August 2017 Insurance Sector of Oman

Transcription

1 August 2017 Insurance Sector of Oman 1

2 EXECUTIVE SUMMARY Oman s insurance industry comprises of 23 insurance companies, including a re-insurer. Two of these entities are Takaful companies, which started operations in Insurance sector of Oman is dominated by the five insurance companies (4 national and one foreign) as they control roughly 60% of the gross written premiums of the sector. Their contribution in the Life and General segment also stands at 60% each as well. The industry has grown at a CAGR of 9.6% during with its total gross written premiums (GWP) reaching the mark of OMR450.3mn (USD1.17bn) in Insurance segments such as construction and medical experienced decent growth. Third-party motor liability as well as the launch of two Takaful companies have increased market awareness and the diversification of insurance products. Policies issued by the insurance companies have continued to grow. Overall policies grew at a CAGR of 10.9% during Further delving into the breakup of the policy issued reveals that the life insurance segment and non-life insurance segment policies grew at a CAGR of 44.4% and 9.8% respectively during While the policy issued by foreign and national companies increased at a CAGR of 19.2% and 8.8% respectively during Paid claims by the insurance companies have continued to grow. Overall paid claims grew at a CAGR of 9% during Life insurance segment and non-life insurance segment claims grew by a CAGR of 1% and 10.4% respectively during Total paid claims in 2016 have decreases by 8% compared to 2015 to OMR mn in 2016 compared to OMR mn in Financial data indicates the decrease was due to the fall in total paid claims of general insurance business by 10% to OMR mn compared to OMR mn in Growth drivers of insurance industry in Oman are its favorable demographics. Oman population constitutes two key segments, a large expatriate base and a significant number of the young and the employed. Both of these are expected to considerably impact the demand for life and non-life insurance segments. Secondly, Oman is making rapid progress in implementing their strategy to diversify from the hydrocarbon sector, resulting in increased activity in other sectors such as manufacturing and services. Growth across such sectors is presenting significant opportunities for insurers. Lastly, the rapidly growing SME sector in Oman presents a key opportunity for the insurers as generally these firms are run by the younger, more entrepreneurial-minded generation that is more open towards insurance as a means to protect its newly created assets compared to their established counterparts. Growing trends in global insurance industry include increasing investments in technology and digitization, regulatory reforms becoming more frequent and stringent, bancassurance, emergence of insurance marketing firms and entrance of various international insurance companies in local market. The way forward for insurance companies in Oman is to have a multi-channel approach as the new age customer does not interact with just one distribution channel. Insurance companies that can seamlessly integrate the operations of new and alternative channels with traditional channels to present an integrated view to the customer, will likely be best positioned. Secondly, local insurers should adopt best global practices as increased availability of the capital and know-how from foreign parents will go a long way in plugging the infrastructural gaps faced by local insurers. Thirdly, the fact that customers typically buy insurance as an investment or a savings product makes a strong case for combo offerings. Last but not the least, insurance companies should adopt an integrated claims-processing system as it aids in simplifying processes and improving claims resolution, resulting in lower costs and enhanced customer fulfillment. 2

3 Table of Contents Omani Insurance Industry 4 Takaful Insurance in Oman 14 Insurance Regulations 15 Growth Drivers of Insurance Industry in Oman 16 Growing Trends 19 Challenges 21 The Way Forward 22 3

4 Omani Insurance Industry The insurance market in the Sultanate continued recording reasonable growth rates despite the financial measures taken to mitigate the impact of falling oil prices. Oman s insurance industry comprises of 23 insurance companies, including a re-insurer. Two of these entities are Takaful companies, which started operations in Insurance sector of Oman is dominated by the five insurance companies (4 national and one foreign) as they control roughly 60% of the gross written premiums of the sector. Their contribution in the Life and General insurance segments also stands at 60% each as well. The industry has grown at a CAGR of 9.6% during with its total gross written premiums (GWP) reaching the Oman Reinsurance Company 98 Insurance Agents Insurance Policy Holders mark of OMR450.3mn (USD1.17bn) in Insurance segments such as engineering, construction, medical, and real estate have experienced decent growth. Third-party motor liability as well as the launch of two Takaful companies have increased market awareness and the diversification of insurance products. 23 Insurance Companies 2 Takaful Companies Capital Market Authority Oman Insurance Association Unified Bureau for Orange Card 37 Insurance Brokers Unaudited financial data of the first quarter suggests increase in the growth of gross insurance premiums by 3% to reach OMR134.7mn as against OMR131mn last year, according to a CMA. The increase in insurance premiums was spurred by positive turnout for individual life products and health in addition to other products. Oman Insurance Penetration % 1.11% 1.19% 1.27% 1.65% 1.61% % 1.6% 1.4% 1.2% 1.0% Oman GDP (OMR bn) Oman GWP (OMR bn) Penetration Oman Insurance Density Insurance Density (OMR) Source: NCSI, CMA & U Capital In 2016, insurance penetration (Premium underwritten/ GDP) was about 1.61% (life insurance penetration was 0.24% and non-life insurance penetration was 1.37%) in Oman. Similarly, insurance density (premium underwritten/population) was OMR 98.9 (USD258) in Oman. Life insurance penetration levels remain extraordinarily low in Oman. However, the rise of the affluent and middle class with more purchasing power, a growing awareness of insurance products and the advent of sharia-compliant life insurance products are expected to bolster the life insurance penetration rates in Oman in the long run. While the non-life insurance 4

5 segment has been growing at a considerable pace when compared with the life insurance segment. The nonlife insurance segment has benefited from the strong momentum in construction, infrastructure and growth in motor segment. A vast portion of oil revenues in Oman is being diverted to the development of the non-oil segment for supporting economic diversification. This is giving a strong impetus to the construction sector, and in turn, to the region s non-life insurance segment. Life & Non-Life Insurance Penetration 1.50% 1.20% 0.90% 0.60% 0.30% 1.14% 1.06% 0.95% 0.97% Life Non-Life 0.14% 0.14% 0.12% 0.13% 1.45% 1.37% 0.20% 0.24% 0.00% In fact, the market for medical insurance is growing in Oman, especially after expatriates moved out of government hospitals to private health centers. This is one of the growth areas for insurance companies. If the government makes it compulsory, insurance companies in the Sultanate will reap benefit from the opportunity that opens up. Additionally, this move will also promote healthy competition amongst the medical insurance providers. Motor Insurance Penetration 0.70% 0.60% 0.50% 0.40% 0.34% 0.40% 0.34% % 0.61% 0.56% 0.30% 0.20% 0.17% 0.20% 0.23% 0.10% 0.00% Comprehensive Third Party Total Motor Within the non-life segment, motor insurance premiums, both comprehensive and third party, comprised 35.1% of the total gross premiums in the year The sector witnessed couple of amendments in last years. According to the unified motor insurance policy, the policyholder is eligible to get a certain reduction in the premium for no claim discount (NCD) on the time of renewal if not lodged a claim during the previous insurance policy periods. The new amendments on the unified motor insurance policy were announced seven years after the issuance of the policy in 2008 as a standard form of insurance contract with minimum limits in the contract. 5

6 Gross Direct Written Premiums of Insurance Companies The gross direct written premiums of insurance business increased by 1.85% to reach OMR 450.2mn in 2016 compared to OMR442.1mn in The gross direct premiums of general insurance declined by 1.7% in 2016 to reach OMR 382.6mn compared to OMR 389mn in While the gross direct premiums of life insurance increased by 27.7% to reach OMR 67.6mn in 2015 compared to OMR 53mn in General insurance Life insurance Total Gross direct premiums (OMR mn) The 1.8% growth seen in 2016 in the gross direct premiums was spurred mainly by the 27.7% increase in life insurance and 13.2% increase in Health Insurance as these two sectors constitute 42.5% of the total gross direct premiums. Gross Direct Premiums Gross Direct Premiums Health 23% Other 6% Life 12% Health 26% Other 4% Life 15% Liability 3% Engineeri ng 5% Marine 3% Motor 37% Property 11% Liability 3% Engineeri ng 4% Marine 3% Property 10% Motor 35% Gross direct premiums of national companies have decreased by 1% to OMR mn in 2016 compared to OMR mn in Gross direct premiums of general insurance business increased by 2% and a remarkable drop in gross direct premiums of life insurance by 21%compared to Motor insurance represents the highest percentage of the gross direct premiums for national companies at about 36% of the 6

7 gross direct premiums which is 1% higher than 2015 which was 35% followed by health insurance at 31% which is higher than 2015 which was 27%. Gross direct premiums of insurance companies by type (OMR mn) National companies Foreign companies Life Motor Property Marine Engineering Liability Health Gross direct premiums of foreign insurance companies have increased by 9% to OMR mn in 2016 compared to OMR mn in This was spurred by increase in direct premiums of life insurance at 103% to reach OMR 41.96mn i.e. more than double the gross direct premiums in 2015, which were about OMR 20.65mn. Gross direct premiums of general insurance business have decreased by 13% compared to The data indicates that life insurance represents the highest percentage of the gross direct premiums of foreign insurance companies at 35% of the gross direct premiums. It is clear the life insurance has dominated over the other branches of insurance in 2016 compared to 2015 in which the motor insurance has recorded the highest percentage at 42%. 7

8 Claims Paid claims by the insurance companies have continued to grow. Overall paid claims grew at a CAGR of 9% during Life insurance segment and non-life insurance segment claims grew by a CAGR of 1% and 10.4% respectively during Total paid claims in 2016 have decreases by 8% compared to 2015 to OMR mn in 2016 compared to OMR mn in Financial data indicates the decrease was due to the fall in total paid claims of general insurance business by 10% to OMR mn compared to OMR mn in Paid claims for life insurance business have increased by 11% in 2016 from OMR 27.53mn to OMR 30.65mn. Gross paid claims by national insurance companies decreased by 9% in The drop is due to the fall in the gross paid claims for general insurance business by 9% compared to 2015 owing to the sharp decrease in the properties business by 88% in Total Paid Claims (OMR mn) Foreign National CAGR - 5.4% Life General CAGR % CAGR % CAGR - 1.0% Paid claims for life insurance in national companies slightly decreased by 2% in Gross paid claim by foreign companies have decreased by 4% to OMR 56.59mn in 2016 compared to OMR 58.77mn in 2015 as the claims paid for general insurance have decreased by 11% in 2016 compared to Paid claims for life insurance in foreign companies increased by 63%in 2016 compared to It is noteworthy that motor insurance represents the highest percentage in claims paid by national and foreign insurers in 2016 at 41% and 53% consecutively followed by health insurance which witnessed a remarkable increase by 30% in

9 Policies Issued Policies issued by the insurance companies have continued to grow. Overall policies grew at a CAGR of 10.9% during Further delving into the breakup of the policy issued reveals that the life insurance segment and non-life insurance segment policies grew at a CAGR of 44.4% and 9.8% respectively during While the policy issued by foreign and national companies increased at a CAGR of 19.2% and 8.8% respectively during Number of general and life policies issued by insurance companies in 2016 have increased by 16% to 1,661,391 policies including 1,546,423 general insurance policies and 114,968 life policies compared to 1,436,365 policies issued in 2015 including 1,401,177 general insurance policies and 35,188 life insurance policies. General and life insurance policies issued by national insurance companies in 2016 were 1,235,523 policies including 1,206,376 general insurance policies and 29,147 life insurance policies while the number of insurance policies issued in 2015 was 1,087,547 policies including 1,062,129 general insurance policies and 25,418 life insurance policies. The number of general and life insurance policies issued by foreign insurance companies in 2016 was 425,868 policies including 340,047 general insurance policies and 85,821 life insurance policies compared to 348,818 policies in 2015 including 339,048 general insurance policies and 9,770 life insurance policies. Policies Issued (mn) Foreign National CAGR - 8.8% CAGR % Life General CAGR - 9.8% CAGR % Motor insurance policies have increased by 9% in 2016 to 1,340,518 policies compared to 1,230,077 policies in 2015 due to increase in third party motor insurance policies by 13% in Life insurance policies have witnessed huge increased by 227%owing to high turnout for life insurance policies (individuals), for more than one year, to 107,327 policies in 2016 compared to 22,030 policies in Group life insurance policies, one year or less, have decreased by 42% in Health insurance policies have increased by17% and the same percentage for properties insurance indicating increasing demand for these types of insurance. Marine, liability and other policies have increased by 4%, 5% and 26% consecutively while engineering insurance policies have decreased by 6% compared to

10 Retention & Loss Ratio of Insurance Companies Retention ratio is one of the important aspect in an insurance company. Retention ratio is the amount of business an insurance company retains. This is calculated based on premiums, or the amount each person pays for insurance coverage. In insurance, this ratio is the percentage of invoiced, or written, premiums compared to the number of premiums that are actually paid, called gross premiums. Retention ratio of insurance companies in 2016 was about 57% increasing compared to 2015 in which the retention ratio was 56%. Audited financial statements for 2016 indicates retention ratio for national insurance companies in 2016 was about 52% compared to 51% in Retention ratio for foreign insurance companies has decreased from 72% in 2015 to 70% in As for retention ratio by type, the average retention ratio for national insurance companies in 2016 was 44%, however, retention ratio for most of the insurance branches didn t exceed the average with the exclusion of motor business and health insurance which was 82% and 55% consecutively. Average retention ratio for foreign insurance companies in 2016 was about 65%, however, the retention ratio for most insurance braches didn t exceed the average except the life insurance, motor insurance, health insurance and other insurances was 66%, 85%, 83% and 66% consecutively, and the retention ratio of foreign insurers for all insurance businesses in 2015 and 2016 was more than the ratio of national insurers. Retention Ratio (%) National companies Foreign companies Total Life 34.0% 33.6% 68.4% 65.8% 47.4% 53.6% Motor 84.6% 82.2% 91.7% 84.6% 86.7% 82.8% Property 4.9% 5.4% 27.0% 41.7% 10.1% 11.3% Marine 9.5% 10.4% 31.0% 36.0% 17.0% 18.7% Engineering 9.9% 27.2% 42.7% 41.2% 20.8% 31.4% Liability 33.0% 29.9% 55.3% 61.8% 39.8% 36.1% Health 54.3% 54.8% 84.2% 83.5% 57.6% 58.4% Whereas loss ratio is also equally important for an insurance company. The loss ratio is the difference between the ratios of premiums paid to an insurance company and the claims settled by the company. The loss ratio is the total losses paid by an insurance company in the form of claims. Financials of insurance companies suggest a rise in the net losses of national insurance companies in 2016 to about 71% at more than 13% difference compared to 58% in Net loss ratios of foreign insurance companies increased to 64%. It can be noted the loss ratio for national companies is more than the ratio for foreign companies by 7% due to increase in incurred losses of national companies. Loss Ratio National Foreign Total Motor - Comprehensive 69% 67% 63% 76% 67% 69% Motor - Third Party 79% 102% 123% 74% 86% 97% Property 11% 35% 15% 55% 12% 39% Marine 18% 29% 23% 32% 20% 30% Engineering 27% 40% 29% 44% 28% 41% Liability 12% 18% 18% 14% 14% 17% Health 82% 93% 83% 88% 82% 92% 10

11 Investment Mix of Insurance Companies Total investments of insurance companies increased by 12% to OMR mn at the end of 2016 compared to OMR mn at the end of The data suggests an increase in the total investments of national and foreign companies by 9% and 17 % consecutively. Investments in bank deposits for life insurance increased by 46% of the total investments of insurance companies. It is noteworthy that such growth was a result of increase in the investments of national and foreign insurance companies in the same type by 51% and 39% consecutively. Then comes the investment in corporate bonds that grew by 35%. It is noteworthy that the percentage of investments of national companies in corporate bonds has decreased by 11% while the investment of foreign companies in the same type increased by 81%. On the other hand, investments secured by capital redemption policies decreased by 100% due to lack of investment in this type, which was OMR for national companies in Total investments in real estate properties of national insurance companies decreased by 24% at the end of There was no real estate investment for foreign companies. Investment Mix of General Insurance Co's Investment Mix of Life Insurance Co's Corporate Bonds 4% Real Estate 7% Listed Shares 17% Governme nt Bonds 2% Others 0% Secured by Insurance Policies 0% Cash & Deposits 70% Governme nt Bonds 15% Others Corporate 1% Bonds 11% Real Estate 0% Listed Shares 0% Secured by Insurance Policies 0% Cash & Deposits 73% Total Return from investments of insurance companies were OMR mn at the end of 2016 compared to OMR mn during the same period in 2015 at 19%. Foreign insurance companies recorded 56% growth with OMR 2.12 mn from total proceeds of investments while the national insurance companies proceeds decreased by 2%. As to the investment in shares for national companies they recorded the highest percentage with a growth at 399% to OMR 3.25 mn in 2016 compared to a loss at OMR 1.08 mn in 2015, followed by other security at 100% and the return of foreign companies at OMR 10,883 in On the other hand, the return of real estate decreased by 377% due to the losses the national companies have incurred at OMR 4.01 mn at the end of 2016 compared to OMR 1.44 mn in Total return from shares in other companies deceased by 176% although the return of foreign companies from the shares of other companies have grown by 1013%. 11

12 (OMR mn) Net Income of the Insurance Sector The net income registered by the insurance companies over the years have continued to deteriorate. The data indicates drop in the net profit by 44% during 2016 compared to the previous year. Net profit was OMR 8.74mn in 2016 compared to OMR 15.57mn during the same period in (5.0) (0.9) (1.8) Conventional National Insurance Co's Takaful Insurance Co's Foreign Insurance Co's 5.3 National companies continued to be at the receiving end. Overall national companies witnessed a profit drop of 72% in 2016 to OMR3.4mn compared to OMR12.2mn in the similar period last year. Within the national insurance companies, conventional insurance companies profit dropped by 60.4% while the losses of Takaful insurance companies almost doubled to OMR1.8mn in 2016 compared to OMR0.9mn in Performance of foreign companies was much better than their local competitors. Foreign companies managed to report net income increase of 58% in 2016 to OMR5.3mn compared to OMR3.4mn in Metlife Alico Insurance and Iran Insurance net income witnessed gains of 143% and 137% respectively in While Arabia Insurance was able to convert its losses into profits in The company reported net income of OMR 0.79mn in 2016 compared to loss of OMR0.048mn in The New India Assurance was the worst performer amongst the foreign insurance companies as it witnessed a loss of OMR0.81mn in 2016 compared to net profit of OMR0.66mn in

13 Omanization in Insurance Sector In Oman, the Omanization program has been in operation since 1988, working toward replacing expatriates with trained Omani Personnel. Omanization, a campaign meant not only to ensure job for each citizen but also to reduce dependence on expatriates in search of self-reliance in human resource, has become the government's top priority more than ever before. As per the standards set, insurance company s target of Omanization stands at 65%. Omanization in Insurance Sector Total Industry 69.4% Total Conventional Vision Insurance Company Oman United Insurance Company Oman Qatar Insurance Company Falcon Insurance Company S.A.O.C Dhofar Insurance Company Al Ahlia Insurance Company Muscat Life Assurance Company Muscat Insurance Company SAOC National Life & General Insurance Company 70.0% 69.0% 70.0% 66.0% 66.0% 72.0% 69.0% 76.0% 81.0% 65.0% Total Foreign Orient Insurance Company Oman Insurance Company Zurich Insurance Middle East Company American Life Insurance Company (MetLife) Life Insurance Corporation International Iran Insurance Company AIG MEA Insurance Saudi Arabian Insurance Company B.S.C.(C) AXA Insurance (gulf) B.S.C (c) Arabia Insurance Company The New India Assurance Company 35.0% 67.0% 64.5% 61.0% 75.0% 60.0% 61.0% 83.0% 63.0% 76.0% 56.0% 62.0% 0.0% 10.0% 20.0% 30.0% 40.0% 50.0% 60.0% 70.0% 80.0% 90.0% The number of employees of the insurance sector in 2016 was 2543 of which 1695 were Omanis in the various technical and managerial roles in the insurance companies and brokers comprising 67% of the employees of the sector. The number of Omani employees working for national companies is 62% of the total number of the employees of the sector. Omanization ratio in foreign insurance companies is 18% of the number of Omanis working in the insurance sector. The number of employees of foreign insurance companies was 454 employees including 307 Omanis comprising 67% of the employees of foreign insurance companies compared to 71% in

14 Takaful Insurance in Oman Takaful originated within the ancient Arab tribes as a pooled liability that obliged those who committed offences against members of a different tribe to pay compensation to the victims or their heirs. In modern-day conventional insurance, the insurance vendor (the insurance company) sells policies and invests the proceeds for the profit of its shareholders, who are not necessarily policyholders. However, takaful is founded on the cooperative principle and on the principle of separation between the funds and operations of shareholders, thus passing the ownership of the Takaful (Insurance) fund and operations to the policyholders. In takaful, the policyholders are joint investors with the insurance vendor (the takaful operator), who acts as a Mudarib a manager or an entrepreneurial agent for the policyholders. The policyholders share in the investment pool's profits as well as its losses. A positive return on policies is not legally guaranteed, as any fixed profit guarantee would be akin to receiving interest and offend the prohibition against Riba. Takaful Insurance % of Total Insurance Co's in Oman % 9% 9% 8% 8% 6% 6% Retention & Loss Ratio Chg. (%) Direct Premiums (OMR mn) % Paid Claims (OMR mn) % Number of Policies (x) 61, , % 4% 2% 0% Gross direct premiums Total paid indemnities Total policies Issued Total assets Loss Ratio 38.0% 70.7% - Retention Ratio 50.0% 53.6% - Oman Takaful Insurance segment was formally launched in 2014, when the country s first Takaful firm, Al Madina Takaful, began issuing Takaful polices. A second firm, Takaful Oman Insurance, followed it into the market in June of that year. Gross direct premiums of Takaful insurance companies stood at OMR42.06mn with an increase of 8.7% compared to OMR38.7mn in Takaful insurance represented 9% of the gross direct premiums of the total insurance industry in General Takaful and Family Takaful insurance in 2016 represented 9.8% and 6.5% respectively. The data indicated the percentage of Takaful insurance claims to the total paid claims represent 7.7% in General Takaful and Family Takaful insurance represent 7.8% and 6.8% respectively in Percentage of Takaful to total insurance policies, total commissions and the costs of production, total general and administrative expenses and total assets was 6.4%, 10.4%, 8.1% and 9.2% respectively. 14

15 Insurance Regulations The insurance industry in Oman has been going through a period of change in recent years, alongside its continued expansion. Ever since CMA took control of the insurance industry in 2004, the authority has issued several laws and regulations to adopt the global best practices, while addressing the needs of the local market. The amendment to the Insurance Companies Law that was introduced in August The CMA raised the minimum paid-up capital requirement for underwriters to OMR10.0mn (USD25.9mn) from OMR5.0mn (USD12.9mn). The minimum requirement to list a certain percentage of insurers shares on the Muscat Securities Market, was also increased. Local companies need to institute these changes over a period of three years. These new requirements are aimed at restructuring and boosting risk management, transparency, and corporate governance within the industry. A new power was granted to the board of directors of the CMA to settle the crimes set out in the Law during the course of public suit before the issuance of a ruling, against a payment of an amount not less than double the minimum amount of the fine for the crime but not exceeding double the maximum fine. If a settlement is reached, then the public suit shall be closed. In line with the other key requirements, a large number of local insurance companies plan to sell their shares on the MSM before August As of June 2017, the only listed underwriters were Dhofar Insurance, Oman United Insurance, Al Madina Takaful, and Takaful Oman. The remaining eight national firms, including seven primary insurers and the country s sole reinsurance underwriter, Oman Reinsurance Company (Oman Re), are required to carry out an initial public offering of at least 25% of their capital by mid Earlier in the year, Capital Market Authority (CMA), approved a request from national insurance companies to offload a 25% stake of promoters, instead of the normal 40% disinvestment in initial public offerings. At least five national insurance companies i.e. Al Ahlia Insurance Company, National Life Insurance, Oman and Qatar Insurance, Vision Insurance and Arabia/Falcon Insurance are expected to float shares on the Muscat Securities Market (MSM) before August 2017, in line with the CMA regulation. The recent mergers of some insurance companies have reduced the number of firms required to float shares on the local bourse. For example, Muscat Insurance and Muscat Life Insurance are merging with Muscat Holding. Since Muscat Holding is a listed company, there is no need for these two insurance companies to float shares on the market. In 2016, Capital Market Authority confirmed that the new amendment to the Insurance Agents Regulation has stressed on the importance of Omanization of the profession to achieve added value to the national economy and the partnership with the private sectors. CMA added that the amendment was made after assessment of the situation in light of the former version of the regulation which provides for a number of the requirements for obtaining the license. The key changes included Omanization of the profession and the support of the investment initiatives in establishing small and medium enterprises. 15

16 Growth Drivers of Insurance Industry in Oman Favorable Demographics Demographics play a vital role in insurance demand generation. Oman population constitutes two key segments, a large expatriate base and a significant number of the young and the employed. Both of these are expected to considerably impact the demand for life and non-life insurance segments. Further, demand for insurance products is likely to grow with a changing landscape in the form of increasing urbanization, presenting the need to develop products that suit the changing lifestyle and demands. Oman Population Demographics (000) Source: UNPD The country s population growth is also supported by its huge pool of expatriates, who are drawn to country for employment. The high inflow of expatriates is reflected in the composition of the Oman labor force. Expatriates occupy positions ranging from low-paying, low-skilled construction jobs to highly professional and specialized jobs. New regulations in Oman require mandatory medical insurance for expatriates. Over the last couple of years, the medical insurance segment has become a major component of the overall insurance industry. An increasing expatriate population thus translates into higher demand for the insurance industry. 16

17 Omani / Expat Composition 100.0% 80.0% 60.0% 40.0% 20.0% 0.0% 26.9% 29.9% 31.4% 36.4% 29.4% 38.9% 42.2% 43.7% 43.4% 43.6% 45.7% 73.1% 70.1% 68.6% 63.6% 70.6% 61.1% 57.8% 56.3% 56.6% 56.4% 54.3% Omani Expat Source: NCSI Stable Growth Driven by Infrastructure Development The wealthy Omani nation continues to grow, supported by their cash reserves and strengthening fundamentals such as economic diversification and infrastructure development in the long-term. Over the forecasted period, despite a sharp decline in oil prices, GDP at current prices in Oman is projected to grow at a CAGR of 1.6% during the forecast period, with subdued inflation. The insurance industry is highly correlated with the economic outlook, creating demand for insurance-related products. The GCC nations are making rapid progress in implementing their strategy to diversify from the hydrocarbon sector, resulting in increased activity in other sectors such as manufacturing and services. Growth across such sectors is presenting significant opportunities for insurers. Oman Real GDP (OMR bn) % 5.8% 4.7% 3.6% Real GDP 4.2% 3.1% Growth 3.8% 7.0% 6.0% 5.0% 4.0% % 1.9% 1.8% 2.2% 3.0% 2.0% 1.0% % Source: IMF Regulatory Developments to Boost Growth Globally, insurance regulations are becoming more intrusive and stringent, encompassing continuous monitoring of risk management activities and financial performance of the insurers. The insurance regulators, across regions, are seeking to introduce a new approach for setting reserve and capital requirements that not only focuses on improving capital adequacy and liquidity, but also ensures insurers long-term ability to honor commitments. Over the last couple of years, Oman insurance markets have witnessed multiple regulatory changes, with several new regulations in the areas of minimum capital requirement, reserve calculations, reporting requirements and many others. These regulatory reforms are likely to drive growth in the insurance industry. 17

18 Takaful Insurance increases its foothold Oman insurance market stayed conventional and was characterized by a small number of product diversifications. However, the recent establishment of insurance firms complying with the Shariah (Islamic law), namely Takaful, offering non-life insurances, created a new momentum in the market by generating new products largely inspired from the conventional products. Since 2000, the Islamic insurance sector has been growing more than 15% per annum, yet the market is still at its tip, especially in the Middle East. The demand for Islamic insurance products has grown over the past few years, particularly within the GCC, as there is a shift toward ethical, innovative and Shariah-compliant financial solutions. This demand has also resulted in the launching of new Islamic insurance products, and these services are not only provided by Islamic countries, but also by American, European and Asian companies. Growing focus on Development of SME With Oman reviving its interest in small and medium enterprises, recognizing their contribution to economic growth and employment generation, the country has developed programs to set up new units, support them and help them succeed. His Majesty Sultan Qaboos bin Said has stressed on the economic importance of SMEs in national development and also announced a new fund dedicated to the sector. The Central Bank of Oman recently mandated all banks operating in Oman to allocate at least five per cent of their total credit to SMEs by end of Dec The central bank also urged all licensed banks to show more interest in financing SMEs. The rapidly growing SME sector in Oman presents a key opportunity for the insurers as generally these firms are run by the younger, more entrepreneurial-minded generation that is more open towards insurance as a means to protect its newly created assets compared to their established counterparts. 18

19 Growing Trends Increasing investments in technology and digitization The continued rise in competitive pressures within the insurance industry has led to an increase in the customers buying power and related changes in the customers and intermediaries preferences. These environmental changes are driving insurers to invest in the transformation of core processes and the modernization of legacy systems, particularly policy administration and claims systems, and to develop and implement an effective digital strategy. Several major insurers have already initiated core system transformation projects to improve customer service and speed to market. Digital channels and customer analytics are also the priority investment areas for insurers to improve customer experience, distribution, and process automation. Negotiating soft market conditions through tactical reinsurance ceding, and smart capital deployment The global non-life insurance premium growth, that remained relatively resilient during the financial crisis, is observing a downward trend (dropped to 3.7% in 2014 from 7% in 2011). This moderation is primarily driven by the softening of non-life rates across most regions and lines of business (particularly personal and commercial), which in turn is due to relatively low volume of insured losses from major catastrophes. To mitigate the growth challenges arising from rate declines, non-life insurers are adopting various capital management strategies to protect margins and keep investors interested: Insurers are looking to take advantage of the currently favorable reinsurance rates and terms to expand their exposure to high margin segments. Insurers are deploying excess capital for mergers and acquisitions to sustain growth and scale. During 2015 global insurance industry witnessed several high value deals. Several groups are returning excess capital to shareholders through increased dividends and share buy-backs. Regulatory reforms becoming more frequent and stringent Internationally insurance regulations are becoming more intrusive and stringent, encompassing continuous monitoring of risk management activities and financial performance of the insurers. The insurance regulators, across regions, are seeking to introduce a new approach for setting reserve and capital requirements that not only focuses on improving capital adequacy and liquidity, but also ensures insurers long-term ability to honor commitments. Bancassurance With other channels in insurance struggling to match the new economic reality, Bancassurance was the only major channel which performed favorably. A captive customer base, banks strong brand recognition, ability to sell insurance as an add-on product with other banking products and a rapidly expanding bank branch network allowed private banks to scale up their insurance business. However, the benefits were restricted to a few players which successfully reduced their dependency on agency and other third party channels and improved their cost to premium ratios significantly while gaining scale and market share. 19

20 International Insurance Companies making inroads Over the years, international insurance companies have made strong inroads into the local insurance industry. An underpenetrated market and low exposure to catastrophe associated with the region are the main factors attracting foreign insurance companies into the region. Also, a high and growing expatriate population, with a preference towards purchasing insurance products offered by entities from their home nations, is further luring foreign insurers towards the GCC region. Emergence of Insurance Marketing Firms Globally development and emergence of Insurance Marketing Firms (IMFs) is expected to give distributors, especially agents, a logical career progression and at the same time limit mis-selling for customers due to a professional outlook expected to be adopted by these firms. The lower capital requirement for setting up of an IMF combined with the fact that they can be a one-stop-shop for all financial needs of a customer makes IMF a lucrative choice for independent financial advisors and certified financial planners. For insurers, especially the newer ones, IMFs can thus be an effective distribution channel to help increase footprint in untapped segments without significant capital drain. 20

21 Challenges Price war: Pricing pressure is the most significant challenge the region s insurance market will have to face in There is a significant competitive challenge in some of the markets in the region where local insurance markets are over served with too many small insurers competing against one another. The biggest challenge for the insurance industry in the region is the intensified competition, mainly because of large number of firms. Quality of Service and Customer Retention being overlooked: Currently, the insurers are more focused on attracting new clients and gaining market share, paying less attention to the quality of their service and customer retention. Resultantly, consumers tend to change their insurers, when their policies are up for renewal. Thus, the insurers need to engage with their consumers more to rebuild trust and develop a longlasting relationship with them. Scarcity of Talent: Omani insurance industry is still in nascent stage. The industry faces a severe dearth of local talent, particularly at the mid-management level. Firstly, employers in the industry face tough competition from the lucrative government jobs that successfully lure the local talent. Further, the availability of skilled local talent is less, as there are limited insurance programs on offer at the local universities. Also, considering the complexities associated with insurance studies (mainly related to actuarial studies), the nationals prefer other areas as their career option. As a result, insurers are increasingly relying on expatriates to fill openings across areas such as underwriting, pricing, risk management, and product development. Moreover, insurers in the region try to poach the key employees of their competitors. In addition to discouraging investment in talent development, this has translated into a higher attrition rate and salary inflation in the industry. 21

22 The Way Forward Multi-channel approach: The new age customer does not interact with just one distribution channel. Through multiple touch points/channels, the customer first knows about a product; then compares it with similar products offered by the insurance company itself and by those being offered by competitors, and finally completes the sale through any one of the channels. Insurance companies that can seamlessly integrate the operations of new and alternative channels with traditional channels to present an integrated view to the customer, will likely be best positioned to enhance operational efficiency and benefit from customer s behavioral changes. Optimizing network distribution: Insurers must revisit their network planning strategies and re-align the distribution network mix in line with the economic potential of a region or a city. The right mix of full service branches, satellite branches and presence through a local partner must be carefully assessed based on the region s potential and the insurer s ability to successfully address the requirements of the local customers. Collaborating to increase talent development: The key reason most channels are unable to operate in a cost effective manner is skill-deficiency among the salesforce. This lack of proficiency, in identifying the right customers, approaching them in the right manner and with the right offerings, leads to low performance and a subsequent lack of interest in the job for a frontline employee/agent. This finally reflects as an exit by choice or as a termination by the insurance company. The insurance industry currently faces a major scarcity of manpower with the right acumen to drive customer engagements and sales. Adoption of best global practices: Increased availability of the capital and know-how from foreign parents will go a long way in plugging the infrastructural gaps faced by insurers. From revamping policy administration systems to improving claims settlement processes, insurers can raise operational efficiency at each level of the value chain. Such improvements can provide a major boost to the long-term profitability of insurance companies. Improved framework to curtail fraud: Fraud risk exposure from claims is a major area of concern which continues to have an adverse impact on the overall costs for insurers and premium charges for policyholders. Each insurer needs to adopt a definite methodology to identify and address risks of fraud within it. Some of the areas that a good fraud risk management process should cover include a well-defined whistle-blowing policy, periodic fraud risk assessments, a pre-employment screening, and vendor background checks. Implementing a modern and integrated claims management system: An integrated claims-processing system aids in simplifying processes and improving claims resolution, resulting in lower costs and enhanced customer fulfillment. 22

23 Market Share Marine Property Motor Comprehensive Motor Third Party Motors Total Al Ahlia Insurance 7.4% 7.4% 4.6% 4.3% 18.3% 15.2% 8.0% 9.6% 14.8% 12.9% Dhofar Insurance 7.0% 5.6% 32.2% 33.0% 7.5% 2.5% 38.9% 38.1% 18.1% 16.9% Falcon Insurance 3.0% 5.8% 4.1% 2.6% 4.3% 3.3% 0.8% 1.0% 3.2% 2.3% Muscat Insurance 3.2% 4.8% 6.1% 4.1% 3.9% 6.0% 5.5% 5.3% 4.5% 5.7% Muscat Life Insurance 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% National Life Insurance and General 0.2% 0.2% 0.6% 0.6% 3.2% 5.7% 2.9% 4.2% 3.1% 5.1% Oman & Qatar Insurance 3.2% 4.1% 11.3% 16.6% 8.5% 8.9% 0.0% 0.0% 5.6% 5.3% Oman United Insurance 18.9% 14.1% 6.8% 7.4% 9.3% 9.4% 18.4% 17.6% 12.4% 12.7% Vision Insurance 20.1% 23.7% 2.8% 2.7% 2.7% 3.7% 3.3% 3.5% 2.9% 3.6% Al Madina Takaful 3.9% 4.0% 9.0% 12.8% 5.8% 5.8% 3.6% 3.3% 5.0% 4.8% Takaful Oman 0.4% 0.8% 0.6% 0.9% 2.6% 7.3% 1.7% 3.6% 2.3% 5.8% AIG MEA Limited 0.4% 0.4% 2.2% 2.4% 5.0% 5.0% 2.2% 2.5% 4.0% 4.0% Metlife Alico Insurance 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% Arabia Insurance 2.7% 1.9% 0.7% 0.6% 5.1% 4.8% 3.8% 3.6% 4.6% 4.3% Axa Insurance 5.5% 5.9% 2.7% 2.8% 8.5% 8.7% 2.0% 1.4% 6.3% 5.7% Iran Insurance 0.0% 0.0% 0.4% 0.4% 0.6% 0.5% 1.1% 1.0% 0.8% 0.7% Life Insurance Coporation International 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% Oman insurance 14.7% 13.4% 1.4% 1.2% 0.1% 0.3% 0.0% 0.1% 0.1% 0.2% Orient Insurance 1.1% 1.1% 0.7% 0.4% 1.0% 0.8% 0.1% 0.0% 0.7% 0.5% Saudi Arabian Insurance 0.2% 0.1% 0.1% 0.1% 0.6% 0.5% 0.5% 0.4% 0.6% 0.5% The New India Assurance 6.3% 5.9% 5.4% 5.6% 11.8% 11.6% 7.0% 4.9% 10.2% 8.9% Zurich Middle East Insurance 1.6% 0.7% 8.5% 1.3% 1.1% 0.0% 0.1% 0.0% 0.8% 0.0% Total 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% Ranks: Yellow (1), Green (2) & Orange (3) Ranking as per 2016 numbers 23

24 Market Share Liability Engineering Health Life General Al Ahlia Insurance 6.8% 6.2% 10.4% 10.8% 0.0% 0.0% 0.1% 0.1% 7.9% 6.8% Dhofar Insurance 9.3% 8.4% 20.5% 11.6% 0.5% 0.5% 11.3% 5.1% 15.3% 13.2% Falcon Insurance 11.1% 8.8% 4.6% 6.5% 0.3% 0.4% 12.7% 3.9% 2.7% 2.3% Muscat Insurance 3.0% 3.6% 5.3% 7.1% 0.0% 0.0% 0.0% 0.0% 3.2% 3.5% Muscat Life Insurance 0.0% 0.0% 0.0% 0.0% 1.1% 1.3% 0.9% -0.3% 0.3% 0.4% National Life Insurance and General 1.9% 1.6% 2.8% 3.4% 76.4% 73.8% 11.1% 9.4% 21.8% 24.8% Oman & Qatar Insurance 8.8% 17.4% 0.0% 0.0% 1.2% 0.5% 3.2% 1.2% 4.5% 5.2% Oman United Insurance 5.3% 5.0% 8.7% 14.1% 4.0% 4.5% 6.2% 2.1% 9.1% 9.7% Vision Insurance 11.3% 14.3% 7.3% 10.8% 0.3% 0.5% 8.4% 10.0% 3.6% 4.0% Al Madina Takaful 10.1% 12.0% 7.0% 4.8% 4.0% 3.8% 3.7% 4.8% 7.5% 6.3% Takaful Oman 1.8% 3.6% 1.3% 1.8% 1.2% 2.5% 3.3% 1.7% 1.5% 3.6% AIG MEA Limited 4.6% 3.8% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 2.5% 2.6% Metlife Alico Insurance 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 16.4% 13.1% 0.2% 0.2% Arabia Insurance 0.6% 0.5% 6.3% 2.9% 0.1% 0.1% 0.8% 0.2% 2.6% 2.1% Axa Insurance 4.0% 2.9% 3.9% 4.3% 5.5% 5.8% 8.5% 43.3% 5.3% 5.3% Iran Insurance 0.1% 0.1% 0.4% 1.1% 0.0% 0.0% 0.0% 0.0% 0.4% 0.4% Life Insurance Coporation International 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 4.3% 2.2% 0.0% 0.0% Oman insurance 6.4% 0.9% 3.1% 3.6% 0.9% 0.6% 6.2% 2.1% 1.4% 1.1% Orient Insurance 3.1% 2.5% 2.7% 1.5% 0.5% 0.6% 2.9% 1.1% 0.9% 0.7% Saudi Arabian Insurance 1.3% 1.0% 0.3% 0.3% 1.3% 1.7% 0.0% 0.0% 0.7% 0.8% The New India Assurance 9.1% 7.3% 14.6% 15.3% 2.7% 3.5% 0.0% 0.0% 7.2% 6.8% Zurich Middle East Insurance 1.4% 0.3% 0.7% 0.1% 0.0% 0.0% 0.0% 0.0% 1.6% 0.2% Total 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% Ranks: Yellow (1), Green (2) & Orange (3) Ranking as per 2016 numbers 24

25 Data Credits: - National Center for Statistics and Information Oman - Capital Market Authority of Oman - International Monetary Fund - United Nations Population Division - Global Insurance Outlook - Local & International Media Ubhar Capital SAOC (U Capital) Website: PO Box 1137 PC 111, Sultanate of Oman Tel: /34 Fax: research@u-capital.net Disclaimer: This report has been prepared by U Capital Research, and is provided for information purposes only. Under no circumstances is to be used or considered as an offer to sell or solicitation of any offer to buy. While all reasonable care has been taken to ensure that the information contained therein is not untrue or misleading at the time of publication, we make no representation as to its accuracy or completeness and it should not be relied upon as such, and we accept no responsibility whatsoever for any direct or indirect consequential loss arising from any use of this report or its contents. All opinions and estimates included in this document constitute U Capital s Research judgment as of the date of production of this report, and are subject to change without notice. This report may not be reproduced, distributed or published by any recipient for any purpose. 25