underwriting skills and depends on its expatriate population for required skills. Available resources are expensive and have significant bargaining power The insurers are largely dependent on agents and brokers whose commission levels are higher than bancassurance while the reach may not be as diverse
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Threat from Substitutes Medium There is adequate availability of substitutes such as o o o o o o Bank savings Fixed deposits Purchase of gold & silver Investment in government securities Money markets Equity Markets
Mandatory covers for motor and health (some GCC countries) reduce the threat from substitutes in these lines
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13. Financial Performance & Valuation

13.1. Financial Performance
Overview
The growth in the GCC insurance sector has slowed down moderately during 2008-10. The dip in growth was mainly due to the global recession. Average Gross Premiums grew at a CAGR of 5% from 2008 to 2010. The Underwriting Profit grew by 1% in 2010 while the Net Earned Premiums grew by 5.4% during the same period. The average Combined Ratio for the region improved slightly to 85% in 2010 from 88% in 2009.
Peer Group
For 2010, GCC average premiums grew at 6.2% on a year over year basis compared to the world average growth rate of negative 2.8% For the purpose of financial performance evaluation we have shortlisted companies on the basis of Gross Written Premium. We have taken five companies from UAE as the country has the biggest share amongst the GCC countries, three each from Qatar and Kuwait as they are the fastest growing markets and two each from Bahrain and Oman. Saudi Arabia has no listed conventional insurance company. We have compared the takaful companies of the country in the takaful section as the dynamics of conventional and takaful insurers differ (Exhibit 41).
Exhibit 41: Peer Group
Company Name Oman Insurance Co. Qatar Insurance Co. Abu Dhabi National Insurance Co. Gulf Insurance Co. Arab Orient Insurance Co. Bahrain National Holding Co. Al Buhaira National Insurance Co. Emirates Insurance Co. Qatar General Insurance and Reinsurance Co. Kuwait Insurance Co. Al Ahleia Insurance Co. Doha Insurance Co. Bahrain Kuwait Insurance Co. Oman National Investment Oman United Insurance Co.
Country UAE Qatar UAE Kuwait UAE Bahrain UAE UAE Qatar Kuwait Kuwait Qatar Bahrain Oman Oman
Abbreviation OIC QIC ADNIC GIC AOIC BNHC ABNIC EIC QGIRC KIC AAIC DIC BKIC ONI OUIC
Revenues
The core revenue for any insurance company is the premium it receives from its policyholders. We have defined the revenue as Gross Insurance Premium in this report. Gross Insurance Premium in GCC grew at CAGR of 5%, from 2008-10 (Exhibit 42). The slowdown was mainly due to economic downturn as number of projects were either delayed or cancelled and the non life insurance segment suffered the most. For 2010, the average premiums grew at 6.2% on a year over year basis compared to the world average growth rate of negative 2.8%. We expect the sector to continue to outperform its
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global counterparts with improving liquidity situation and many stalled projects expected to resume soon. Total gross premiums for the region in 2010 stood at USD 13.6 billion. The GCC insurance market is still at a nascent stage and has a lot of room to grow. Exhibit 42: Gross Insurance Premium, 2008-10
FY2008 FY2009 FY2010 GCC Average Company CAGR
14.2%
Gross Insurance Premium (USD Mn)
600 500 400 300
12.0% 8.2% 7.0% 4.5% 0.2% 4.1% 5.0% 4.6%
15% 10% Average 5% 5%

0%
-7.9%
-5%
-9.8% -13.2%
200 100 0
-9.7% -15.0%
-10% -15% -20%
ADNIC
BNHC
ABNIC
Profitability
The profitability of the insurers is a factor of the amount of gross premium, level of reinsurance, quantum of underwriting profit and the amount of claims. Exhibit 43: Premiums Cession Rate, 2008-10
90.0% 80.0% 70.0% 60.0% 50.0% 40.0% 30.0%

20.0%
FY 2008
FY2009
QGIRC
FY2010
GCC Average
75% 68%
74%
62%
59%
58%
61%
64%
OUIC
BKIC
AAIC
KIC
EIC
AOIC
ONI
OIC
GIC
QIC
DIC
50%
Cession Rate (%)
50%
46%
51%
52%
Average 57%
45%
10.0% 0.0%
ADNIC
43%
ONI
EIC
KIC
BNHC
ABNIC
QGIRC
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OUIC
AAIC
AOIC
BKIC
OIC
QIC
GIC
DIC
Gross Insurance Premium - CAGR (2008-10) (%)
700
17.0%
20%
The Cession Rate is defined as the proportion the total gross premium ceded to other insurance companies. It also represents the amount of reinsurance in the company. As discussed in our previous report companies in GCC are highly dependent on the reinsurance services, though the dependency level has come down marginally from 2008. In 2010, 57% of net premiums were ceded to reinsurers whereas in 2008 the figure stood at 59%. The dependency level can be gauged from the fact that for the top 20 world companies (on revenue basis), average cession rate for 2010 was a mere 7%. This scenario is expected to change as the companies become financially strong and enhance their risk taking ability (See Exhibit 43). Underwriting in insurance refers to the evaluation of the level of risk and exposure a potential client could add to the concerned company. Profitability in 2010 as represented by the Net Underwriting Profit grew by 1% on an average in 2010 as compared to 2009. GCC insurers are highly dependent on reinsurance and undertake minimal underwriting inhouse, resulting in a relatively higher profit in 2010. The region witnessed lower losses from natural catastrophes. The world average in 2010 for net underwriting profit (loss) was USD (681) million, while the GCC region reported an average profit of USD 32 million for the same period. Exhibit 44 shows the Net Underwriting Profit for GCC companies for 2009 and 2010. Most of the peer companies have witnessed increase in net underwriting profit in 2010. Exhibit 44: Net Underwriting Profit 2009-10
116,929
140,000
Net Underwriting Profit (USD 000)
FY 2009
FY 2010
100,000 80,000
78,749
120,000
33,641
60,000
25,385
60,369
27,843
21,266
27,037
14,577
40,000 20,000 OIC QIC
16,787
17,454
18,987
ADNIC GIC
AOIC BNHC ABNIC
4,955
EIC
QGIRC
KIC
AAIC
DIC
BKIC
ONI
7,135
OUIC
The Combined Ratio is the most popular measure of profitability used by insurance companies. We have calculated Combined Ratio by dividing the expenses of the companies (operating and underwriting, including net claims and commission paid) by the net earned premiums. A ratio of more than 100% implies that the company is paying out more in claims & expenses than is the premiums received. The average combined ratio of the representing companies was 85% in 2010 compared to 88% in 2009. The combined ratio is improving in the region. GCC insurers have a lower combined ratio when compared to their global counterparts as most of their business is reinsured (See Exhibit 45).
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8,277
Exhibit 45: Combined Ratio (Claims Ratio plus Expense Ratio), 2009 vs. 2010
180% 160%
113%
FY 2009
FY 2010
GCC Average
140%
94% 93%
91%
85%
87%
78%
74%
100% 80% 60% 40% 20% 0%
81%
82%
89%
69%
69%
OIC
QIC
ADNIC
GIC
AOIC
BNHC ABNIC
EIC
QGIRC
KIC
AAIC
DIC
BKIC
64%
ONI
OUIC
Income from investments is one of the most important sources of income for an insurance company. Return on Investment is the income which the company earns on its various investments in securities, properties and other trading investments. Insurers in GCC have a very high exposure to securities and real estate market. This has resulted in very volatile returns on investment as both the securities and the real estate market have gone through turmoil in the last two years. Average investment return for the region in 2010 was 9.5% compared to 8.4% in 2008. Exhibit 46 shows the investment return for the representing GCC companies for 2008-10. Exhibit 46: Investment Return, 2008-10
38.5%
12.6%
11.4%
9.2%
8.5%
6.3%
8.0%
5.0%
3.8%
4.2%
5.7%
5.7%
0.0% -50.0% FY 2008 -100.0% -150.0% FY 2009 FY 2010
OIC
QIC
ADNIC
GIC
AOIC
AIG
ABNIC
0.2%
EIC
QGIRC
KIC
AAIC
DIC
BKIC
ONI
OUIC
As most of the Insurers in the region reinsure substantial portion of their business, Commission Ratio becomes important. Commission ratio is calculated as net commissions as a percentage of the Net premiums. The average commission ratio for 2010 was 10%, against 13% in 2008. The reduction is mainly due to the reason that the dependence level of the insurance companies on the reinsurers has reduced over the years. Exhibit 47 shows the commission ratio for the representing GCC companies for 2009 & 2010.
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3.4%
50.0%
14.6%
98%
120%
Average 85%
Exhibit 47: Commissions Ratio, 2008-10

50% FY 2008 FY 2009 FY 2010 GCC Average
35%
30%
13%
30%
31%
40%
20%
7%
8%
15%
19%
Average10%
3%
0% 0%
5%
0%
-8%
-20%
OIC
QIC
-9%
-10%
ADNIC
GIC
AOIC
BNHC
4%
10%
ABNIC
EIC
QGIRC
KIC
AAIC
DIC
BKIC
ONI
OUIC
Return on Equity which is net income as a percentage of shareholders equity has improved for the GCC insurers in 2010. Insurance companies in GCC managed to generate an average return of 12.9% on equity in 2010 while the average for world companies was 8.5%; in 2008 the return on equity was 9.6%. The performance has been better than the world companies as the region was not as much affected by the financial turmoil as the other companies in the advanced countries (See Exhibit 48). Exhibit 48: Return on Equity, 2008-10
60%
19.1%
24.1%
11.2%
13.6%
9.4%
7.0%
6.3%
6.7%
20% 0%
-20% -40% -60% -80%
5.1%
7.3%
11.0%
Average 13%
FY2008
FY2009
FY2010
World Average
OIC
QIC
ADNIC
GIC
AOIC
BNHC ABNIC
EIC
QGIRC
KIC
AAIC
DIC
BKIC
ONI
OUIC
Solvency Ratios
Solvency Ratios are a measure of a companys ability to meet its long term obligations and sustain in the future. Net premiums written as a percentage of Equity measures the amount of Net Premium written in proportion to the Total Equity Capital in the company. It shows the risk levels of the company due to written premiums relative to the level of Equity Capital. It decreased
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14.3%
40%
15.1%
16.0%
27.4%
from 40.1% in 2008 to 38.2% in 2010, indicating that the companies in GCC have marginally reduced the risk levels in their business based on its current Equity levels mostly due to the current level of uncertainty in the industry (See Exhibit 49). The average for the world (represented by top 20 companies on the basis of revenue) on the other hand was 145.6% in 2010, which is primarily because companies in the advanced economies are mature and have a higher risk taking capability. Exhibit 49: Net Premium Written / Equity %, 2008-10
140% FY2008 120%
81%
FY2009
FY2010
GCC Average
100% 80%
85%
38%
39%
42%
60%
35%
33%
28%
28%
38%
21%
0% OIC QIC ADNIC GIC AOIC BNHC ABNIC EIC QGIRC KIC AAIC DIC BKIC ONI OUIC
Claims to Reserve and Net Premiums indicate the financial capability of the companies to service their claims. This ratio is calculated by dividing the Total Claims by the combination of the Net Premiums Written and the Total Reserves of a company. This ratio shows the financial capability of a company to meet the total claims it owes to its policyholders. In 2010 the average claims to reserve ratio was at 28% (See Exhibit 50), which is in line with the Global average of 21.2%. In 2008 the ratio stood at 35%. Exhibit 50: Claims to Reserve & Net Premiums, 2008-10
120%
FY2008 100% 80% 60%
39%
FY2009
FY2010
8%
20%
14%
GCC Average
62%
44%
41% 15% 24%
22%
40%
Average 38%
23%
27%
40%
20% 0%
35%
16%
17%
12%
OIC
QIC ADNIC GIC
AOIC BNHC ABNIC EIC QGIRC KIC
AAIC
10%
DIC
15%
Average 28%
BKIC
ONI
OUIC
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39%
62%
13.2. Comparative Financial Performance

Exhibit 51: Comparative Financial Performance, 2010 Revenue USD '000 Revenue 2 Yr CAGR EBIT 2 Yr CAGR Net Income 2 Yr CAGR Cession Rate 2 Yr CAGR Return on Equity 2 Yr CAGR Return on Asset 2 Yr CAGR
Company Name
Oman Insurance Co.
665,298
7.0%
(32.5%)
(38.7%)
7.5%
(34.3%)
(37.9%)
Qatar Insurance Co. Abu Dhabi National Insurance Co. Gulf Insurance Co. Arab Orient Insurance Co. Bahrain National Holding Company Al Buhaira National Insurance Co. Emirates Insurance Co. Qatar General Insurance and Reinsurance Kuwait Insurance Co. Al Ahleia Insurance Co. Doha Insurance Co. Bahrain Kuwait Insurance Co. Oman National Investment Oman United Insurance Co.
591,343
4.5%
8.4%
7.5%
(4.8%)
(5.8%)
(1.8%)
481,949
14.2%
(17.7%)
(17.7%)
(4.7%)
(22.9%)
(22.5%)
424,732
17.0%
29.1%
44.5%
(1.2%)
52.8%
40.2%
307,151
12.0%
13.0%
13.3%
0.9%
(5.7%)
4.5%
61,239
(9.7%)
56.3%
34.1%
(11.6%)
28.7%
33.2%
177,127
0.2%
(2.4%)
(6.8%)
(3.7%)
(6.1%)
(5.5%)
171,467
4.1%
(2.4%)
(2.4%)
(3.7%)
(1.2%)
(0.2%)
142,424
(15.0%)
(21.6%)
(27.3%)
(4.2%)
(50.3%)
(43.9%)
107,739
5.0%
14.8%
13.8%
6.3%
8.0%
14.1%
110,456
4.6%
N.M.
N.M.
2.6%
N.M.
N.M.
101,596
8.2%
13.3%
13.4%
(0.4%)
4.3%
(30.2%)
88,596
(7.9%)
5.5%
5.5%
(6.4%)
(1.1%)
11.9%
62,236
(9.8%)
(66.4%)
(68.5%)
(2.3%)
(11.8%)
(6.2%)
54,529
(13.2%)
N.M.
N.M.
17.1%
N.M.
N.M.
Source: Zawya, Capital IQ, Alpen Capital
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13.3. Valuation Analysis

The global financial crisis has not affected GCC Insurance companies as severely as it has affected the companies in other markets. Saudi Arabia Insurance index posted a negative return of 8.4% in the last two years, whereas Kuwait Insurance Index generated a return of -10.8% over the same period. Dubai Insurance index has been the worst performer amongst the five giving a return of -30.4% in the last two years. UAE was the worst hit country among the others in the GCC during the global financial crisis. Bahrain Insurance index yielded a positive return of 2.4% during the same period. Doha Insurance Index was by far the best performer giving a return of 75.5% in two years. This shows the confidence of the investors in the companies and their growth (Exhibit 52). Exhibit 52: Insurance Index Return
250
200 Doha Insurance Index 150
Bahrain Insurance index 100 Saudi Insurance Index Kuwait Insurance Index Dubai Insurance Index 50
0 2-Aug-09 2-Dec-09 2-Apr-10 2-Aug-10 2-Dec-10 2-Apr-11
The stock market of GCC countries has low stock liquidity and limited free floats. The ratios used for valuing the companies are as below: Price to Book Value Ratio: The P/B ratio measures the value of a company relative to the book value of its assets Price to Earnings Ratio: The PE ratio measures the ratio of the value of the companys stock relative to its earnings. EV to Revenue Ratio: This multiple is mainly used to value companies in case of mergers and acquisitions. It is the ratio of the Enterprise Value of the company to its Revenue EV to EBITDA Ratio: This ratio denotes the ratio of the companys Enterprise Value to its EBITDA. The P/E and P/B ratios have been calculated based on the data sourced from Zawya and includes stock of companies that have not traded for weeks or in some instances for months.
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Exhibit 53: Price to Earnings, 2010

FY2010 GCC Average World Average
60.0x
50.0x 40.0x 30.0x
20.0x
10.0x 0.0x
16.1x
11.6x
BNHC
ABNIC
ADNIC
AOIC
BKIC
ONI
ONI
OIC
QIC
GIC
DIC
EIC
KIC
The GCC insurers trade at a premium to the world average underpinned by strong GDP growth rate in the region
GCC companies are currently trading on a higher price to earnings ratio than world average. Average P/E ratio for GCC insurance companies stood at 16.1x compared to the global average of 11.6x (See Exhibit 53). The valuations of GCC insurers are underpinned by strong growth, partly offset by weak stock liquidity, and huge investments in real estate and very volatile securities. There is a significant potential to unlock value by changing investment portfolio and improving transparency. The GCC insurers are also trading at a premium on the price-to-book metric. GCC average P/B ratio is 1.4x while the global average stands at 0.8x (See Exhibit 54). Companies in the region have a higher P/E and P/B as the investors expect them to grow at a faster rate in future and are hence willing to pay a premium for a share of the future earnings. Exhibit 54: Price to Book, 2010
FY2010 4.0x 3.5x GCC Average World Average
3.0x
2.5x 2.0x
QGIRC
1.5x
1.0x 0.5x
1.4x 0.8x
0.0x
ADNIC
EIC
KIC
BNHC
ABNIC
Oman Insurance Company and Al Buhaira National Insurance Company have continued to trade at higher multiples than their peers since 2008. As discussed in the last report, companies with good investment strategies along with, product innovation and effective and varied distribution will thrive in the long run.
QGIRC
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OUIC
AAIC
AOIC
BKIC
OIC
QIC
GIC
DIC
OUIC
AAIC
Exhibit 55: EV/Revenue, 2010

EV / Revenue World Average GCC Average
10.0x 9.0x 8.0x
7.0x
6.0x
5.0x
4.0x
3.0x
2.0x 1.0x 0.0x
ADNIC BNHC
2.7x 0.8x
ABNIC QGIRC OUIC AAIC
AOIC BKIC ONI
EIC
KIC
OIC
QIC
Companies in GCC insurance sector are valued at a relative premium to their world counterparts in terms of EV/Revenue. These companies command an average of 2.7x vs. the World average of 0.8x. The primary factor for this premium valuation can be attributed to lower revenue levels relative to its peers around the world (See Exhibit 55). Exhibit 56: EV/EBITDA, 2010
EV / EBITDA 45.0x 40.0x 35.0x 30.0x 25.0x 20.0x 15.0x 10.0x 5.0x 0.0x 13.4x 10.9x World Average GCC Average
GIC
DIC
BNHC
ADNIC
ABNIC
AOIC
AAIC
BKIC
ONI
OIC
GIC
QIC
DIC
Similarly average EV/EBITDA multiple for the GCC region is 13.4x as against the World average of 10.9x (See Exhibit 56). The regional insurers trade at a premium to its global peers on all valuation multiples reflecting the potential growth in these companies.
QGIRC
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OUIC
EIC
KIC
13.4. Valuation Comparison

Exhibit 57: Comparative Financial Performance, 2010
Company Name Oman Insurance Company Qatar Insurance Company Abu Dhabi National Insurance Company Gulf Insurance Company Arab Orient Insurance Co. Bahrain National Holding Company Al Buhaira National Insurance Company Emirates Insurance Company Qatar General Insurance and Reinsurance Kuwait Insurance Company Al Ahleia Insurance Company Doha Insurance Company Bahrain Kuwait Insurance Company Oman National Investment Oman United Insurance Company
P/E 34.9x 10.0x 15.8x 12.5x N.A. 12.8x 51.6x 7.7x 16.0x 15.2x 10.6x 8.4x 10.5x 15.2x 4.6x
P/BV 2.3x 1.8x 1.1x 1.4x N.A. 1.2x 3.6x 1.1x 0.8x 1.1x 1.1x 1.2x 1.6x 0.8x 0.6x
EV/Revenue 18.9x 7.2x 11.4x 9.1x 7.8x 8.2x 42.0x 6.1x 38.2x 7.0x 10.2x 6.3x 4.0x 2.6x 21.4x
EV/EBITDA 2.5x 2.7x 2.2x 1.3x 2.7x 2.3x 3.7x 2.5x 9.4x 1.3x 4.3x 2.8x 1.1x 1.0x 1.1x
13.5. Stock Liquidity

As mentioned above, stocks of GCC insurers have extremely thin liquidity, despite having good amount of share outstanding. This suggests that the shares are very closely held. The average turnover velocity of stocks is 0.38%, which implies the quantum of shares which changes hand in a Year. The thin liquidity is also attributable to stagnating business environment as a result of economic slowdown in the region and continued lack of confidence among investors post recession. The value of share traded in the Arab stock markets went down by more than USD 234 million in 2009 due to recession and tightened credit policy of banks in the region. The lack of liquidity is also due to the fact that many existing investors who bought the shares at high prices are still holding on to it expecting to breakeven at some point of time in future. The stock turnover in Arab Stock Exchanges remains low although activity has picked up from the 2009 lows.
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Takaful (Islamic Insurance)
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World Market Size

Takaful, which is a Sharia compliant conventional cooperative insurance, is steadily gaining popularity around the world. The global gross premium contribution from Takaful reached USD 9.2 billion in 201017. GCC countries have witnessed a slowdown in the Takaful segment barring Saudi Arabia which continues to experience a steady growth backed compulsory medical insurance in the country. The World Takaful Industry is majorly concentrated in the MENA and South East Asian region. Saudi Arabia and Malaysia are the largest Takaful markets in these two markets. GCC comprised 69% of the world Takaful market in 2010. The other regions being Levant (4%), Indian Sub-Continent (1%), Africa (5%) and the South East Asia (21%) as per Exhibit 58. These regions have majorly contributed to the growth of the Islamic insurance segment. The premium per operator in Malaysia stands at a high USD 116 million followed by USD 64 million in the GCC region implying high industry concentration. The global Takaful contribution has increased from USD 3.1 billion in 2006 to USD 9.2 billion in 2010, representing a CAGR of 32%. The global Takaful contributions are projected to reach USD 12.0 billion by 2011. Exhibit 58: World Takaful Premium Contribution, 2010E Exhibit 59: GCC Takaful Premium and Growth, 2006-11E
Takaful Premium, USD Million
GCC 69%
South east Asia
Africa 21%
Indian Sub Continent

4%
5%
1%
Levant
9,000 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1,000 -
31%
6,380
8,330
CAGR 32% 3,742

2,846
4,886
2,088
2006
2007
2008
2009
2010
2011E
Source: E&Y World Takaful Report, 2011
GCC Opportunity
Contrary to the steady growth witnessed by its global counterparts, GCC witnessed a slowdown, registering a growth rate of 31% in 2009 compared to 45% during 2005-08. Barring Kuwait, which experienced a positive growth of 27% on a year over year basis, all other GCC countries reported negative growth in 2009. Despite the decline in the rate of growth, Takaful markets remain robust. Increasing acceptance of Takaful in the GCC region has led to increased insurance penetration. Saudi Arabia registered the highest penetration of 1.04% followed by Bahrain at 0.45%. Takaful market in the GCC region is projected to reach USD 8.3 billion increasing 31% on year over year basis in 2011 (Exhibit 59).
Takaful markets are expected to reach USD 24.7 billion by 2015
17
E&Y, The World Takaful report, 2011
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Constraints of Players/ Business Risks

As the Takaful Insurance is an emerging segment, the companies face a number of associated business risks which act as barriers to growth. The key risks and constraints faced by the Takaful players are: Rising Competition The industry is quite fragmented and is characterized by unsustainable aggressive pricing strategies. Additionally, barrier to entry is lower than conventional insurers due to less regulation and minimum capital requirements. This had led to mushrooming of a number of small players. Shortage of Expertise One of the most important risks faced by the Takaful segment is human resource risk signifying the shortage of quality workforce with requisite experience. The shortage of skilled personnel has lead to poaching by competing companies through aggressive recruitment strategies backed by attractive compensation. Sociopolitical Uncertainty The political unrest in several key markets for Takaful insurance particularly in the MENA region has lead to an uncertain environment hampering its growth prospects. The political turmoil will affect foreign direct investment, real estate development and tourism which in turn will affect the segment. As a corollary, this can also act as a blessing in disguise for Takaful insurance companies as people in these regions would be willing to take on more insurance due to increasing risks to their life and property. Evolving Regulations Takaful insurance is governed by the Sharia law specific to its jurisdiction of operation and can vary significantly across the region. There is an on-going conversation for a unified regulator, but there have been no concrete steps in this regard. The current regulatory regime is nascent and evolving and the industry is yet to implement governance standards to effectively address the balance between mutual insurance and profit orientation. Risky Business Models The business model of most Takaful operators is based on bullish market conditions which makes it problematic for them to operate and compete in the periods of economic slowdown. The costs are not aligned with the expected growth in business volumes leading to significant operating cost burden. There are also issues relating to aligning costs to Wakalah fees in a deteriorating market. Limited Financial flexibility Increasing financial requirements coupled with political unrest in the region have put the Takaful companies under pressure. Companies are facing the dual crises of increased capital requirements and increasing difficulty in raising capital as a result of the sociopolitical unrest in the region.
With the economy still recovering from the global recession and most projects either being stalled or delayed the non life segment which accounts for over 80% of the market is under tremendous pressure.
Performance Analysis
We want to reiterate (as mentioned in our 2008 report) the importance of Takaful and Life insurance segments in for the overall growth of the Insurance industry in GCC. With the
P a g e | 54
economy still recovering from the global recession and a number of projects either being stalled or delayed, the non life segment which accounts for approximately 87% of the market may feel the pressure. Hence it is likely to continue for some more time offset by growing acceptance and awareness of Takaful. Peer Group As of 2010, there are around 77 Takaful companies operating in GCC out of 195 globally. To discuss the performance of Takaful companies we have selected a sample of 10 companies from the GCC region.
Exhibit 60: Sample Takaful companies
Company Name Takaful Emarat - Insurance Takaful International Company First Takaful Insurance Company Wethaq Takaful Insurance Company Qatar Islamic Insurance Company Company for Cooperative Insurance Saudi Reinsurance Company Malath Cooperative Insurance & Reinsurance Company Islamic Arab Insurance Company (Salama) Abu Dhabi National Takaful Company
Country UAE Bahrain Kuwait Kuwait Qatar Saudi Arabia Saudi Arabia Saudi Arabia UAE UAE
Abbreviation TEI TIC FTIC WTIC QIIC CCI SRC MCIR IAIC ADNTC
Average Expense ratio has decreased from 95.8% in 2008 to 85.0% in 2010 similarly claims ratio too has decreased from 71.0% in 2008 to 57.8% in 2010.
Performance The Gross insurance premiums have grown by CAGR of 12% from 2008 to 2010. Similarly net earned premiums have grown at a CAGR of 21% from 2008 to 2010 (Exhibit 61). Exhibit 61: Gross Premiums, Premium Growth, 2008-10
FY2008 Company CAGR FY2009 Average 58% FY2010 60% 50%
Gross Insurance Premium (USD'000)
1,200 1,000
39%
800 600 8% 8%
27%
32%
22%
30% 20%
400
200 0
N.A.*
3%
-12%
10% 0% -10% -20%
TEI
TIC
FTIC
WTIC
QIIC
CCI
SRC
MCIR
IAIC
ADNTC

* Financials of 2008 not available for TEI. Gross Premiums increased 561% from 2009 to 2010.
Combined Ratio improved in 2010 as compared to 2009. The average ratio of the Takaful players was 82.4% in 2009 compared to 71.5% in 2010 (See Exhibit 62). Takaful Emarat had the highest combined ratio of 170% in 2009 which decreased to 91% in 2010. All other
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2008-2010 CAGR %
Average 34%
40%
companies in the peer group were either neutral or witnessed an improvement in the combined ratio except Wethaq Takaful Insurance Company. Improving equity markets, rebounding GDP growth in advanced economies and returning consumer confidence has led to positive growth in the insurance industry. The Takaful players are in their nascent stage and need to improve operational efficiency by aligning their cost structures to expected market volumes. Exhibit 62: Combined Ratio (Claims plus Expense), 2010
FY 2009
FY 2010
180%
160% 140%
91% 89%
120%
100% 80% 60% 40% 20% 0%
79%
78%
68%
74%
TEI
TIC
FTIC
WTIC
QIIC
52%
CCI
58%
SRC
MCIR
63%
IAIC
ADNTC
As these companies gain customer volume the returns to investors has improved. ROE (Return on Equity) has seen improvement from 3.4% in 2008 to 5.7% in 2010 (Exhibit 63). ROAA (Return on Average Assets) has declined from 0.7% in 2008 to 0.4% in 2010 (See Exhibit 64). Exhibit 63: Return on Equity, 2008-10
30%
Exhibit 64: Return on Assets, 2008-10

20.0%
7.7% 6.6%
40% 30%
FY2008 FY2009 FY2010

18%
64%
2.1%
18%
0.6%
7%
20%
2%
3%
-10.0%
-7%
-20.0% -30.0% -40.0%
-30% -40%
TEI
-16.8%
-20%
TIC
FTIC
WTIC
QIIC
CCI
SRC
MCIR
IAIC ADNTC
TEI
-15.4%
-10%
-6.1%
0%
0%
10%
2%
0.0%
0.6%
10.0%
FY2008
FY2009
FY2010
TIC
FTIC
WTIC
QIIC
CCI
SRC
MCIR
IAIC ADNTC
Conventional vs. Takaful Snapshot

GCC insurers can be broadly categorized as either conventional or Islamic (Takaful), with some players present in both categories. Key differences between Takaful and conventional insurance include Risk Sharing vs. Risk Transfer, Wakeel vs. Guarantor, Ameen vs. Owner and Different type of Contract. Takaful is based on the principles of Taawun (mutual assistance) and Tabaru (voluntary). Moreover, being under the purview of Sharia, Takaful prohibits investments in Haram industries (gambling, liquor etc) and advocates usage of instruments that are free of interest (See Exhibit 65).
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1.4%
6.2%
Exhibit 65: Conventional vs. Takaful

Issue Org. Principle Basis Laws Ownership Responsibility of policyholders/taka ful participants Conventional Profit for shareholders Risk Transfer Secular/Regulation Shareholder Policyholders pay a premium to the insurer All underwriting surplus transferred to shareholders account The insurer manages a policyholders fund, and, if required, shareholders fund Takaful Mutual for participants Co operative risk sharing Shariah & Prudential regulation Participant Participants make contributions to the scheme All underwriting surplus distributed among the policyholders, who are also liable for any deficit Takaful operator acts as administrator of the scheme and pays the takaful benefits from the policyholders fund In the event of a shortfall in the policyholders fund, the takaful operator is expected to provide an interest-free loan to cover the deficiency Form of Contract Access to Capital Contract of Sale Access to share capital and debt with the possible use of subordinated debt Shareholders account Conventional insurance companies do not necessarily have re-insurance with reinsurance companies that abide by Sharia principles. Cooperative, Wakala or Mudarbah with Tabar ru (contributions) Access to share capital by takaful operator but not to debt, barring an interest-free loan to cover a deficiency in the policyholders fund Participants account Takaful companies have reinsurance with Re-Takaful companies or with conventional reinsurance companies that adhere to certain conditions of Sharia.
Key differences between Takaful and conventional insurance include; Risk Sharing vs. Risk Transfer, Wakeel vs. Guarantor, Ameen vs. Owner and Different type of Contract.
Management Status
Surplus Reinsurance
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Country Profiles
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Bahrain
Macro-economic Indicators Indicators GDP Inflation GDP per capita Unit USD Mn % USD 2010 22,656 2.0 20,466 2013E 30,149 3.0 25,681 2015E 33,726 2.5 27,599
Economic Overview
According to the IMF, Bahrains GDP increased 17.3% in 2010 compared to a fall of 12.8% a year earlier. The growth can be ascribed to recovery in the 53,780 69,050 79,100 manufacturing, hotels, construction 434,440 and finance 564,110 The656,400 sectors. IMF projects the Bahrains GDP to expand 16.9% during 2011 and at a CAGR of 6.0% during 201215. 3.3 3.5 3.0 5.4 6.0 4.0 The main sectors of Bahrains economy are Oil & Gas, Finance, and Manufacturing. Bahrain is the least oil dependent nation compared to other 18,512.91 22,404.28 24,718.75 16,552.62 20,251.95 22,691.60 GCC countries.
Current Sovereign Ratings: BBB

Source: IMF, Economist Intelligence Unit, Zawya, Alpen Capital
Demographics (Population by Age) Age Brackets (years) 0 14 15 64 65 & Above Total Population Unit % % % Mn 2009 26.4 71.4 2.3 0.8 2010 20.0 77.9 2.1 0.8 2015 20.8 76.8 2.4 0.9
Source: Economist Intelligence Unit
Insurance Overview Bahrain insurance market is a small market which is well regulated and is expanding rapidly. It is no longer the centre of insurance for Saudi business due to tightening of regulations and the establishment of licensed insurers in Saudi Arabia. Unlike most other financial sectors in the region, Bahrains financial sector is dominated by nationals, without any rules for requiring a minimum proportion of locals to work in a particular company being imposed. This makes Bahrain a competitive place to do business for foreign insurers. The insurance premium in the sector has grown at a CAGR of 19.2% in the last five years and is estimated to grow at a CAGR of 15.7% from 2011 to 2015. The penetration in 2010 for both life and non-life is high compared to other GCC countries. Non-life penetration is 1.9% and life penetration is 0.8% for 2010. Distribution Channels
Total Premium Contribution
Year Life (USD million) Non Life (USD million) Total
2009 152 381 533
2010 173 433 606
Change 13.8% 13.6% 13.7%
Products Segments (2009)
Source: Central Bank of Bahrain
Source: Country Profile Bahrain-Lloyds June 2011
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Product Segments
The major portion of the revenues comes from Property segment. Marine is the second segment and it consists of 13.9% of the total revenues. Other segments contribute almost equally to the revenues of the country.
Key Players (top 3 by Revenue) Company Bahrain Kuwait Insurance Company Bahrain National Holding Company Al-Ahlia Insurance-Bahrain Market Share 14.2% 9.8% 4.9% Year of Entry 1975 1998 1976
Competitive Landscape
There are an estimated 163 insurers operating in Bahrain including Allianz, Chartis, Takaful and Hannover Re, which have opted to make Bahrain their regional base. The Central Bank of Bahrain has also been active in marketing Bahrain as a captive domicile more recently.
Regulatory Framework
Central Bank of Bahrain is the central bank and single regulator for all financial service institutions operating from Bahrain CBB has base capital requirements all kinds of insurers like direct insurers, local brokers, and captive insurers. The base capital requirement for the direct insurers is USD 13.3 million and for reinsurers is USD 26.5 million There are no restrictions on insurers in and from CBB on insuring risks located within Bahrain CBB puts certain solvency margin requirements like a margin of USD 1.35 million in case of general and USD 1.08 million in case of life insurance CBB also requires statutory local deposit with a local bank like it requires a deposit of USD 135,000 in case of life insurance
Source: Country Profile Bahrain-Lloyds June 2011
Key Driving Factors

One of the key drivers is the proportion of educated and economically active population (as a percentage of total population) has been increasing in Bahrain. This can lead to an increase in the demand for insurance products
Source: QFCA-The Case for Insurance March 2011, Clyde & Co
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Kuwait
Economic Overview
Kuwaits GDP is estimated to have grown 20% in 2010 after contracting 26.4% in 2009. The growth is mainly driven by the rise in oil prices. IMF estimates the economy to grow 31.6% during 2011 and record a CAGR of 5.5% during 201215. The largest contributor to GDP, apart from oil, is Community and Social Services and second largest of the same is Financial Institutions sector. The long term development strategy in the economic and social development plan of Kuwait is to diversify the economy away from oil. The new plan aims to privatize many public entities to improve competitiveness in all sectors.
Current Sovereign Ratings: A

Source: IMF, Economist Intelligence Unit, Zawya, Financial Model
Insurance Overview Total Premium Contribution Year Life (USD Mn) Non Life (USD Mn) Total 2009 122 467 589 2010 149 569 718 Change 22.1% 21.8% 21.9% The insurance premium in the sector has grown at a CAGR of 6.4% in the last five years and is estimated to grow at a CAGR of 17.4% in 2011-15 period. Kuwait has the lowest non-life penetration, 0.4%, in the region. Key Players (top 5 by Revenue) Company Gulf Insurance Company Kuwait Reinsurance Company Al-Ahleia Insurance Company Kuwait Insurance Company
Source: Capital Standards-Kuwait Insurance Industry August 2010
The level of development of the life insurance segment of Kuwait is not much. This is mainly because the government makes extensive social security benefits available to its citizens. In Kuwait, comprehensive motor insurance especially compulsory motor third party liability is the largest line in the non-life segment, accounting for just under half of gross written premiums. Other major lines include life and health, marine aviation and transport, and property and fire insurance.
The number of companies offering insurance products is limited in the Middle East due to restrictions in granting new licensing by regulators. Kuwait is an exception with 32 current licenses granted. This large number in such a small market intensifies the level of competition in the sector. Kuwait insurance sector is dominated by national insurance companies of which the prominent players are Gulf Insurance Company, Kuwait Insurance Company, Al-Ahleia Insurance Company and Warba.
Market Share NA NA NA NA NA
Year of Entry 1962 1972 1962 1960 1976
Warba Insurance Company
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Key Driving Factors

Kuwaits ratio of urban population to total population is one of the highest in the world. As per UN estimates, 98.4% of the nations population is urban. Higher urban population leads to higher probability of taking up insurance The discovery of oil and oil market going international has created immense need for insurance coverage. This is another important driver for the growth of insurance in the region The USD130 billion investment plan to diversify the economy will lead to more money with the people and that can lead to more spending on insurance by the people
The insurance regulator in Kuwait is Ministry of Commerce and Industry and the governing legislation is Insurance law 24 of 1961 Capital requirement for branch or locally domiciled insurer is USD 34.4 million Foreign ownership of 100% is allowed to the insurance company branches For a locally domicile insurer, foreign ownership can vary between 49% and 100% depending on the Kuwaiti Investment Committee Direct Kuwaiti risks can only be written by insurers licensed in Kuwait
Source: Clyde & Co
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Oman
Economic Overview
Omans GDP grew 18.7% in 2010 compared to a fall of 22.6% in 2009. Oman projects a record expenditure of USD 21.12 billion for the current financial 434,440 Higher tourist 656,400 and foreign direct investments would also 564,110 year. arrivals contribute to the growth in the current fiscal. IMF estimates Omans GDP to expand at a CAGR of 5.8% during 201115. 5.4 6.0 4.0 Real Estate and Construction sectors are the two important contributors to GDP in Oman. These sectors have shown double digit growth rate over the 16,552.62 20,251.95 22,691.60 last few years and their growth was mainly driven by the continued expansion of physical infrastructure.
Current Sovereign Ratings: A

Insurance Overview Total Premium Contribution Omans insurance industry is not very big but is expected to grow big in the coming years, especially after the two cyclones which have hit the region severely. The insurance sector is expected to rise steeply if the ministers approve proposals currently under consideration to make medical insurance mandatory. The insurance premium in the sector grew at a CAGR of 20.9% in the last five years and is estimated to grow at a CAGR of 17.6% from 2011 to 2015. The life and non-life penetration in 2010 was 0.2% and 1.1% respectively.
Year Life (USD Mn) Non Life (USD Mn) Total Products Segments (2009)
2009 105. 514 619
2010 129 629 758
Change 22.9% 22.4% 22.5%
Product Segments
The major portion of the revenues comes from Motor segment which contributes 54.5% of the total premiums. Other segments are property, 25.1%, Life, 11.7%, marine 2.4% and others 6.3%.
There are many foreign companies which have entered the region. The foreign companies include New India Assurance Company Limited, Arabia Insurance Company Limited, and Iran Insurance Company. The national insurance companies apart from the top five companies in Oman are Muscat Life Insurance Company, Royal & Sun Alliance Company.
Source: Sultanate of Oman Capital Market Authority
Source: Clyde & Co
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Key Driving Factors

As per Eastern Mediterranean Regional Health System Observatory, Omans median age is 18.8 years, one of the lowest among GCC nations. Thus it is beneficial for the insurance sector as young population is more likely to take up insurance Omans population expanded at a CAGR of 1.9% during 200010, the lowest among GCC countries. The IMF estimates the countrys population to expand at a CAGR of 3.2% during 201115. The growing population will benefit the insurance sector in the region
Key Players (top 5 by Revenue)
Company Oman National Investment Oman United Insurance Company Dhofar Insurance Company Oman Qatar Insurance Company National Life and General Insurance Company
Market Share 8.47% 7.42% 6.12% NA NA
Year of Entry 1978 1985 1989 2004 1983
The insurance regulator in Oman is Oman Capital Markets Authority The capital requirement for insurers in Oman is USD 13 million The Omani Capital Markets Authority issued a decision regulating the marketing of insurance products through banks. This is called Bancassurance. It is a popular distribution channel for the sale of insurance products The government has issued royal decree no. 12/79 which contains the insurance companies laws It is mandatory for the licensed companies of Oman, both local and foreign, to comply with reporting requirements and establish and maintain reserves and deposits as required by the Law Except life insurance, the Omani Law prohibits insurance contracts with foreign companies which are not commercially registered in Oman It is compulsory for all vehicles in Oman to have third-party insurance which must cover death, bodily injury and material damage to third parties
Source: Clyde & Co
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Qatar
Macro-economic Indicators Indicators GDP Inflation GDP per capita Unit USD Mn % USD 2010 129,485 -2.4 76,168 2013E 216,243 4.2 113,098 2015E 234,823 4.0 113,551
Economic Overview
According to the IMF, Qatars GDP is estimated to have grown 31.7% in 2010 compared to a decline of 11.2% in 2009. The growth can be 53,780 434,440 564,110 656,400 attributed 69,050 to massive 79,100 expansion in the nations hydrocarbons capacity. IMF estimates the country to continue its robust growth with a CAGR of 4.9% during 201115. 3.3 3.5 3.0 5.4 6.0 4.0 Oil and gas sector contributes the most to the countrys economy followed by financial services sector. 18,512.91 22,404.28 24,718.75 16,552.62 20,251.95 22,691.60
Current Sovereign Ratings: AA

Insurance Overview Total Premium Contribution Year Life (USD Mn) Non Life (USD Mn) Total Products Segments (2009) 2009 58 773 831 2010 60 933 993 Change 2.7% 20.7% 19.4% The development of the personal lines sector has stalled, although this is expected to change with an increasing level of focus placed on Takaful and the introduction of compulsory health insurance for expatriates (who make up 80% of the population). An increasing number of players are looking to invest in the nascent Takaful segments, whilst all existing national firms are in the process setting up or have already set up Takaful operations. The insurance premium in the sector grew at a CAGR of 16.5% in the last five years and is expected to reach USD 4,459 million by 2015 growing at a CAGR of 29.5%. The non-life penetration was 1.9% and life penetration was 0.05% in 2010.
Distribution Channels
Source: Sultanate of Oman Capital Market Authority
Product Segments
The major portion of the revenues comes from Marine segment followed by Energy. Property consists of 23.2% of the revenues. Casualty, Aviation and Accident & Health contribute 7.1%, 3.6% and 2.3% to the revenues of the country, respectively.
Source: Country Profile Qatar-Lloyds June 2011
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The government's push to diversify out of oil & gas has led to the development of the Qatar Financial Centre (QFC), which has attracted a steady stream of global insurance players including Allianz, Axa, Chartis and Mitsui amongst others.
Key Players (top 5 by Revenue) Company Qatar Insurance Company Qatar General Insurance and Reinsurance Company Doha Insurance Company Alkhaleej Takaful Group Market Share 45.7% 11.0% 7.9% NA 3.8% Year of Entry 1964 1978 1999 1978 1993
Source: Country Profile Qatar-Lloyds June 2011
Qatar Islamic Insurance Company
Key Driving Factors

The Qatari government has drafted an infrastructure spending plan totaling USD50 billion. The initiative is likely to have a multiplier effect on population growth. The country is expected to see a rise in expatriates, mainly due to the increased need for workers to support the infrastructure development plans. This can be beneficial for the insurance sector One of the key drivers for the insurance sector is Qatars GDP per capita which is the highest in the GCC region and among the highest in the world, as per IMF data Another important driver is the countrys economically active population which boosts the demand for insurance. The country has high economically active population, the highest among GCC countries. According to the figures by the UN, 84% of the nations population was economically active in 2009 (compared to 55% in Saudi Arabia, 78% in the UAE, 56% in Oman, 69% in Kuwait and 64% in Bahrain) The urban population in Qatar is 95.8% which is favorable for the insurance sector
There are two jurisdictions governing the local insurance sector in Qatar which are the laws of the State of Qatar and the rules and regulations of Qatar Financial Centre (QFC) Government has issued rules regarding captive insurance. It has issued rules regarding prudential requirements, minimum capital requirements, and there are restrictions on captive insurance business QFCRA has also come up with Insurance Business Mediation Rules 2011 The QFC law provides that an entitlement allowing entities set up within the QFC to be 100% foreign owned The State provides that the assets and properties within Qatar may only be insured by a Qatar national insurer The State also provides that an insurance agent must be a Qatari national of good standing or a wholly Qatari owned entity
Source: QFCA-The Case for Insurance March 2011
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Saudi Arabia
Economic Overview
Saudi Arabias GDP is estimated to have grown 17.9% in 2010 after contracting by 21.1% in 2009, according to the IMF. The economy is expected to benefit from rising oil prices and is projected to expand at 5.5% (CAGR) each year during 201115. Saudi Arabia is the worlds leading producer and exporter of oil. Its policies on oil and petroleum products production and export affect the global energy market and the global economy. Since the natural resources of Saudi Arabia are finite, the Government is taking steps to minimize its dependence on this resource as the only supply of Government revenue.
Current Sovereign Ratings: BBB

Insurance Overview Total Premium Contribution Year Life (USD Mn) Non Life (USD Mn) Total 2009 267 3,629 3,896 2010 340 4342 4682 Change 27.3% 19.4% 20.2% The insurance premium in the sector has grown at a CAGR of 26.5% in the last five years and is estimated to grow at a CAGR of 18.0% from 2011 to 2015. The non-life and life insurance penetration at 1.0% and 0.1% are amongst the lowest in the region. Distribution Channels Saudi Arabia is amongst the largest insurance markets in the Gulf region. Until the early 1990s insurance was considered to be haram (prohibited by faith) in Saudi Arabia. In 2003 a comprehensive set of regulations was developed under the Saudi Arabian Monetary Authority (SAMA). The implementation of new regulations ended in April 2008. There are a lot of Takaful companies in the region. The main classes of business in this industry are health and motor.
Products Segments (2009)
Source: The Saudi Insurance Market Report 2010
Source: Country Profile Saudi Arabia-Lloyds June 2011
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Product Segments
The major portion of the revenues comes from Motor segment, which contributes 59% to the total premiums in the country. Amongst others marine and aviation contributes 13% and Property & Misc Accidents contributes 28%.
Key Players (top 5 by Revenue)
Company The Company for Cooperative Insurance The Mediterranean & Gulf Cooperative Insurance & Reinsurance-Saudi Arabia
Market Share 25.7% 16.1% 10.7% 5.2% 3.1%
Year of Entry 1986 2006 2008 1974 2007
Bupa Arabia for Cooperative Insurance According to SAMA, there are around 35 insurance companies operating in Saudi Arabia. In recent years, Saudi insurers have made increasing use of available facultative reinsurance capacity within the Gulf Cooperation Council (GCC) states, especially in Bahrain and the UAE.
Source: Country Profile Saudi Arabia-Lloyds June 2011
United Cooperative Assurance Company Malath Cooperative Insurance and Reinsurance Company
Key Driving Factors

The key driver of the insurance sector in Saudi Arabia is the takaful insurance which has wide acceptance and growth opportunities in the region Saudi Arabias population, which is the largest among GCC countries and growing at among the worlds fastest rate, would also play a key role in driving the growth of insurance in the country. As per Business Monitor International estimates, the Saudi population is estimated to double by 2023. With an increase in the population there is more probability of more insurance policies taken by people Another driving factor for insurance in Saudi Arabia is the demographic profile. The Saudi Labor Ministry estimates that nearly 70% of the population was less than 30 years of age in 2010. This is higher compared to 44% in the UAE, 48% in Kuwait, 50% in Qatar, and 54% in Bahrain, as per UN estimates Also, rising employment in the private sector and among females is providing impetus to the insurance sector as the chances of people taking insurance increases with employment
The laws and regulations in Saudi Arabia are formulated by the Saudi Arabian Monetary Agency (SAMA). SAMA has introduced wide range of regulations in last few years in order to regulate the industry SAMA had issued draft Outsourcing Regulations indicating SAMAs intention to bring clarity to the insurance sector. The draft regulations ensured that the policyholders will be offered with the same level of protection even if the functions are outsourced SAMA also issued a new regulation on reinsurance activities. The regulation lays the general principles and standards which are applicable to reinsurance in the region The minimum paid up capital for insurance companies in Saudi Arabia is USD 26.66 million for direct insurers and USD 53.33 million for reinsurers Local insurance brokers are required under the Cooperative Insurance Companies Control Law to be registered and licensed for business in Saudi Arabia. Brokers are required to have a paid-up capital of USD 800,000. A separate license and paid-up capital is required for a broking organization wanting to act as a reinsurance broker. Aon, JLT, Marsh and Willis are among the key players
Source: Clyde & Co
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United Arab Emirates

Economic Overview
According to the IMF, UAEs GDP is estimated to grow 20.5% in 2011 compared to 11.7% in 2010, mainly due to a rebound in tourism and other 434,440 564,110 656,400 services as well as rising oil prices. The IMF projects the economy to expand at 5.4 a CAGR of 5.7% during 201215. 6.0 4.0 16,552.62 20,251.95 22,691.60 UAEs main economic sectors apart from crude oil are manufacturing sector, service sector and real estate sector. Agricultural production has also increased over the years mainly due to the efforts of the UAE Government to promote agricultural development with incentives and subsidies.
Current Sovereign Ratings: BB

Insurance Overview Total Premium Contribution Year Life (USD) Non Life (USD million) Total Products Segments (2009) 2009 891 4,565 5,456 2010 936 4,939 5,875 Change 5.1% 8.2% 7.7% The insurance market in UAE is notable for its size compared to other countries in the region. The UAE insurance market is split between onshore (domestic) and offshore (wholesale business non-domestic), with the former governed by the Ministry of Economy (MOE) and the latter based in the Dubai International Financial Centre (DIFC). Over the past few years, there have been efforts to move to more open and competitive markets. This has resulted in national insurance companies in the capital no longer having a monopoly over government businesses. The insurance premium in the sector has grown at a CAGR of 20% in the last five years and is estimated to grow at a CAGR of 19% from 2011 to 2015. UAE has the second highest non-life penetration in the region at 1.6%.
Distribution Channels
Product Segments
39.5% of the revenues come from Marine & Aviation segment followed by Property segment contributing 20.1%. Energy consists of 12.2% of the revenues. Motor, Casualty and Accident & Health contribute 10.9%, 10.9% and 9.5% to the revenues of the country, respectively.
Source: Country Profile UAE-Lloyds June 2011
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The domestic insurance market is relatively fragmented. Out of the 48 insurance companies, half are national insurance companies incorporated in the UAE, and the other half are foreign insurance companies incorporated abroad. The number of non-life companies includes 13 national companies and 18 foreign firms, while there are only four life companies, all foreign. Local groups such as Oman Insurance, Abu Dhabi National Insurance Co, Salama, Arab Orient and Al Ain hold strong market positions, while many smaller players focus on niche product lines or distribution channels, with foreign companies largely focusing on the insurance needs of expatriate communities.
Source: Country Profile UAE-Lloyds June 2011
Key Players (top 5 by Revenue) Company Oman Insurance Company Abu Dhabi National Insurance Company Arab Orient Insurance Company Al Buhaira National Insurance Company Emirates Insurance Company Market Share 9.6% 7.0% 4.4% 2.6% 2.5% Year of Entry 1975 1972 1980 1978 1982
Key Driving Factors

One of the key drivers of the industry in the region is planned projects which were previously stopped are now going to start which would help the economy as a whole and boost the demand for non-life insurance. Planned projects in January 2011 in UAE are worth USD 171 billion
The UAE insurance authority has issued many regulations and guidance in 2010 on the insurance laws of 2007 which includes code of conduct and business ethics for insurance companies In July 2009, the UAE Insurance Authority made insurance brokers to satisfy the minimum increased guarantee requirements that were introduced at the end of 2006 in revised regulations applicable to brokers and eliminated the ones who could not meet the criteria DIFC has laid solvency margin requirements according to which all insurers must always have Adjusted Capital Resources equal to or higher than the amount determined by its Minimum Capital Requirement Captive insurers have an application fee of USD 5,500
14. 15. 16. 17. 18. 19.
The government has taken initiatives to develop other emirates which would increase the number of expatriates in the UAE which can lead to higher demand for insurance. Currently, expatriates constitute 85% of the nations population
DIFC put some base capital requirements for direct insurers, reinsurers and captive insurers. For example, reinsurers and direct insurers have a base capital requirement of USD 10 million each They insurers in or from DIFC cannot directly insuring risks within UAE
Source: QFCA-The Case for Insurance March 2011
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Company Profiles
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Oman Insurance Company

Company Description
Oman Insurance Company (P.S.C.) (OIC) operates as an insurance company in the United Arab Emirates. It offers general, life, health, motor, and personal insurance products that cover energy, marine, and construction sectors, as well as industrial and commercial enterprises. The company also provides aviation insurance, fire and general accident insurance, engineering insurance, and liability insurance products. In addition, it invests in securities and properties. The company was founded in 1975 and is headquartered in Dubai, United Arab Emirates. Oman Insurance Company (P.S.C.) is a subsidiary of Mashreqbank PSC. It was listed in the year 2004. The S&P Rating for the company is BBB+.
Current price (USD)
2.13
Price as on June 30,2011, 1 UAE Dirham equals USD 0.27
Stock Details Bloomberg ticker 52 week high/ low Market Cap (USD Mn) Enterprise value (USD Mn) Shares outstanding (Mn) OIC:UH 2.4/1.9 892.8 873.2 420.0
Average Daily Turnover (000s) AED 3M 12 M Share Price Chart 0.0 440.6 USD 0.0 119.9
Business Segments and Product Portfolio

The Company engages in the business of issuing short term and long term insurance contracts. These insurance contracts are issued in connection with property, motor, aviation and marine risks (collectively known as general insurance) and individual life (participating and non-participating), group life, personal accident, medical and investment linked funds. Thus, the Company is basically organized into three business segments, general insurance, life insurance and investments Segment Revenues Contribution
Key Strengths
Oman Insurance Company has a strong competitive position in the market backed by strong operating performance It has a very strong underwriting performance It has a well diversified geographical presence Its assets are also highly diversified and it has a large number of revenue segments Valuation Multiples 2010 P/E (x) P/B (x) EV/S (x) Dividend Yield (%) Source: Capital IQ Shareholding Structure Mashreqbank Saeed Mohammed Saeed Al Ghandi Ahmed Humaid Al Tayer Public Total Source: Zawya 63.65% 4.50% 1.00% 25.85% 100.00% 34.85 2.26 1.31 Current 7.57 2.18 -
Recent Developments and Future plans

Net premium for the first quarter of 2011 was US $103.2 million, a decrease of 7% on Q1 2010. Also, OIC reported a net income of US $29.5 million in the first quarter of 2011 compared to net income of US $26.7 million in the same period in 2010 In January 2011, OIC declared that it may float an Islamic insurance (takaful) firm in the country. The company, also known as Tameen, has appointed an advisory company which is carrying out the due diligence for it to foray in to takaful segment In January 2011, Oman Insurance Company announced the opening of its 16th branch in Mussaffah, the industrial town of Abu Dhabi to continue providing the best services and products in the market to their customers
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Financial Performance (USD million) Revenue COGS Operating Income Operating Margin (%) Net Income Net Income Margin (%) ROE (%) ROA (%) Source: Company Data, Zawya 2009 636.5 519.9 91.7 14.40 51.6 8.10 11.9 3.8 2010 665.3 509.8 71.6 10.75 25.6 3.80 6.3 1.9 (50.40%) % Change 4.50% (2.00%) (21.90%) Revenues increased to USD 665.3 million (4.5% y-o-y) in 2010 due to economic recovery EBIT stood at USD 36.2 million in 2010 Net Income decreased by 50.4% y-o-y to USD 25.6 million in 2010
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Qatar Insurance Company

Company Description
Qatar Insurance Company S.A.Q., (QIC) together with its subsidiaries, provides insurance, re-insurance, real estate, and financial advisory services. The company offers personal insurance products, such as home care, travel care, and premier automobile insurance products; and business insurance products, including energy, marine cargo and hull, aviation, property and commercial, medical, and motor insurance products. It also provides investment management services in Bermuda. The company operates in the State of Qatar, the United Arab Emirates, the Sultanate of Oman, Kuwait, Bermuda, and Malta. Qatar Insurance Company S.A.Q. was founded in 1964 and is based in Doha, Qatar. It was listed in the year 1998. The S&P Rating for the company is A.
Current price (USD)
21.97
Price as on June 30,2011, 1 Qatari Rial equals USD 0.27
Stock Details Bloomberg ticker 52 week high/ low Market Cap (USD Mn) Enterprise value (USD Mn) Shares outstanding (Mn) QATI:QD 25.8/17.7 1632.7 1404.1 74.0
Average Daily Turnover (000s) QAR 3M 12 M Share Price Chart 1,616.1 2,746.7 USD 443.6 753.9

The major business segments of the company are: Marine & Aviation and Fire & General The company is involved in providing insurance services in various segments such as motor insurance, marine insurance, fire insurance, engineering insurance, general accidents insurance, electronics and generally computer hardware/software insurance, money/bankers insurance, personal/professional liability insurance, life insurance and Balsam medical insurance
Segment Revenues Contribution
Key Strengths
It has a very strong capitalization base compared to its peers thus having a strong competitive position The company holds a well diversified investment portfolio and has a very strong and stable operating performance
Valuation Multiples 2010 P/E (x) P/B (x) EV/S (x) 10.04 1.77 2.37 Current 7.46 2.07 -

Net premium for the first quarter of 2011 was US $128 million, an increase of 19.6% on Q1 2010. Also, QIC reported a net income of US $56.1 million in the first quarter of 2011 compared to net income of US $59.5 million in the same period in 2010 In February 2011, QIC has planned to establish a specialized medical and group life insurance company to be registered at Qatar Financial Centre this year In February 2011, QIC declared that it holds 60 percent of the local market share
Dividend Yield (%) 8.12

Source: Capital IQ
Shareholding Structure Government of Qatar Burooq Trading Company 12.00% 5.00%
HH Sheikh Khalifa, Khalid Bin 4.94% Mohammed Bin Ali Al Thani Qatar National Bank HE Sheikh Khaled Bin Mohammed Bin Ali Al Thani Public Total Source: Zawya 2.94% 2.24% 72.88% 100.00%
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Financial Performance (USD million) Revenue COGS Operating Income Operating Margin (%) Net Income Net Income Margin (%) ROE (%) ROA (%) Source: Company Data, Zawya 2009 590.3 291.4 81.9 13.9 146.3 24.8 19.7 8.3 2010 591.3 312.9 63.5 10.7 162.0 27.4 19.1 8.4 10.70% % Change 0.20% 7.40% (22.50%) Revenues increased marginally to USD 591.3 million (0.2% yo-y) in 2010 EBIT stood at USD 171.0 million in 2010 Net Income rose 10.7% y-o-y to USD 162.0 million in 2010
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Abu Dhabi National Insurance Company

Company Description
Abu Dhabi National Insurance Company PSC (ADNIC) engages in the insurance and reinsurance businesses in the United Arab Emirates. Its insurance product line comprises property, such as on-shore and off-shore; energy; liabilities and financial lines; and construction and engineering insurance products. The company also offers life, medical, motor, and aviation products, as well as marine insurance, including yachts insurance. In addition, it provides claims management and risk engineering services. Abu Dhabi National Insurance Company PSC was founded in 1972 and is headquartered in Abu Dhabi, the United Arab Emirates. It was listed in the year 2003. The S&P Rating for the company is A-.
Current price (USD)
1.63
Stock Details Bloomberg ticker 52 week high/ low Market Cap (USD Mn) Enterprise value (USD Mn) Shares outstanding (Mn) ADNIC:UH 1.9/1.5 612.5 558.4 375.0

The company is organized into two main business segments: Underwriting of marine & aviation insurance business-incorporating all classes of general insurance including marine cargo, hull & aviation Underwriting of non-marine insurance business-incorporating all classes of insurance including fire, engineering, general accident, motor & medical
Key Strengths
The company has a commendable risk-adjusted capitalization and strong business position in the insurance market It also has robust financial performance and a strong operating performance It has high liquidity which is one of the most important factors that drives the insurance business
Valuation Multiples 2010 P/E (x) P/B (x) 15.80 1.10 1.16 5.83 Current 7.24 1.14 -

Net premium for the first quarter of 2011 was US $144 million, an increase of 341.5% on Q1 2010. Also, ADNIC reported a net income of US $21.1 million in the first quarter of 2011 compared to net income of US $18.4 million in the same period in 2010 In May 2011, ADNIC reported 19 per cent growth in its underwriting income and revenue growth from its core insurance operations for the first quarter of 2011 In May 2011, ADNIC reported strong underwriting income and revenue growth from its core insurance operations for the first quarter of 2011. The company continues to effectively execute on its Accelerated Evolution Plan with a focus on continuous revenue growth and profitability. This is in line with ADNICs vision to be the leading insurer of choice across the Middle East and North Africa region
EV/S (x) Dividend Yield (%) Source: Capital IQ
Shareholding Structure Abu Dhabi National Investment Council Khalaf Al Qutaibah Sheikh Tahnoun Mohammed Al Nahyan Others Public Total Source: Zawya Bin 23.80% 10.11% 5.30% 5.13% 55.66% 100.00%
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Financial Performance (USD million) Revenue COGS Operating Income Operating Margin (%) Net Income Net Income Margin (%) ROE (%) ROA (%) Source: Company Data, Zawya 2009 422.4 174.7 38.0 8.98 14.1 3.30 2.7 1.6 2010 481.9 251.2 21.8 4.50 38.8 8.10 7.0 4.0 175.10% % Change 14.10% 43.80% (42.60%) Revenues increased to USD 481.9 million (14.1% y-o-y) in 2010 EBIT stood at USD 38.8 million in 2010 Net Income rose175.1% y-o-y to USD 38.8 million in 2010
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Gulf Insurance Company

Company Description
Gulf Insurance Company K.S.C. (GIC) provides a range of insurance products and services to individual and corporate customers primarily in Kuwait. It offers motor insurance products; marine and aviation insurance products comprising aviation insurance, hull insurance, and cargo insurance; property and casualty insurance consisting of engineering, property, liabilities, property and general accident, money, and personal insurance products; and life and health insurance products. The company was founded in 1962 and is based in Safat, Kuwait. It is a subsidiary of Kuwait Projects Company Holding K.S.C. It was listed in the year 1996. The S&P Rating for the company is BBB+.
Current price (USD)
1.97
Price as on June 30,2011, 1 Kuwaiti Dinar equals USD 3.62
Stock Details Bloomberg ticker 52 week high/ low Market Cap (USD Mn) Enterprise value (USD Mn) Shares outstanding (Mn) GINS:KK 2.5/1.4 350.6 343.5 178.0
Average Daily Turnover (000s) KWD 3M 12 M Share Price Chart 15.8 242.2 USD 57.4 858.7
Business Segments and Product Portfolio .

The company has various business segments, namely, Life Insurance, Marine & Aviation, Motor Vehicles, Property, Engineering, General Accidents, and Medical Insurance
Key Strengths
Low debt leverage The company reported positive net income and revenue growth in the last three years despite the economic turmoil. 2 year CAGR Return on equity was an impressive 52.8%
Valuation Multiples 2010 P/E (x) P/B (x) EV/S (x) 12.50 1.37 0.81 4.41 Current 11.76 1.36 -

Net premium for the first quarter of 2011 was US $57 million, a decrease of 9% on Q1 2010. Also, GIC reported a net income of US $7.4 million in the first quarter of 2011 compared to net income of US $8.9 million in the same period in 2010 In May 2011, Standard & Poor's Ratings Services revised its outlook to positive from stable on Kuwait-based non-life insurer GIC. At the same time, they affirmed the 'BBB+' long-term counterparty credit and insurer financial strength ratings on the company In March 2011, the Arab Orient Insurance Company, a subsidiary of GIC, posted JOD 4 million (US$ 5.642 million) in profits before deduction of taxes for the year ended December 31, 2010, representing a 27% increase over 2009
Dividend Yield (%) Source: Capital IQ
Shareholding Structure Kuwait Projects Company Fairfax Financial Holdings Kuwait United Company Public Total Source: Zawya Consultancy 38.77% 41.43% 5.27% 14.53% 100.00%
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Financial Performance (USD million) Revenue COGS Operating Income Operating Margin (%) Net Income Net Income Margin (%) ROE (%) ROA (%) Source: Company Data, Zawya 2009 338.7 192.1 13.5 3.98 17.6 5.20 7.0 2.0 2010 424.7 208.9 15.6 3.67 27.3 6.40 11.2 3.0 55.10% % Change 25.40% 8.70% 15.60% Revenues increased to USD 424.7 million (25.4% y-o-y) in 2010 EBIT stood at USD 35.1 million in 2010 Net Income rose 55.1% y-o-y to USD 27.3 million in 2010
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Arab Orient Insurance Company

Company Description
Arab Orient Insurance Company PSC commenced operations in 1982 as a part of the reputed AlFuttaim Group. The companys comprehensive product range includes classes of insurance such as Fire, Property All Risks, Business Interruption, Motor Vehicles, Cargo, Marine Hull, Goods-in-Transit, Yacht and Pleasure Craft, Burglary, Workmen's Compensation, Employer's Liability, Fidelity Guarantee, Householder's Comprehensive, Travel, Contractors All Risks, Erection All Risks, Machinery Insurance, Energy, Life (Group & Individual) and Medical Expenses. Headquartered in Dubai, the company also has its presence in the Sultanate of Oman. The companys stocks were last traded on June 15, 2009. The S&P Rating for the company is A.
Current price (USD)
36.08
Stock Details Ticker 52 week high/ low Market Cap (USD Mn) Enterprise value (USD Mn) Shares outstanding (Mn) AOIC:DFM NA/NA 108.2 NA 3.0
AOIC 36.8 24.6 4.0
2.2/1
Average Daily Turnover (000s) AED 3M 12 M Share Price Chart NA NA USD NA NA

The primary business segments are: Life insurance and General Insurance The general insurance segment comprises motor, marine, fire, engineering, general accident and medical The life segment includes individual and group life insurance
Key Strengths
The administration expense ratio has been decreasing over the last few years which is a positive sign as it shows operational efficiency on the part of the company The companys financial performance has been very good, return on equity being 24.06. Valuation Multiples 2010 P/E (x) P/B (x) EV/S (x) Dividend Yield (%) Source: Capital IQ Shareholding Structure Al Futtaim Development Services Company Al Futtaim Group Al Futtaim Private Company Total Source: Zawya 90.00% 5.00% 5.00% 100.00% NA NA 0.08 NA Current NA NA NA NA

Net premium for the first quarter of 2011 was US $28.5 million, an increase of 20.6% on Q1 2010. Also, AOIC reported a net income of US $17 million in the first quarter of 2011 compared to net income of US $15.4 million in the same period in 2010 In September 2010, Standard & Poor's Ratings Services upgraded Arab Orient Insurance Group (Orient) to a full 'A' with a stable outlook. Orient group also has operations in Egypt, Syria and Oman In February 2010, AOIC, a member of the Al Futtaim group, announced the rebranding of its corporate identity to Orient
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Financial Performance (USD million) Revenue COGS Operating Income Operating Margin (%) Net Income Net Income Margin (%) ROE (%) ROA (%) Source: Company Data, Zawya 2009 272.8 181.5 30.1 11.0 50.7 18.6 27.9 10.2 2010 307.2 189.7 33.6 10.9 52.5 17.1 24.1 9.7 3.60% % Change 12.60% 4.50% 11.80% Revenues increased to USD 307.2 million (12.6% y-o-y) in 2010 EBIT stood at USD 52.2 million in 2010 Net Income rose 3.6% y-o-y to USD 52.5 million in 2010
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Bahrain National Holding Company

Company Description
Bahrain National Holding Company B.S.C., together with its subsidiaries, provides various insurance and risk management solutions in Bahrain. It offers motor and general insurance products comprising motor, property, general accidents, engineering, marine, aviation, and fire insurance; and insurance for medium to large industrial and commercial enterprises. The company also provides a range of corporate and individual products, including medical products, group life, group credit life, decrease in term assurance, level term assurance, saving scheme plans, mortgage insurance, group and individual medical plans, and family investment plans. Bahrain National Holding Company B.S.C. was incorporated in 1998 and is based in Manama, Bahrain. It was listed in the year 1999.
Current price (USD)
1.11
Price as on June 30,2011, 1 Bahraini Dinar equals USD 2.65
Stock Details Bloomberg ticker 52 week high/ low Market Cap (USD Mn) Enterprise value (USD Mn) Shares outstanding (Mn) BNH:BI 1.2/1.0 118.9 97.6 113.5
Average Daily Turnover (000s) BHD 3M 12 M Share Price Chart 3.1 46.7 USD 8.2 123.3

The company has three business segments, Motor & General Insurance, Life Assurance & Medical and Corporate: The Motor & General Insurance segment comprises motor, property, general accidents, engineering, marine & aviation
The Life Assurance and Medical segment comprises medical products, group life, group credit life, and decrease in term assurance, level term assurance and saving scheme plans The Corporate segment comprises administrative and financial operations services for the Groups companies
Key Strengths
The company has a strong capitalization base with high liquidity and no leverage The company holds 30% stake in Bahrain Emirates Insurance Company with partners from the UAE which supports the companys regional expansion plans S&P reaffirmed the companys rating as BBB+ forecasting a stable outlook for the company
Valuation Multiples 2010 P/E (x) 12.75 1.17 1.59 4.78 Current 11.69 1.22 -

Net premium for the first quarter of 2011 was US $7.2 million, a decrease of 6.5% on Q1 2010. Also, BNHC reported a net income of US $2.7 million in the first quarter of 2011 compared to net income of US $2.5 million in the same period in 2010 In April 2011, the company announced it is planning to become a player in the Takaful market and was aiming to do so through a GCC acquisition
P/B (x) EV/S (x) Dividend Yield (%) Source: Capital IQ
Shareholding Structure Youssef Abdullah Al Amin National Insurance CompanyIraq Abdulhamid Zainal Mohammed Zainal Public Total Source: Zawya 10.80% 6.55% 5.77% 76.88% 100.00%
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Financial Performance (USD million) Revenue COGS Operating Income Operating Margin (%) Net Income Net Income Margin (%) ROE (%) ROA (%) Source: Company Data, Zawya 2009 60.9 44.1 (9.8) N.M. 10.5 17.2 10.3 5.4 2010 61.2 54.8 5.0 8.2 9.9 16.2 9.2 5.0 (5.7%) % Change 0.5% 24.3% N.M. Revenues increased to USD 61.2 million (0.5% y-o-y) in 2010 EBIT stood at USD 13.1 million in 2010 Net Income decreased by 5.7% y-o-y to USD 9.9 million in 2010
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Al Buhaira National Insurance Company

Company Description
Al Buhaira National Insurance Company P.S.C. (ABNIC) - Sharjah operates as the insurance company in the United Arab Emirates. It offers insurance coverage for property, engineering, energy, marine cargo, hull and aviation, group life medical, motor, and travel risks. The company also provides insurance coverage for bankers blanket, burglary/theft/robbery/holdup, fidelity guarantee, personal accident, jewelers block, boiler and pressure plant, money, plate glass, professional indemnity, directors and officers liability, public liability, workmens compensation, employers liability, medical malpractice, and contingency risks. The company was founded in 1978 and is headquartered in Sharjah, United Arab Emirates. It was listed in the year 2005. The S&P Rating for the company is BB+.
Current price (USD)
2.45
Stock Details Bloomberg ticker 52 week high/ low Market Cap (USD Mn) Enterprise value (USD Mn) Shares outstanding (Mn) ABNIC:UH 2.5/1.3 581.4 662.7 250.0

The revenue segments of the company are Accident & Liability, Fire & General, Marine & Aviation and Others The kinds of products which the company provides are Property, Engineering, Energy, Marine & Aviation, Life & Medical, Miscellaneous, Motor and Travel Segment Revenues Contribution
Key Strengths
ABNIC has entered into the takaful industry which is expected to perform well in the near term The company entered into a strategic partnership recently to provide insurance products that cater to the region's needs of health insurance, mutual insurance and money making. "Takaful Emarat" was established with a paid-up capital of AED 150 million through a strategic partnership between "Al Buhaira National Insurance Co. and the Austrian "UNIQA Group"
Valuation Multiples 2010 P/E (x) P/B (x) EV/S (x) Dividend Yield (%) 51.63 3.58 3.74 2.44 Current 25.44 3.80 -

Net premium for the first quarter of 2011 was US $19.6 million, a decrease of 4.6% on Q1 2010. Also, ABNIC reported a net income of US $6 million in the first quarter of 2011 compared to net income of US $10.1 million in the same period in 2010 In August 2010, Standard & Poor's Ratings Services has lowered its long-term counterparty credit and insurer financial strength ratings on the company to 'BBB-' from 'BBB'
Source: Capital IQ Shareholding Structure The Private Investment Group HH Sheikh Abdullah Bin Mohammed Bin Ali Al Thani HH Sheikh Faisal Bin Khaled Bin Sultan Al Qassimi HH Sheikh Tarek Bin Faisal Khaled Al Qassimi Public Total Source: Zawya 27.65% 13.47% 12.14% 9.59% 37.15% 100.00%
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Financial Performance (USD million) Revenue COGS Operating Income Operating Margin (%) Net Income Net Income Margin (%) ROE (%) ROA (%) Source: Company Data, Zawya 2009 188.4 158.0 24.9 13.2 27.4 14.5 15.4 5.0 2010 177.1 160.4 18.5 10.4 11.9 6.7 6.7 2.2 (56.60%) % Change (5.97%) 1.50% (25.70%) Revenues decreased to USD 177.1 million (5.97% y-o-y) in 2010 EBIT stood at USD 15.8 million in 2010 Net Income decreased by 56.6% y-o-y to USD 11.9 million in 2010
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Emirates Insurance Company

Company Description
Emirates Insurance Company P.S.C. engages in the general insurance and re-insurance businesses in the United Arab Emirates, Europe, and the United States. The company provides hotel comprehensive/block, jewelers block, and office comprehensive insurance; general third party liability, workmens compensation, fidelity guarantee, and money insurance products; group life, group medical, and group personal accident insurance products; and contractors all risks/erection all risks, contractors plant and equipment insurance, machinery breakdown insurance, electronic equipment insurance, and insurance against deterioration of stock. In addition, the company provides underwriting services. It sells its products through various distribution channels, including broker channel, direct channel, and other insurance companies to companies, business establishments, organizations, and individuals. The company was founded in 1982 and is headquartered in Abu Dhabi, the United Arab Emirates. It was listed in the year 1995. The S&P Rating for the company is BBB+.
Current price (USD)
1.67
Stock Details Bloomberg ticker 52 week high/ low Market Cap (USD Mn) Enterprise value (USD Mn) Shares outstanding (Mn) EIC:UH 1.8/1.5 226.0 199.2 135.0
Average Daily Turnover (000s) SAR 3M 12 M Share Price Chart 590.2 5501.1 USD 160.7 1497.4

The company has two major lines of business that includes Underwriting and Investments. Most of the investments are held in UAE with some investments in the managed portfolios and other securities held in Europe and USA. Amongst its underwriting business the major product lines are: Motor, Engineering, Fire and General Accidents, Marine and Aviation, Life Medical and Personal Assurance, and Oil and Gas
Valuation Multiples 2010 P/E (x) P/B (x) EV/S (x) 7.68 1.05 1.16 9.76 Current 6.21 1.14 -
Key Strengths
It has been assigned a BBB+ rating by the S&P reaffirming it as an investment grade company It has a large cash resource and had seen an increase of 33% in 2010 as compared to 2009 in the same

Net premium for the first quarter of 2011 was US $39.9 million, an increase of 15.9% on Q1 2010. Also, EIC reported a net income of US $9.1 million in the first quarter of 2011 compared to net income of US $8.3 million in the same period in 2010 In October 2010, EIC chose ESET NOD32 to secure its IT infrastructure to minimize data loss risk arising out of security threats In April 2010, S&P assigned its gcAA regional credit rating scale for the Gulf Corporation Council to EIC
Shareholding Structure Abu Dhabi Investment Council 11.81% Al Mazroui Group Others Public Total Source: Zawya 14.72% 15.35% 58.12% 100.00%
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Financial Performance (USD million) Revenue COGS Operating Income Operating Margin (%) Net Income Net Income Margin (%) ROE (%) ROA (%) Source: Company Data, Zawya 2009 175.1 108.1 15.4 8.8 17.3 9.9 7.9 4.0 2010 171.5 107.1 16.8 9.8 29.4 17.1 13.7 6.9 69.9% % Change (2.1%) (0.9%) 9.1% Revenues decreased to USD 171.5 million (2.1% y-o-y) in 2010 EBIT stood at USD 29.4 million in 2010 Net Income rose 69.9% yoy to USD 29.4 million in 2010
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Qatar General Insurance and Reinsurance Company

Company Description
Qatar General Insurance and Reinsurance Company S.A.Q., (QGIRC) together with its subsidiaries, engage in the general insurance and reinsurance, real estate, and investment management business. It offers general and personal insurance products, including fire and allied perils, public liability, fidelity guarantee, money, workmens compensation, personal accident, plant and equipment, contractors all risk, medical, travel, motor, marine, and professional indemnity for individuals and businesses, as well as provides Islamic insurance services. The company has four branches in Qatar and one overseas branch in the United Arab Emirates. The company is based in Doha, Qatar. It was listed in the year 2002. The S&P Rating for the company is BBBpi.
Current price (USD)
12.47
Stock Details Bloomberg ticker 52 week high/ low Market Cap (USD Mn) Enterprise value (USD Mn) Shares outstanding (Mn) QGRI:QD 14.1/10.0 557.9 663.5 45.0
Average Daily Turnover (000s) QAR 3M 12 M Share Price Chart 534.22 409.68 USD 146.6 112.4

The Group has three major reportable segments which are also the Groups strategic business units. These units are involved in different lines of business and generate their own revenue. The segments are: Insurance (includes general accident, war and marine, fire and engineering and others) Investments (includes equity, bonds and associates) Real estate (property, land and building) Others (Takaful operations, World Trade Centre and others)
The products in insurance segment are General Accident, Fire, War & Marine, and Engineering & Others
Key Strengths
. The company has a well diversified investment portfolio which follows a balanced approach stressing strategic long term investments in sound companies and high quality bond issues The company has the capacity to generate high earnings along with a strong capitalization base
Valuation Multiples 2010 P/E (x) P/B (x) 16.03 0.77 4.66 2.36 Current 15.04 0.82 -

Net premium for the first quarter of 2011 was US $19 million, a decrease of 13.9% on Q1 2010. Also, QGIRC reported a net income of US $9.2 million in the first quarter of 2011 compared to net income of US $19.1 million in the same period in 2010 In March 2011, the company has authorized its board to issue up to a maximum of $500 million in bonds. The board has been assigned the task of implementing the decision after it gets the approval of the country's ministry of business and trade In December 2010, A.M. Best Europe - Rating Services Limited has affirmed the financial strength rating of B++ (Good) and the issuer credit rating of "BBB+" of Qatar General Insurance and Reinsurance Company S.A.Q. (QGIRC) (Qatar). The outlook remains positive
Shareholding Structure Mohammed Hamad Abdullah Al Mana HH Sheikh Nasser Bin Ali Bin Saud Al Thani HH Sheikh Abdullah Mohammed Al Thani Others Public Total Source: Zawya 6.00% 4.80% 4.40% 12.90% 71.90% 100.00%
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Financial Performance (USD million) Revenue COGS Operating Income Operating Margin (%) Net Income Net Income Margin (%) ROE (%) ROA (%) Source: Company Data, Zawya 2009 138.5 80.3 (1.8) N.M. 37.4 27.0 8.0 4.7 2010 142.4 102.4 6.2 4.4 32.8 23.0 5.1 3.3 (12.30%) % Change 2.81% 27.50% N.M. Revenues increased to USD 142.4 million (2.81% y-o-y) in 2010 EBIT stood at USD 40.2 million in 2010 Net Income decreased 12.3% y-o-y to USD 32.8 million in 2010
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Kuwait Insurance Company

Company Description
Kuwait Insurance Company (KIC), established in 1960, is the first national company in Kuwait and the first Insurance Company in the Arabian Gulf states (GCC). It has stood as a beacon, guiding and paving the way for the birth, growth and development of the insurance industry in the Gulf. Following the liberation of Kuwait, KIC carried the mantle of leadership for the insurance of the Government programmers for the reconstruction and rehabilitation of the facilities and infrastructure. It was listed in the year 1996.
Current price (USD)
1.13
Stock Details Bloomberg ticker 52 week high/ low Market Cap (USD Mn) Enterprise value (USD Mn) Shares outstanding (Mn) KINS:KK 1.6/1.1 214.2 107.3 189.2

The company operates in five segments: Marine and Aviation, Fire, General Accident, Life Insurance, and Takaful. The Marine and Aviation segment provides insurance against risks related to goods transportation, and various marine and aviation vessels. The Fire segment offers insurance against fire for buildings, stores, industrial risks, and oil and gas industry. The General Accident segment provides insurance against risks of contractors, machinery and computer damages, and cessation of work; and insurance cover for cash, bonds, fidelity, professional risks, work accidents, civil responsibility, and motor vehicles. The Life Insurance segment offers life insurance cover for individuals and groups; and provides medical insurance cover. The Takaful segment provides insurance against various risks under Islamic insurance law
Key Strengths
KICs portfolio diversified across various classes. It is the oldest player in the Kuwait Insurance Industry and has built a strong brand name in the last few years
Valuation Multiples 2010 P/E (x) P/B (x) 15.19 1.11 0.99 6.50 Current 6.54 1.22 N.M. -

Net premium for the first quarter of 2011 was US $16.5 million, a decrease of 12.5% on Q1 2010. Also, KIC reported a net income of US $8.1 million in the first quarter of 2011 compared to net income of US $8.6 million in the same period in 2010 In July 2011, Capital Standards Rating Company rated KIC for the first time. It assigned an insurer Financial Strength Rating of A-and a national scale rating of AA-kw to KIC. The outlook is stable In March 2011, The Kuwait Stock Exchange announced that the KIC will distribute 20 percent cash profits to shareholders recorded in the General Assembly meeting held on March 2011
Shareholding Structure
Mohamed Saleh and Reza Yousuf Behbehani Mohammed Saleh Yousuf Behbehani The Public Institution for Social Security Bibi Hussein Abdulkareem Marafie Public 7.40% 5.18% 5.15% 5.05% 77.22%
Total
Source: Zawya
100.00%
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Financial Performance (USD million) Revenue COGS Operating Income Operating Margin (%) Net Income Net Income Margin (%) ROE (%) ROA (%) Source: Company Data, Zawya 2009 102.3 33.3 22.2 21.8 (21.7) N.M. (16.17) (5.53) 2010 107.7 33.5 12.1 11.2 13.8 12.8 7.32 3.06 N.M. % Change 5.3% 0.6% (45.5%) Revenues increased to USD 107.7 million (5.3% y-o-y) in 2010 EBIT stood at USD 14.4 million in 2010 Net Income recovered and rose to USD 13.8 million in 2010
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Al Ahleia Insurance Company

Company Description
Al-Ahleia Insurance Company S.A.K. (AIC) provides various insurance and reinsurance products and services in Kuwait. The company offers motor, life and health, marine and aviation, fire, general accident, and special insurance policies. It also provides reinsurance products and services in the areas of aviation, motor, marine, and energy, as well as general insurance, including fire, general accidents, and engineering. The company was founded in 1962 and is headquartered in Safat, Kuwait. It was listed in the year 1996. The S&P Rating for the company is BBB+.
Current price (USD)
1.77
Stock Details Bloomberg ticker 52 week high/ low Market Cap (USD Mn) Enterprise value (USD Mn) Shares outstanding (Mn) AINS:KK 1.9/1.4 316.7 312.9 181.0

The company has four major business segments which are, namely, Motor, Marine & Aviation, Life & Health, Fire and General Accident Insurance The various insurance products of the company include Motor, Life & Health, Marine & Aviation, Fire & General Accidents, Special Insurance policies, Reinsurance, Single Medex, and Hajj & Umrah policy Segment Revenues Contribution
Key Strengths
The Company has strong operating performance, and strong capitalization. Strong capitalization is based on Al-Ahleia's high quality of capital, strong risk-based capital adequacy, and good reserves The company holds a leading competitive position in Kuwaiti commercial and industrial lines of business The company has a diversified portfolio Valuation Multiples 2010 P/E (x) P/B (x) EV/S (x) 10.58 1.11 2.83 4.80 Current 15.87 1.09 -

Net premium for the first quarter of 2011 was US $13.4 million, an increase of 65.8% on Q1 2010. Also, AIC reported a net income of US $4.9 million in the first quarter of 2011 compared to net income of US $8.3 million in the same period in 2010 In May 2011, National Bank of Kuwait (NBK), the best bank in the Middle East, offered its customers "Travel Safe", NBK's travel insurance package in cooperation with AIC during the holiday season
Shareholding Structure National Holding Industries Group 12.92% 6.21% 5.70% 75.17% 100.00%
Mohammed Abdulrahman Al Bahar Kutayba Youssef Ahmad Al Ghanem Public Total Source: Zawya
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Financial Performance (USD million) Revenue COGS Operating Income Operating Margin (%) Net Income Net Income Margin (%) ROE (%) ROA (%) Source: Company Data, Zawya 2009 85.4 74.7 11.7 13.68 28.4 33.26 12.5 6.0 2010 110.5 40.3 17.5 15.79 29.3 26.52 11.0 5.9 3.20% % Change 29.37% (46.00%) 49.40% Revenues increased to USD 110.5 million (29.37% y-o-y) in 2010 EBIT stood at USD 30.56 million in 2010 Net Income rose 3.20% y-o-y to USD 29.3 million in 2010
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Current price (USD)
7.79
Doha Insurance Company

Company Description
Doha Insurance Company Q.S.C. engages in the insurance and re-insurance business in Qatar. It primarily underwrites fire and general accident, motor, marine, and aviation risks. The company was incorporated in 1999 and is based in Doha, Qatar. It was listed in the year 2003. The S&P Rating for the company is BBB+.
Stock Details Bloomberg ticker 52 week high/ low Market Cap (USD Mn) Enterprise value (USD Mn) Shares outstanding (Mn) DOHI:QD 8.9/7.0 140.4 110.8 18.0
Average Daily Turnover (000s) QAR 3M 12 M 498.9 604.9 USD 137.0 166.0

Share Price Chart The Company is organized into three business segments: Marine and Aviation
Motor Fire and General
Key Strengths
The company is given a BBB+ rating by the S&P ensuring a stable outlook The company has strong capitalization, improved competitive position and good operating performance along with strong capital adequacy ratio
Valuation Multiples 2010 Current 6.45 1.23 P/E (x) P/B (x) Net premium for the first quarter of 2011 was US $6.8 million, a decrease of 9.3% on Q1 2010. Also, DIC reported a net income of US $5.3 million in the first quarter of 2011 compared to net income of US $5.1 million in the same period in 2010 In June 2009, Standard & Poors Ratings Services raised its long-term counterparty credit and insurer financial strength ratings on DIC to BBB+ from BBB EV/S (x) Dividend Yield (%) Source: Capital IQ Shareholding Structure Public Total Source: Zawya 100.00% 100.00% 8.50 1.20 1.09 8.73
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Financial Performance (USD million) Revenue COGS Operating Income Operating Margin (%) Net Income Net Income Margin (%) ROE (%) ROA (%) Source: Company Data, Zawya 2009 86.9 17.3 8.8 10.1 14.7 16.9 14.3 7.9 2010 101.6 14.0 9.8 9.6 16.7 16.4 14.1 3.6 13.6% % Change 16.9% (19.1%) 11.4% Revenues increased to USD 101.6 million (16.9% y-o-y) in 2010 EBIT stood at USD 16.6 million in 2010 Net Income increased 13.6% y-o-y to USD 16.7 million in 2010
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Bahrain Kuwait Insurance Company

Company Description
Bahrain Kuwait Insurance Company B.S.C. (BKIC) engages in general insurance business in the Kingdom of Bahrain and Kuwait. It offers property and casualty, marine and aviation, and motor insurance policies. In addition, it offers life insurance products, such as group life, individual life, group credit life, and aircrew loss of license insurance policies, as well as health insurance products. The company was founded in 1975 and is headquartered in Manama, the Kingdom of Bahrain. Bahrain Kuwait Insurance Company B.S.C. is a subsidiary of Gulf Insurance Company K.S.C. It was listed in the year 1996. The S&P Rating for the company is BBB.
Current price (USD)
1.78
Price as on June 30,2011, 1 Bahraini Dinar equals USD 2.65
Stock Details Bloomberg ticker 52 week high/ low Market Cap (USD Mn) Enterprise value (USD Mn) Shares outstanding (Mn) BKIC:BI 1.9/1.7 115.5 45.6 65.0
Average Daily Turnover (000s) BHD 3M 12 M 4.72 4.58 USD 12.49 12.09

The Company is organized into departments based on the classes of insured risks. The reportable operating segments of the Company are as follows: Fire and general offers insurance policies to cover various risks of fire, general accident and engineering, medical, group life and special contingency; Marine and aviation offers insurance policies to cover risks of marine cargo, marine hull and marine aviation; and Motor offers insurance policies to cover risks of motor third party, motor comprehensive and extended warranty
Share Price Chart
Key Strengths
The company has a broad client base among various sectors of the economy and across different classes of business It has a strong operating performance along with strong capitalization
Valuation Multiples 2010 Current 9.59 1.69 P/E (x) P/B (x) EV/S (x) Dividend Yield (%) Source: Capital IQ Shareholding Structure Gulf Insurance Company Warba Insurance Company BBK Others Public Total Source: Zawya 56.12% 14.29% 7.26% 4.04% 18.29% 100.00% 10.53 1.59 0.51 5.22

Net premium for the first quarter of 2011 was US $14.1 million, an increase of 34.2% on Q1 2010. Also, BKIC reported a net income of US $3 million in the first quarter of 2011 compared to net income of US $3.5 million in the same period in 2010 In February 2011, Standard & Poor's Ratings Services placed a 'BBB' long-term counterparty credit ratings on the company, and placed it on CreditWatch with negative implications In January 2011, BBK, described as Bahrain's pioneer in retail and commercial banking, and BKIC, announced new and enhanced product offering. The new agreement also envisages introduction of some "exciting new and innovative" products hitherto not available to the consumers in Bahrain
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Financial Performance (USD million) Revenue COGS Operating Income Operating Margin (%) Net Income Net Income Margin (%) ROE (%) ROA (%) Source: Company Data, Zawya 2009 84.5 43.0 14.0 16.6 10.7 12.7 16.6 4.7 2010 88.6 45.8 13.5 15.2 11.0 12.4 16.0 5.2 2.6% % Change 4.9% 6.5% (3.5%) Revenues increased to USD 88.6 million (4.9% y-o-y) in 2010 EBIT stood at USD 11.0 million in 2010 Net Income rose 2.6% y-o-y to USD 11.0 million in 2010
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Oman National Investment

Company Description Company
Oman National Investment Corporation Holding (ONICH), through its subsidiaries, engages in the business of insurance, financing, and warranty services. It involves in underwriting life and general insurance products. The company also engages in reinsurance business. It operates in the Sultanate of Oman, the United Arab Emirates, the Kingdom of Jordan, the Kingdom of Bahrain, Pakistan, and Canada. The company is based in Jibroo, the Sultanate of Oman. It was listed in the year 2007.
Current price (USD)
0.60
Price as on June 30,2011, 1 Omani Rial equals USD 2.59
Stock Details Bloomberg ticker 52 week high/ low Market Cap (USD Mn) Enterprise value (USD Mn) Shares outstanding (Mn) ONIC:OM 1.1/0.6 104.0 136.6 173.0
Average Daily Turnover (000s) OMR 3M 12 M 25.87 78.29 USD 67.03 202.61

Share Price Chart It has two primary business segments: General insurance and Life insurance The Group holds its investments under the below three broad categories: Insurance Business, Other Investments, and Equity Market Portfolio As an Insurance Holding Company the company focuses mainly on Insurance as its core business, with contribution from Other Investments which are medium to long term in nature and supported by Equity Market portfolio operations
Key Strengths
Concluded a tie up with an international company, RSA. It has 20.03% in the merged entity called Ahleia
Valuation Multiples 2010 P/E (x) P/B (x) 15.2 0.78 2.20 10.13 Current NEG 0.85 -

Net premium for the first quarter of 2011 was US $8.3 million, a decrease of 4.5% on Q1 2010. Also, ONICH reported a net loss of US $1.1 million in the first quarter of 2011 compared to net income of US $5.5 million in the same period in 2010 In March 2010, ONICH declared that it was looking for strategic acquisitions in Oman and the GCC region to strengthen its position in the insurance sector
Shareholding Structure Dubai Insurance Group ORIX Corporation Others Public Total Source: Zawya 41.13% 14.90% 3.15% 40.82% 100.00%
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Financial Performance (USD million) Revenue COGS Operating Income Operating Margin (%) Net Income Net Income Margin (%) ROE (%) ROA (%) Source: Company Website, Zawya 2009 105.7 66.0 0.2 0.2 (109.5) N.M. (72.5) (28.9) 2010 62.2 57.6 (1.7) N.M. 33.8 54.3 27.4 12.0 N.M. % Change (41.10%) (12.74%) N.M. Revenues decreased to USD 62.2 million (41.1% y-o-y) in 2010 EBIT stood at USD 8.2 million in 2010 Net Income recovered from loss of USD 109.5 million in 2009 to a net income of USD 33.8 million in 2010
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Oman United Insurance Company

Company Company Description
Oman United Insurance Company SAOG (OUIC) engages in underwriting general, life, and medical insurance products in the Sultanate of Oman. It offers personal insurance coverage for home and K; contents, domestic servants, car, boat, personal possessions, accident, and travel arrangements; and small business insurance coverage for shops, offices, hotels, and tradesman. The company also provides corporate insurance products for auto dealerships, property owners, contractors, clinics and medical facilities, professions, enterprises, and marine and transit; banc assurance products; life and medical insurance products; and fire, engineering, workmen compensation, and aviation insurance products. In addition, it involves in the repair and maintenance of motor vehicles. The company is headquartered in Ruwi, the Sultanate of Oman. It was listed in the year 2006. The S&P Rating for the company is BBB-.
Current price (USD)
0.33
Price as on June 30,2011, 1 Omani Rial equals USD 2.59
Stock Details Bloomberg ticker 52 week high/ low Market Cap (USD Mn) Enterprise value (USD Mn) Shares outstanding (Mn) OUIS:OM 0.5/0.3 33.2 32.8 100.0
Average Daily Turnover (000s) OMR 3M 12 M Share Price Chart 33.30 78.38 USD 86.27 187.30

The main business divisions of the company are General Insurance division and Life & Medical The products offered by the company includes car insurance, home insurance, travel insurance, small business insurance, corporate insurance, and bancassurance
Valuation Multiples 2010 Current 8.89 0.68 -
Key Strengths
The company has a diversified product line The company provides bancassurance which is an upcoming concept and has huge growth potential
P/E (x) P/B (x) EV/S (x) Dividend Yield (%) Source: Capital IQ
4.62 0.64 1.08 11.63
Shareholding Structure Salim Bin Nasser Al Busaidi DAMAC Invest Oman Middle East Investments Others Public Total 30.00% 8.06% 5.50% 15.51% 41.93% 100.00%

Net premium for the first quarter of 2011 was US $14.6 million, an increase of 177% on Q1 2010. Also, OUIC reported a net income of US $0.9 million in the first quarter of 2011 compared to net income of US $2.7 million in the same period in 2010
Source: Zawya
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Financial Performance (USD million) Revenue COGS Operating Income Operating Margin (%) Net Income Net Income Margin (%) ROE (%) ROA (%) Source: Company Website, Zawya 2009 52.2 45.6 0.7 0.07 9.9 18.87 20.3 6.1 2010 54.5 35.5 1.3 0.11 7.3 13.30 13.8 3.9 (26.4%) % Change 4.4% (22.1%) 78.6% Revenues increased to USD 54.5 million (4.4% y-o-y) in 2010 EBIT stood at USD 7.7 million in 2010 Net Income decreased 26.4% y-o-y to USD 7.3 million in 2010
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The Company for Cooperative Insurance

Company Company Description
The Company for Cooperative Insurance (CCI) engages in the cooperative insurance operations and related services that include reinsurance and agency activities primarily in Saudi Arabia. The company's principal lines of business include motor, marine cargo and hull, fire, medical, engineering, energy, aviation, casualty, general accidents, and personal insurance, as well as savings and investment plans. The company was founded in 1986 and is based in Riyadh, Saudi Arabia. It was listed in the year 2006. The S&P Rating for the company is A.
Current price (USD)
16.73
Price as on June 30,2011, 1 Saudi Riyal equals USD 0.26
Stock Details Bloomberg ticker 52 week high/ low Market Cap (USD Mn) Enterprise value (USD Mn) Shares outstanding (Mn) TAWUNIYA:A B 20.2/13.3 1254.8 1209.5 75.0
Average Daily Turnover (000s) SAR 3M 9,499.88 14,710.83 USD 2,532.67 3,918.96

The company is organized into business units based on their products and services and has three reportable segments as follows: Medical provides coverage for health insurance Motor insurance Property & casualty includes coverage for property and casualty, engineering, marine, aviation, energy and general accidents insurance
12 M Share Price Chart
Key Strengths
The company has strong financials and a good credit rating makes it more reliable and stable It has a strong underwriting performance The company has a dominant competitive position in the Saudi market
Valuation Multiples 2010 P/E (x) P/B (x) EV/S (x) Dividend Yield (%) The Company reported a net income of US $30 million in the first quarter of 2011 compared to net income of US $28.2 million in the same period in 2010 CCI or Tawuniya, plans to increase its capital to 750 million Saudi riyals ($200 million) from SAR500 million via an issue of bonus shares. Tawuniya plans to issue one bonus share for every two shares owned The company has received 1,320 claims valued at about 97 million Saudi riyals ($25.9 million) from customers for damages caused by floods in the Saudi city of Jeddah in 2011 Source: Capital IQ Shareholding Structure Public General Organization Social Insurance Public Pension Agency HSBC Saudi Arabia Limited Total Source: Zawya 100.00% for 53.50% 22.80% 23.70% 9.78 2.68 1.08 N.A. Current 10.55 2.69 -
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Financial Performance (USD million) Revenue COGS Operating Income Operating Margin (%) Net Income Net Income Margin (%) ROE (%) ROA (%) Source: Company Website, Zawya 2009 952.5 639.9 81.9 8.6 79.0 8.3 23.8 4.8 2010 1,115.2 664.5 136.7 12.3 129.3 11.6 30.5 6.6 63.70% % Change 17.10% 3.80% 66.86% Revenues increased to USD 1115.1 million (17.1% y-o-y) in 2010 EBIT stood at USD 136.6 million in 2010 Net Income rose 63.7% y-o-y to USD 129.3 million in 2010
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Islamic Arab Insurance Company

Company Description
Islamic Arab Insurance Co. provides various insurance solutions (Takaful) to individual, families, and companies in Africa, the Far East, the Middle East, Turkey, and central Asia. The company offers family takaful health takaful and general takaful solutions The company was founded in 1979 and is headquartered in Dubai, the United Arab Emirates. It was listed in the year 2005. The S&P Rating for the company is BBB+.
Current price (USD)
0.19
Stock Details Bloomberg ticker 52 week high/ low Market Cap (USD Mn) Enterprise value (USD Mn) Shares outstanding (Mn) SALAMA:UH 0.28/0.14 219.9 219.8 1210.0

Salama offers all classes of insurance services in accordance to Sharia principles It offers its services through three main segments: Family takaful: Caters to individuals and corporate clients. Provides investments, savings and protection plans Health takaful: Provides medical insurance in collaboration with MedNet. Caters to groups, companies, individuals and families General takaful: The general takaful segment caters to the needs of corporations and individuals. Covers range from property damage, marine, third party liability, etc. it also offers insurance covers for specific segments like: business interruption, bankers blanket cover, contractor all risk, hull & machinery, machinery breakdown, etc
Valuation Multiples 2010 P/E (x) P/B (x) EV/S (x) Dividend Yield (%) Source: Capital IQ 16.51 0.54 0.41 Current 6.92 0.53 -
Key Strengths
The company has presence in UAE, Tunisia, Saudi Arabia, Algeria, Egypt, Jordan and Senegal Investment portfolio not limited to domestic market Witnessed minimum volatility in claims due to better risk management It has been assigned a BBB+ rating by the S&P reaffirming it as an investment grade company
Shareholding Structure

The Company reported a net income of US $8 million in the first quarter of 2011 compared to net loss of US $2 million in the same period in 2010 In February 2011, IAIC was awarded a prestigious award for Corporate Governance In November 2010, IAIC inaugurated its new corporate headquarters in Dubai, reaffirming its sustained and rapid growth in the regional Takaful sector
Noor Al Ain Management Services Ajyad Management Services Al Wajna Holding Other investors Other Corporate Investors Public Total Source: Zawya
13.73% 10.00% 6.00% 25.27% 25.00% 20.00% 100.00%
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Financial Performance (USD million) Revenue COGS Operating Income Operating Margin (%) Net Income Net Income Margin (%) ROE (%) ROA (%) Source: Company Data, Zawya 2009 428.3 166.1 71.7 16.7 24.9 5.8 6.47 2.94 2010 541.6 226.4 76.3 14.1 13.6 2.5 3.33 1.43 (45.4%) % Change 26.5% 36.3% 6.4% Revenues increased to USD 541.6 million (26.5% y-o-y) in 2010 EBIT stood at USD 27.4 million in 2010 Net Income decreased by 45.4% yoy to USD 13.6 million in 2010
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Malath Cooperative Insurance and Reinsurance CompanyCompany

Company Description
Malath Cooperative Insurance and Reinsurance Company provide general insurance and reinsurance products and services in the Kingdom of Saudi Arabia. It offers aviation, energy, engineering, fire and property, marine, miscellaneous accidents, and motor insurance products. The company also provides group life insurance and health insurance to groups and individuals, as well as facultative reinsurance services. In addition, it offers risk management and insurance consultancy services. The company was incorporated in 2007 and is based in Riyadh, Saudi Arabia. It was listed in the year 2007. The S&P Rating for the company is BBB.
Current price (USD)
4.32
Price as on June 30,2011, 1 Saudi Riyal equals USD 0.26
Stock Details Bloomberg ticker 52 week high/ low Market Cap (USD Mn) Enterprise value (USD Mn) Shares outstanding (Mn) N.A. 5.40/3.0 129.6 101.7 30.0
Average Daily Turnover (000s) SAR 3M 12 M 24228.44 11682.43 USD 6459.30 3112.12

Share Price Chart It offers insurance products like motor insurance, health insurance, group life insurance, engineering insurance, property insurance, marine hull insurance, marine cargo insurance, accident insurance, aviation insurance and energy insurance that match the needs of their individual and corporate clients Malath also provides for services like Risk Management, Insurance Consultants and Reinsurance
Valuation Multiples
Key Strengths
P/E (x) Malath has strong capitalization with adequate financial flexibility. The company is also debt-free P/B (x) EV/S (x) Dividend Yield (%) Source: Capital IQ
2010 26.89 1.85 0.76 N.A.
Current NEG 1.86 -
Shareholding Structure Dr. Abdulaziz Abdullah Al Jalal Abdulsalam Abdulrahman Al Aaqil Zeeb Hudhaiban Al Odhaila Other investors Public Total Source: Zawya 0.93% 0.91% 0.90% 49.78% 47.48% 100.00%

The company reported a net loss of US $1.4 million in the first quarter of 2011 compared to net income of US $1.2 million in the same period in 2010 Standard & Poor's Ratings Services revised its outlook on the company to positive from stable. At the same time, they affirmed the 'BBB' long-term counterparty credit and insurer financial strength ratings on Malath
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Financial Performance (USD million) Revenue COGS Operating Income Operating Margin (%) Net Income Net Income Margin (%) ROE (%) ROA (%) Source: Company Website, Zawya 2009 76.7 35.7 0.5 0.65 1.9 2.5 3.0 1.3 2010 133.8 79.7 6.3 4.70 4.8 3.6 7.0 2.1 150.20% % Change 74.50% 123.20% 1160% Revenues increased to USD 133.8 million (74.5% y-o-y) in 2010 EBIT stood at USD 6.3 million in 2010 Net Income rose 150.2% y-o-y to USD 4.8 million in 2010
Note:
Due to lack of adequate information, we have not attempted to identify key concerns for all the companies mentioned
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For any query regarding this report, please contact:

Sameena Ahmad Managing Director sameena.ahmad@alpencapital.com +971 (0) 4 363 4345 T. M Lakshmanan Chief Operating Officer t.lakshmanan@alpencapital.com +971 (0) 4 363 4306
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GCC Insurance Industry Poised for Strong Growth

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GCC Insurance Industry Poised for Strong Growth

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GCC Insurance Industry

August 21, 2011

GCC Insurance Sector | August 2011

GLOBAL INSURANCE INDUSTRY ............................................................ 9

GCC INSURANCE MARKET .................................................................... 14

GCC GROWTH FORECAST ..................................................................... 20

KEY GROWTH DRIVERS ........................................................................ 27

GCC Insurance Sector | August 2011

10. 11. 12. 13.

COUNTRY PROFILES ......................................................................................... 58 COMPANY PROFILES ........................................................................................ 71

GCC Insurance Sector | August 2011

GCC Insurance Sector | August 2011

Abdul Muttalib M. Al Jaidi Chief Executive Officer Oman Insurance

In todays volatile environment, Investment Management is of critical importance to insurance companies

GCC Insurance Sector | August 2011

Penetration % 1,741 2.50% 1.63%

GDP per Capita USD 39,000 38,000 37,000 36,000 35,000

GDP per Capita

Density USD 800.0 700.0 600.0 500.0 400.0

Takaful Premium, USD Million

9,000 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1,000 -

CAGR 32% 3,742

Source: E&Y World Takaful Report, 2011

GCC Insurance Sector | August 2011

3.1. Scope of Report

3.2. Investment Positives

Macro Economic factors

IMF GCC Economic Outlook, April 2011

GCC Insurance Sector | August 2011

Industry specific factors

3.3. Investment Negatives

The industry has high dependence on reinsurers leading to low profitability

GCC Insurance Sector | August 2011

4. Global Insurance Industry

Emerging & developing economies

25% 20% 15% 10% 5% 0% -5% -10%

Source: Swiss Re, IMF, Alpen Capital

GCC Insurance Sector | August 2011

Exhibit 3: Share of Emerging Markets, 2010

80% 70% 60% 50% 40%

Life Premium, (USD 1,819 Bn)

Population, (5.8 Bn)

GDP, (USD 21,250 Bn)

Non Life Premium, (USD 284 Bn)

Source: Swiss Re, Alpen Capital

Source: Swiss Re, Alpen Capital

Source: World Bank. Mena Insurance Review, Alpen Capital

Swiss Re World insurance in 2011

GCC Insurance Sector | August 2011

GCC Insurance Sector | August 2011

China Brazil Russia KSA Qatar UAE Kuwait Oman Bahrain

Source: Capital IQ, Alpen Capital

GCC Insurance Sector | August 2011

GCC Insurance Sector | August 2011

5. GCC Insurance Market

Other 1,265 Countries

12% 10% Singapore

Lebnon Bahrain Oman

20,000 30,000 40,000 50,000 GDP per Capita (USD)

Swiss Re World Insurance Report 2011

GCC Insurance Sector | August 2011

UAE is ahead of other GCC countries with a density of USD 1,360