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Asia-Pacific Journal of Risk and

Insurance

Volume 3, Issue 2 2009 Article 8

Country Study: 2008 Review of the Middle

East and North Africa (MENA) Insurance

Markets

Editorial Team of Middle East Insurance Review

Copyright c2009 Asia-Pacific Risk and Insurance Association. All rights reserved.


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Country Study: 2008 Review of the Middle East and North Africa(MENA) Insurance Markets

MiddleEast Insurance Review

+

The Middle East in general and the Gulp Corporation Council (GCC) in particular have longbeen touted as the next big destination for growth. Driven by major infrastructure projects,the introduction of compulsory health and motor insurance in some countries and thedevelopment of takaful products, this region offers plenty of opportunities for bothindigenous and foreign insurers. This is in spite of the slash in growth forecast for most Gulfeconomies in 2009 as showed by a Reuters poll.

Although insurance growth rates in the MENA region are expected to exceed those of the

world in the next few years, the markets remain relatively small. To become more dynamic,policymakers and regulators will need to fill the existing gaps in the underlying enablers,such as insurance awareness. Similarly, financial markets must continue to reform anddevelop, providing vehicles for investment and instruments through which finance can flowefficiently and transparently to those who can use it most effectively. In this article, we coverkey developments in the insurance markets during 2008 in the following countries: Algeria,Bahrain, Egypt Iran, Jordan, Kuwait, Lebanon, Libya, Morocco, Oman, Qatar, Saudi Arabia,Sudan, Syria, Tunisia, Turkey, UAE and Yemen.

Algeria. There are currently 16 insurance companies: 4 state-owned insurers, 7 privatecomposite insurers, 2 mutuals and 3 specialized agencies. The market is dominated by thefour state insurers Societe Nationale dAssurance (SAA), CAAR, Compagnie AlgeriennedAssurance Transport(CAAT), and Compagnie dAssurances des Hydrocarbures (CASH).Together, they control around 80% of the market and specialize in direct insurance.

Reinsurance services are provided by Compagnie Centrale de Rassurance (CCR). The lifeinsurance market is underdeveloped and does not offer the capitalization products found inother markets, as the countrys social security plans offer 80% of salaries on retirement, inaddition to social security reimbursements, which are also at 80%.

Following the tragic earthquake of 2003, insurance against natural catastrophes becamemandatory. All infrastructures buildings, private dwellings, offices, and industrial andcommercial complexes are to be covered. However, according to a study by AlgeriasNational Insurance Council (CNA), only 10% of Algerian households are insured againstnatural disasters. It attributed the low adoption rate to a lack of financial resources, a lack ofinformation and general mistrust of insurance companies. In general, the industry is alsohampered by cut-throat competition, a lack of transparency and training, and outdated ITsystems and management tools.

The current low level of personal liability and life insurance are gold mines waiting to beexploited in view of anticipated higher household income and savings. Various projects as

+ This article is based on the article with the same title by MiddleEast Insurance Review(January 2009) and reprinted with the permission and support of the editorial board of themagazine.

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: Country Study: 2008 Review of the MENA Insurance Markets

Published by The Asia-Pacific Risk and Insurance Association, 2009


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part of the US$60 billion public investment program for 2005-2009 and the recent entry ofFrench insurance companies are other factors expected to boost the insurance sectorturnover to more than $1 billion by 2010.

Bahrain. The Bahrain Financial Harbor is expected to elevate the position of Bahrain in theglobal financial markets, especially in the light of the homecoming of over US$5.1 trillion ofimmigrated capital over the last decade. Already, the financial services sector, whichcontributes to approximately 27% of GDP, has been a key contributor to the non-hydrocarbon GDP and is expected to continue to grow along with expansion in Islamicbanking and insurance.

Total gross premiums in Bahrain grew 21% year-on-year to reach BHD135.6 million in 2007.Life insurance contributed the lions share of growth, soaring by nearly 67%, with medicaland the traditionally strong motor business also growing by 39% and 16%, respectively.

At the end of July 2008, there were 168 insurance firms, including 35 direct insurancecompanies, 24 locally-incorporated firms, 11 branches of foreign firms, and insuranceancillary services and organizations. Many in the industry are eyeing the plans for

compulsory health insurance, as Bahrain now spends over BHD20 million a year onsubsidizing healthcare services. However, the plan to roll out compulsory health insurancefor expatriates in 2009 seemed to have hit a temporary snag late last year due to a changein the Minister of Health and the election of a new parliament. With 18 takaful firms and tworetakaful operators, takaful is tipped to be the next big thing.

Solidarity, one of the local giants, has said that it will pursue an IPO of its stock by the endof 2009 to fund expansion in Africa and Europe. Last April, a new takaful education programin the Kingdom welcomed its first students, part of a wider drive to develop humanresources and vocational training across the sector.

Egypt. Regulatory changes, including one allowing foreign firms to wholly own domesticinsurers without the need for a local partner, are expected to set the stage for excitinggrowth in the Egyptian insurance sector, which currently comprises around 23 companies.

Insurance premiums amounted to EGP7.4 billion in FY 2007/08, a 72% growth from FY2004-2005. Public insurance companies share of the market plunged to 48.8% from 70.3%during FY 2004-2005, while the share of local private insurance companies grew to 13.9%from 10.1% three years earlier. Foreign private insurance companies accounted for 37.3%of the pie compared to 19.6% during FY 2004-2005. Life insurance premiums surged115.3% over three years to EGP3.3 billion in FY 2007-2008, while property and casualtyinsurance premiums saw a smaller but still significant jump of 42.9% to EGP4 billion.

In the first stage of non-bank financial reforms from 2004 to 2008, insurance supervisionstructures were developed, and one of the largest insurance institutions in Egypt and MENAregion, Misr Insurance Company, was formed. The Peoples Assembly also approved adraft law on mandatory insurance covering civil liability in automobile accidents, coveringmillions of Egyptians and opening exciting new frontiers for growth. Under the second stageof the reform program from 2009 to 2012, a single supervising entity will be created for non-bank financial authorities, including capital markets, insurance, mortgage finance andfinancial leasing.

In January, Allianz joined forces with PlaNet Finance, the First Microfinance Foundation(FMF) and Alexandria Business Association (ABA) to launch Egypts most ambitiousmicroinsurance program to date. Allianz is indirectly offering death and disability insuranceto FMF and ABA clients by insuring the loan institutions themselves against these risks. Inthe event that a client is disabled or dies, neither they nor their families will be responsible

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for paying back the loan, and the institution receives a payout from Allianz to cover thedefault.

Iran. The long-awaited privatization law following publication in the Official Gazette took

effect in September 2008 and is expected to invigorate the Iranian private sector, includingthe insurance industry, which has long been overshadowed by a centralized economy,dominated by major government corporations for nearly three decades. According to theHead of Irans Securities and Exchange Organization last November, the stocks ofinsurance companies, excluding Iran Insurance Company, will be gradually offered on theTehran Stock Exchange in the next Iranian calendar year, starting March 21, 2009.

Foreign operators are mostly locked out of Iran due to sanctions. Currently, only one cross-border insurance firm, Fortis, is operative, servicing the nonlife segment. Continued politicaltensions between Iran and the U.S., as well as elements of the governments economicpolicy, and factional infighting within the administration will have negative effects on Iranseconomy and insurance sector, where a total of 19 companies operate.

Irans has a promising nonlife segment with good development prospects due to a low level

of penetration. Key drivers of growth in the nonlife segment in 2007-2012 are the anticipatedrise in nominal GDP to US$604 billion from around US$225 billion and a near doubling oflife density to $102 per capita by 2012. However, nonlife penetration is expected to remainroughly static over the period at approximately 1.3%, according to Business MonitorInternational.

The miniscule life insurance business accounts for less than 10% of total market share. Thekey driver of growth in the life segment is the envisaged rise in life density from a mere $3per capita in 2007 to $5 per capita in 2012. The countrys growing population will alsocontribute to growth.

In December 2008, a new draft of the insurance Industry Overhaul Plan was published.According to the Vision 2025 plan, the insurance industry will be an economic, justice-oriented and reliable body, and will play a pivotal role in the capital market.

Jordan. In March last year, the Insurance Commission of Jordan (IC) raised the minimumcapital required to license new insurance companies from JD8 million to JD25 million. Thisis to ensure that weak companies with insufficient capital, which cannot serve customerneeds, do not enter the local insurance market. The new capital requirement will not beapplied to existing companies. However, IC Director General Bassel Hindawi has called onthese companies to work to increase their capital for their own benefit and for the benefit ofthe parties covered by various types of insurance.

Last May, the IC issued new instructions to regulate the bancassurance business, aimed atdeveloping bancassurance, enhancing the quality of products and services, andstrengthening the co-operation between the banking and insurance sectors. The followingmonth, the IC issued licensing instructions for regional and representative offices of non-operating foreign insurance companies to regulate and develop the Jordanian insurancemarket.

A Royal Decree was issued last October approving the amended by-law on civil healthinsurance, which requires the renewal of health insurance cards once expired. The by-lawalso raised the monthly subscription for serving and former ministers and Parliamentmembers, as the new regulations allow them to seek treatment in non-governmenthospitals, clinics and medical centers. First Takaful Co (FTC) was officially launched in Juneto become the third takaful operator in Jordan, bringing the total number of insurers to 29.

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Kuwait. Total premiums in 2007 amounted to KWD165.8 million, with 85.5% written bydomestic companies. There were a total of nine takaful operators in 2007, and together theygenerated KWD26.1 million worth of premiums.

There are plans to establish insurance information and data bank to do further analysis andresearch for the benefit of the insurance industry, which suffers from a low level oftransparency and technical skills. Nevertheless, there is significant growth potential giventhe relatively young population, a growing expatriate community and a flourishing economy.Increasing demand for takaful insurance products and real estate boom also offer greatopportunities. These should be facilitated by a long-anticipated new insurance law drafted inline with IAIS standards, and separate takaful regulations in the works (see the interviewswith Kuwaits Ministry of Commerce & Industry and Kuwait Insurance Companies Union inthis issue).

Lebanon. In 2007, gross written premium increased 17.5% over the preceding year toLBP1.13 trillion, helping the country maintain its rank among the top five Arab insurancemarkets. The life business accounted for a considerable share of 36% of total business andwas the major force behind the overall growth as it increased by 49.5%, whereas nonlifepremiums grew by only 4.9% from the preceding year.

In 2008, the Association of Lebanese Insurance Companies (ACAL) unveiled a three-yearplan to restore Lebanon to its former position as a regional insurance centre. The planincludes actions such as launching an annual Beirut Rendezvous insurance forum,organizing specialized training courses for the sectors employees, boosting ACAL technicalcommittees to accumulate market expertise, and activating a centre for resolving insurancedisputes. Earlier, ACAL initiated the ISO 90002000 certification process for qualitymanagement systems.

A new pension plan has been approved by the Lebanese Parliament to replace the existingEnd of Service Indemnity program (EOSI) established in 1963. The new plan stipulated thatthe retired person will start receiving a monthly pension at the age of 64. The added value ofthe new plan is that it provides medical care to retired personnel and a monthly pension,compared to one lump sum retirement and no health coverage in the old system.

Challenges faced by the insurance sector include the protracted delay in the new insurancelaw, price competition, relatively high taxes imposed on insurers operations, and afragmented insurance sector (see the interview with the Insurance Control Commission inthis issue).

Libya. There are seven licensed insurance companies in the market, with Takaful InsuranceCompany being the latest to enter at the end of 2007. The latest North African country toliberalize its insurance sector, Libyas life insurance accounts for less than 5% of totalmarket share. In addition, insurance penetration rate is less than 0.5% and insurancedensity barely reaches US$28.

Gross written premiums grew by nearly 11% year-on-year to LYD208 million in 2007. About25% of this came from the fire insurance business, followed by motor third party liability(TPL) and motor comprehensive lines in second place with each accounting for around

14%, engineering for around 13%, and marine cargo at 11%.

Apart from the challenges faced in privatization and from low insurance awareness, the lackof human resources is a serious problem as the market used to be served by a singlecompany. There is a need to establish insurance institutes to provide the market withexperienced and educated cadres. The countrys new insurance regulatory body, whichstarted operating only at the beginning of 2008, also needs time to prove itself. There is a lotto do, and the regulator shoulders a big responsibility in organizing the market. The

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Insurance Supervisory Authority is now working hard to organize the industry with the goalof laying the foundations for a strong insurance industry that can grow and compete in thefree market conditions.

Despite liberalization, the market is not totally open and some experts have recommendedeasing the terms of entry and allowing higher degrees of exposure to foreign players.Achieving greater transparency and corporate governance culture would also help themarket.

Morocco. The Moroccan insurance market, considered a leader in North Africa, is the mostdynamic market in the Maghreb region, thanks to a mature financial system, the presence ofinternational groups, and a high awareness of insurance. Moroccans insurance sector lookspromising with total insurance turnover increasing by 13% year-on-year to MAD10.25 billionin the first half of last year. Nonlife insurance dominated the market with a 73% share.Further potential has been created with the free trade agreement with the U.S. which isexpected to bring more American insurers to the Moroccan insurance market, allowing themto establish branches from 2010.

In 2007, there were 17 insurance companies and one national reinsurer, as well as morethan 150 insurance brokers operating in Morocco. As the national reinsurer, SCR receivesan obligatory 10% cession of all domestic insurance. In addition, it receives up to 50% of alltreaties covering domestic insurers. However, the obligatory cession for nonlife business isexpected to be removed soon, probably by 2012.

Morocco launched its first risk-management association, AMRIM, which held its first generalmeeting in Casablanca last April. The association expects to give more structure to the risk-management field in Morocco by supporting its members in their efforts in implementing anddeveloping risk management, promoting risk management, spreading a risk managementculture, and helping the government to deal with the main risk issues threatening thecountry

Oman. The history of Omans insurance sector can be classified under two main eras: pre-and post-6 June 2007, when Cyclone Gonu effectively raised the awareness of the need for

adequate covers. The industry has also been helped by a buoyant economy, a burgeoningpopulation and a supportive regulatory regime. The Capital Market Authority (CMA), whichhas regulated the industry since 2004, issued a license to Vision Insurance in late 2007,raising the number of national and foreign companies to 11 and nine, respectively. Totaldirect premiums of the insurance sector grew 17% year-on-year to OMR168.6 million in2007.

Apart from paving the way for more companies to be established in Oman, the CMAs policyof avoiding restrictive regulations has allowed the market to grow. In late December 2008,the CMA issued a decision amending the provisions of the Regulation of the InsuranceCompanies Law. The move comes within the regulators endeavors to improve theregulation to cope with the latest financial and economic developments to upgrade theefficiency of the insurance sector. In the same year, it also introduced several newregulations, including the unified motor insurance policy, a joint electronic database and aminor road traffic accidents system.

In 2008, CMA also issued an administrative decision amending its organizational structure.Under this reorganization, the Directorate General of Insurance Regulations, the DirectorateGeneral of Market Operations, and the Directorate General of Companies and FundsCompliance were merged and renamed as Directorate General of Market Operations andInsurance Regulation. The licensing of insurance companies, insurance brokerages andagencies, has been brought under a single directorate of licensing. The supportive and

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pragmatic stance of government agencies for Omani insurers has won kudos from industryobservers such as Standard & Poors.

2008 saw other achievements. The long-anticipated formation of Oman Re, targeted at

increasing the opportunity for reinsurance premiums to be retained within the Sultanate, wasfinally realized. In addition, the Orange Card automobile insurance system, which is similarto Europes Green Card system, was implemented from September. The system covers theinsureds legal liability towards third parties while passing through Arab countries subscribedto the agreement.

Medical insurance offers vast potential, with the government increasingly offloading itsburden of taking care of the health of citizens. With more corporations now undertakinggroup health insurance schemes for their employees, this has led to insurers such as AlAhlia, National Life and New India Assurance to re-launch health insurance schemes.

Competition, however, is heating up with at least two more insurance companies expectedto join the fray soon. Other problems include the uncertainty of the dollar vis--vis regionalcurrencies, an under-developed insurance network and a limited availability of insuranceproducts.

Qatar. The insurance sector looks likely to continue expanding in Qatar, albeit from a lowbase, aided by government efforts to encourage health insurance among the expatriatepopulation as well as corporate and individual insurance. According to market reports,premiums payments will reach around US$1.5 billion by 2013, and most of these would befor property and accident risk coverage.

A number of Qatari firms are looking to both increase their exposure to the insurance marketand to offer a wider product range. For example, in September 2008, ALICO AIG Lifelaunched a bancassurance agreement with Standard Chartered Bank, and in mid-August,Qatar Islamic Bank announced its plans to establish a takaful insurance company.

Moves are underway to raise greater insurance awareness and promote talent. The QatarFinancial Centre Regulatory Authority (QFCRA) has announced plans to launch a newArabic corporate website, while in the beginning of September 2008, the QFC unveiledplans to set up a training institute offering accredited courses covering subjects such asinsurance, wealth management and banking. Late last year, the Qatar Financial CentreAuthority (QFCA) launched the Qatar Insurance Platform to help develop the insurancemarket, bring its growth in line with that of other booming sectors in the economy, and pavethe way for Qatar to become a regional insurance hub.

A new super-regulator combining the QFCRA, Qatar Financial Markets Authority and theCentral Banks Banking Supervision and Consumer Services Units was expected to beformed in the first quarter of last year, but the plan has yet to see fruition. The still-unnamedsingle regulator is to offer a higher standard of regulation for the banking, finance,investment, insurance and reinsurance clusters and establish Qatar as key player in theregional and international financial services map.

The QFC has so far attracted the likes of AXA, Zurich, RSA and AIG. The Qatar Insurance

Co, one of the five listed insurers in Qatar, is also relocating its international operations tothe QFC. Global brokers such as Nasco, Marsh, HSBC and Aon are presently eitherauthorized or in the process of becoming authorized in Qatar.

Saudi Arabia. Saudi Arabia, which represents between 50% and 60% of the GDP of theMENA region and 70% of the GDP among GCC member states, will witness strong growthin its insurance sector over the next five years, according to a 2008 report prepared by theSaudi Arabian General Investment Authority (SAGIA) in partnership with the Oxford

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Business Group (OBG). The estimated per capita premium in the Kingdom is expected toincrease from US$53 to $220 during this period. Many see the enforcement of compulsoryhealth insurance for locals and expatriates as fuelling expansion in the healthcare sector. Ithas been estimated that health insurance will rise markedly and hit SAR15 billion by the end

of 2008. By 2010, the health insurance market is expected to be worth some SAR30 billion.

As Saudi Arabias retail and commercial insurance markets continue to develop, one of themain challenges will be ensuring a workforce which is fully qualified to service the sector.The next step for the Saudi insurance market is to develop its own talent in an industrywhere 82% of its 4,200 employees are foreign.

The Saudi Arabian Monetary Agency has so far shown itself to be a prudent financialregulator, maintaining a balance between enforcing regulations and supporting marketgrowth. The SAMA plans to introduce a new set of insurance regulations, in an effort topreempt the potential occurrence of fraud in the Kingdoms insurance sector. The newstatutes, which are expected to be implemented early this month, will be mandatory on allinsurance and reinsurance companies, including the branches of foreign firms andinsurance middlemen. Under the regulations, insurance companies are required to pass oninformation about fraud to concerned authorities and SAMA, and to lay down emergency

plans to counter fraudsters.

As of last August, 18 insurance companies, including Saudi Re, were fully licensed tooperate in the Kingdom and this was expected to hit 25 by the end of 2008. All insurerswere required to be registered by March last year. With a capital of SAR1 billion one of thelargest in the Arab world Saudi Re was the first professional reinsurer to be established inthe Kingdom in August 2008. The Saudi reinsurance market is estimated to be worthSAR2.6 billion.

Apart from the strong macro-economic growth and the implementation of compulsoryinsurance classes such as motor, the Kingdom also benefits from a young population andthe overall growth of the financial sector. Over the next five years, there are plans to invest$70 billion in oil and gas infrastructure, $140 billion in general infrastructure projects, $92billion in petrochemicals, and $90 billion in electricity and water. Such massivedevelopments will undoubtedly bode well for the insurance market.

Sudan. Sudan introduced the worlds first general takaful product in 1979 and is the onlycountry in North Africa to make it compulsory for all insurance businesses to be Shariah-compliant. However, despite the long history of takaful in Sudan, the market remainsrelatively small. The 15 insurers generated a total premium volume of US$203.1 million in2006, and insurance density and penetration were way below international standards at$5.5 and 0.5%, respectively.

The Sudanese financial market is considered young and underdeveloped following years ofrepression, political and economic instability. Although the government has embarked onpolicies to reform and develop the financial sector, it will take some time to overcome thechallenging issues in the insurance sector.

Syria. Total insurance premiums reached SYP9 billion in the first three quarters of 2008 and

was expected to rise by around 40% year-on-year to SYP13 billion by the end of the year,according to data released by the Syrian Insurance Supervisory Commission (SISC).Despite the sectors impressive growth, however, it still lags behind government predictionswhich put premiums at SYP37.2 billion by the end of 2010.

The country welcomed its first Islamic insurer, Al-Aqeelah Takaful Company late last year.In all, 14 firms have been fully licensed but not all are operating. Last August, insurancecompanies agreed to create a special pool to co-insure foreign vehicles which pass through

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Syria. The state-owned Syrian Insurance Co (SIC) is the largest shareholder in the pool with30% of business returns, while the remaining is divided among the other seven privateinsurers. The initiative will help companies to spread their risks and reduce administrativeexpenses through sharing offices. It will also allow them to acquire fair share of business

and preserve rates.

The SISC moved last May to save the prices of marine covers from further deteriorating byissuing a tariff. However, some players felt it was against the market interest to interfere insetting prices and limiting competition among players, arguing that underwriting guidelinesshould be the main determinant of price. The SISC defended its decision as the marinecovers are one of the compulsory lines and that rates had declined to a threatening levelwhich could affect the whole market.

The government is increasingly giving the private sector a larger role in the services sector.An industry-led initiative to establish a specialized health insurance company to servemainly public sector employees will help to reduce the governments financial burden andprevent prices from dropping to lower rates. Due to the free health service offered to citizensover the years, investments in this field lagged behind, creating total dependence on thepublic sector facilities and affecting the overall private medical infrastructure. It is hoped thatthis initiative would open the door for insurers to increase level of cooperation and that thiswill be extended to other lines like motor.

The governments decision to insure its properties and projects through the SIC is stillcontroversial, with private players seeking a section of the pie, arguing that this contradictswith ending the state monopoly over the insurance sector. However, the government claimsthat there are wide segments to be tapped and players can innovate in different lines. Inaddition, the decision aims to create a balance as the SIC, as a state-owned company, doesnot enjoy the freedom of operations which private operators have.

Other plans to further promote the insurance market include setting up an institution to trainpotential employees for the industry and the development of national corporate governancecodes and other codes of practice for insurance companies.

Tunisia. The Socit Tunisienne dAssurances et de Rassurances (STAR) was partiallyprivatized in 2008, with the sale of a 35% stake in the company to French mutual insurerGroupama signifying the first active foreign presence in the Tunisian insurance market. Asthe winning bidder, Groupama will play an active management role, bringing expertise andraising the companys performance and the bar for its competitors. The privatization ofSTAR could also open borders to foreign participation, an experience that would overhaulthe sector, import more sophisticated products and push local companies towardsconsolidation in the face of greater competition.

Life insurance continued its upward trend of 23.4% in premiums in 2006 and 15% in 2007.Though the market share remains limited, it is a promising segment because of the lowpenetration. The 2008 finance law aims to increase the cost of a life insurance contract fromUS$1,645 to $2,467 per household, which will be tax deductible.

The authorities have enacted a number of reforms in past decade, updating the regulationsthat govern the insurance sector, and giving space and incentives for insurance to expand.For instance, there have been notable efforts in health insurance and fiscal incentivesrelated to life insurance. Also, rules for car insurance have been better defined.

Despite such progress, Tunisias insurance sector still needs to modernize. The GeneralCommittee of Insurance (CGA), the insurance supervisory authority, needs to enhance itssupervisory capacity as insurance becomes more diversified and sophisticated. It will also

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need to strike a balance between a government wishing to maintain social protection and aprivate sector keen on modernizing and raising the industrys profitability.

Insurance is likely to get a further boost with the launch of Tunis Financial Harbor, targeted

for the beginning of 2009. The $3-billion project is aimed at transforming Tunisia into NorthAfricas financial hub with insurance firms, banks, consultancies and an academy to trainexperienced and new traders. It is expected to create thousands of jobs and bring in billionsof dollars to the economy.

Turkey. Due to the global crisis and domestic slowdown, Turkeys insurance industry hasshrunk for the first time since 2001, according to the data of the Association of the Insuranceand Reinsurance Companies of Turkey (TSRSB), which show insurance premiumsincreased by 10.25% to TRY8.8 billion in the first nine months of 2008. However, this growthwas negated by the 11.13% annual inflation in Septembers consumer price index, whichwill affect insurance prices.

In addition, it will also have a negative effect on Turkish companies appetite for mergers orpartnership deals due to constraint in liquidity. Last October, Yapi Kredi Bank said it had

abandoned plans to sell its insurance activities because it could not get the price it wantedduring the global financial crisis. However, the growth of the Turkish economy continues toaccelerate more quickly than anywhere else in Western Europe. This has had a profoundeffect on the insurance industry and attracted considerable international interest. Whileforeign capital shares in the insurance sector was around 5% to 7% in 2004, it increased to30% in 2007. Nevertheless, premium revenues constitute only 1.7% of the gross nationalproduct, whereas the average of EU countries is 8.4%.

The continued influx of foreign investors and the amended insurance law of June 2007should foster an environment adhering to EU norms. With this, new insurance and pensionproducts and services are expected to be introduced in the market, leading to long-termgrowth for the sector.

UAE. The UAE insurance sector, with total premium volume of US$3.56 billion in 2007

according to Swiss Res Sigma, continues to lead the GCC countries. The sector hasexpanded between 15% and 20% during the last three years, driven by population growthand economic development. The number of employees in the insurance sector also rose by17% in 2006 from the previous year.

The nonlife and life segments have been predicted by Business Monitor International (BMI)to have compound annual growth rates (CAGR) of 17% and 13%, respectively, for theperiod 2007-2012. A CAGR of 25.4% was recorded during the period 2001-2006. The boomin both oil and real estate had much to do with this sterling performance.

The Dubai Health Authority recently announced a new law which will overhaul thehealthcare funding system in Dubai, whereby health insurers are likely to play a major rolein delivering compulsory basic and advanced healthcare for all residents with effect from 1January 2009. This follows from the compulsory healthcare implemented in 2006 in AbuDhabi and may also lead to federal legislation in due course as the UAE looks to harmonizehealthcare provision across the federation.

Aside from health insurance, there has been a disappointing absence of regulatorydevelopment in the last 17 months, despite expectations that changes would be forthcomingfollowing the passing of the Insurance Law in August 2007. One of the primary functions ofthe Law was to establish a new semi-autonomous Insurance Authority responsible for theregulation of the insurance industry in the UAE.

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Up till now however, the Insurance Authority has only recently been formally constituted andbecome operational, with a new Director General taking up his position at the InsuranceAuthority in June 2008. Legal firm Clyde & Co said it expects developments in the monthsahead, including the promulgation of draft regulations and a more active and informed

approach to regulation. One important issue to be resolved is whether the Authority willretain the current restriction that requires non-branch insurance companies established inthe UAE to be publicly listed and have at least 75% UAE national ownership.

According to Economy Minister Sultan bin Saeed Al Mansouri, the UAE economy is strongenough to deal with the repercussions of the global meltdown and is projected to grow 6% in2008 compared with 5.8% in 2007, although the real test will be in 2009. Insuranceearnings, like elsewhere, could be affected by the falling stock markets although most UAEinsurers have generous capital bases that tend to be invested in the equity markets, whichhave boomed over the past few years, media reports have said.

Yemen. Yemens economy was expected to produce a 5.4% growth last year, up from2007s 3.3% real GDP level. The upward trend is largely the fruit of far-reaching reforms asoutlined in the 2006 National Reform Agenda. It focuses on four key areas: increasing

political participation, improving governance, enhancing public administration, andrevitalizing the business environment.

Yemens financial services sector is underdeveloped and the insurance market is small,comprising only 12 insurers serving a population of 22 million. Premium volume wasestimated at around US$61.2 million in 2007. United Insurance Company, the largest playerwith 42% market share, launched its first takaful window in Yemen last September, offeringall lines of insurance under supervision from the companys Shariah Board.

Poverty, the lack of awareness and severe price competition are some of the challenges,but it is the absence of regulatory attention which is the biggest hurdle for the market. Theindustry have been calling for greater help and support from the government, lamenting thatthere is only a small department manned by a senior executive looking at insurance.

Although financial regulations are insufficient, the government is taking some steps toimprove certain rules. In March 2008, it announced a new round of increase in wages,pensions, and social welfare benefits, intended to mitigate the effects of rising inflation. Thegovernment has also undertaken initiatives to develop the leasing and microfinance sectorsin the country. These reforms include the introduction of the Leasing Law in 2007, targetedat increasing the accessibility to financing facilities, especially for micro and small mediumenterprise. In a country where the vast majority of the population does not use formalfinancial services, microfinance development may represent an effective approach toenhance access to the banking system.

The establishment of an independent insurance agency has been an importantdevelopment. Other plans include the development of more detailed legal framework,establishment of a credit bureau, a corporate governance code, and a stock exchange alongwith the regulator. In a bid to join the GCC and the WTO, Yemen has undertaken ambitious

steps towards reforms and privatization. The countrys admission to either one of theseinternational bodies would certainly enhance and develop its insurance sector.

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country study review of the mena insurance markets

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