Bahrain’s fragmented insurance market faces challenges, says Best

The solvency levels of Bahraini insurers are expected to be negatively impacted by Covid-19-driven financial market volatility, according to AM Best, but the performance of most Best-rated Bahraini insurers has been good during the underwriting cycle. Best said that in the near term, Bahrain’s insurance market, the smallest among the Gulf Cooperation Council (GCC) countries, is expected to face a number of challenges. The decrease in oil prices could materially reduce government expenditure, impacting the level of insurable risk and therefore the amount of insurance business written in the country. Best also pointed to Covid-19, which is causing some concerns, in particular for insurers exposed to fluctuations in financial markets or for those that have a weak liquidity position. However, Best said: “While the broader consequences of the pandemic have the potential to affect the financial strength of some carriers, most Best-rated entities have solid balance sheets, which are expected to be resilient to stresses, and risk management frameworks that will help navigate market turbulence.” The Bahraini (re)insurance market is very competitive, with a large number of companies vying for a limited amount of premium, said Best. In 2018, 36 insurers (24 of which were locally domiciled) competed for approximately $750m of premium. Conventional insurance dominates the market, although takaful business has been growing in recent years, accounting for 28% of the market in 2018, among the highest penetration levels in the region. Best said the market is fragmented, with limited opportunity for insurers to grow domestically without undercutting competitors. Bahrain’s insurance sector has fallen behind the other GCC markets, which have grown at a faster pace, according to Best. “Market expansion has slowed in recent years, with gross written premium between 2014 and 2018 increasing only by a compound annual growth rate (CAGR) of around 1%, compared with 5% between 2010 and 2014. Life and property business shrank between 2014 and 2018, while the core non-life segments of motor and medical insurance have thrived, with CAGRs during the same period of 2.5% and 6.5%, respectively,” Best said. Best noted that one of Bahrain’s main listed insurers, Arab Insurance Group, announced during the summer that it would cease writing new business and seek to carry out an orderly runoff of its existing portfolio, and is also exploring the possibility of finding a buyer to take it over. “Concentration risk remains a significant issue for most Best-rated insurers, given that their underwriting and investment operations emanate solely from the domestic market. Furthermore, the modelling of catastrophic risks by domestic insurers in the region is unsophisticated and typically provided by international reinsurers,” said the ratings agency. It added: “Insurance companies rated by Best in Bahrain generally have robust risk-adjusted capitalisation with good capital buffers that underpin their balance sheet strength. However, the balance sheet strength of some insurers is vulnerable to investment market shocks, due to their exposure to higher-risk asset classes such as equities and real estate.” Best concluded: “Notwithstanding the highly competitive nature of Bahrain’s market and the impact this has on top-line growth and pricing, the performance of most Best-rated Bahraini insurers has been good over the underwriting cycle.”

Bahrain’s fragmented insurance market faces challenges, says Best

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