Reforms and economic trends likely to boost insurance uptake in Oman

The insurance industry in Oman has grown rapidly in recent years and now plays an important role in the domestic economy. From contributing only 0.9% to GDP in 2008, it has risen to account for 1.6% of GDP as of 2015, according to figures from the sector regulator, the Capital Market Authority (CMA). Important regulatory changes made in 2015 and 2016, aimed at strengthening the industry’s capital base, promise to usher in a new era of expansion and to boost the amount of premium retained within the local market. To grow, however, the nation’s insurers must first adjust to a potentially protracted low-oil-price environment and increasing levels of competition, both of which represent significant challenges.

Crowded Market

Despite its ancient history of maritime and coastal trading, and the more recent development of an oil and gas sector, the sultanate was slow to develop an insurance industry. The reasons for this were both cultural and political; the prohibition against speculation under sharia law has challenged insurance growth in Muslim countries across the world, and the conservative political climate that existed for much of the 20th century presented a constraint to insurance growth. When Sultan Qaboos bin Said Al Said came to the throne in 1970, however, he ushered in a period of social, economic and political reform that has transformed the nation, boosting lifespans and education, and opening new economic sectors that afford Omanis employment and the government sources of revenue.

Oman’s insurance industry has expanded alongside this economic growth, meeting the requirements of the hydrocarbons and trade sectors, which have traditionally formed the basis of the economy; the rapidly developing corporate sector, which has been spurred on by the country’s long-running diversification effort; and the needs of ordinary Omanis, be it group health care provided by employers or individuals satisfying motor insurance requirements. The market, though young, is a crowded one. As of 2016 Oman was served by 22 insurance companies, though its GDP – at around $70.3bn in 2015, according to the World Bank – makes it one of the smaller economies in the GCC, on par with developing markets like Cuba and the Dominican Republic. Eleven of the firms are domestic companies licensed by the CMA, and 11 are foreign insurers, also overseen by the CMA.

Foreign institutions are permitted to access the domestic market through agents, branch offices and other local service agents, but must adhere to a number of restrictions. The most significant of these are the requirements that all policies covering risk in Oman be issued in Oman, and that an amount not exceeding 25% of each insurance policy issued in Oman must be reinsured with a national company. Since 2009 Oman has also been home to a single domestic reinsurer, Oman Reinsurance, which was established to increase the proportion of insurance premiums retained in the local economy.


Despite the fragmented nature of the market, over 60% of total premiums are usually claimed each year by the “big five” insurers, four of which are national institutions. The largest of these by direct insurance premiums is the National Life and General Insurance Company, with OR52m ($135m) in 2015, or 21% of the total, according to the CMA’s Insurance Market Index 2014-15, released in 2016. Long seen as the leading provider of life cover, a segment in which it claims a 65% market share, more recently it has begun to focus more attention on general insurance lines, as well as increasing its regional footprint with operations in Dubai and Abu Dhabi. The closely held joint-stock company is a subsidiary of Oman International Development and Investment Company, which owns a 97.93% stake in the firm.

Dhofar Insurance claims the second-largest share of direct insurance premiums, at 16% in 2015, according to the CMA. A public joint-stock company, Dhofar incorporated in 1989, and therefore the oldest of the major players, the general insurer has concentrated on organic domestic growth, building up a branch network that includes not only the principal urban centres, but also the more remote areas of Khasab, Haima and Mazyouna. Among its main shareholders is Dhofar International Development and Investment Holding Company, one of the largest holding firms in the country, with a 25% stake. Its shares are also traded on the Muscat Securities Market (MSM).

Rounding out the big five are Oman United Insurance, which claimed a 9% share of direct insurance premiums in 2015 and has established itself as a bancassurance leader; Al Ahlia Insurance with an 8% share, a non-life institution that operates as a subsidiary of Royal & Sun Alliance Insurance Oman; and New India Assurance, which is the largest foreign player in the market, claiming around 34% of that segment. The firm is wholly owned by the Indian government. Other notable foreign firms include Iran Insurance, AXA Insurance, MetLife Alico and AIG MEA.


The recent creation of a takaful (Islamic insurance) segment in Oman has further increased the level of competition in the market. This development followed the sultanate’s decision in 2011 to allow an Islamic finance sector to flourish in the country, where before there was no regulatory distinction between conventional and sharia-compliant products and services. As of 2016, Al Madina and Takaful Oman are the only two takaful providers in the country. Having completed their first year of operations in 2014, their development is at an early stage, but their presence has already been felt in the form of increasingly competitive premium rates.

Their early performance has been encouraging. In 2014 the sultanate’s takaful segment accounted for 6% of gross direct premiums and 4% of total paid claims, according to a March 2016 report by London-based International Finance Magazine. Over the following year, gross direct premiums of takaful companies increased by 64% to reach OR38.77m ($100.7m), 9% of the total, according to the CMA. Elsewhere in the Gulf, however, takaful often accounts for more than 30% of aggregate premium, and therefore Oman’s domestic takaful segment remains at a nascent stage. The implementation of the long-anticipated Takaful Insurance Law in March 2016 provides the basis for what most industry observers expect will be a period of rapid growth for this new segment (see analysis).


Looking to the growth of the wider sector, much of the industry’s future expansion will be secured by the large number of intermediaries that operate in the market. As of 2016 the CMA had licensed nearly 50 brokerage firms to operate in the country, and the bulk of new business continues to be channelled through them. Their number, however, means that insurers can be choosy about who they conduct business with. “Brokers still dominate, but ultimately we have to decide whether to accept the business or not,” Salim bin Nasser Al Busaidi, CEO of Oman United Insurance, told OBG. “We deal with only good, reputable brokers who evaluate and survey each risk before they come to us, and we have to have a good claim-loss ratio with the brokers we use.”

Direct sales play a smaller part in distribution, although Dhofar Insurance and Muscat Insurance have both managed to build their businesses on a predominantly direct sales model by investing in large branch networks. Banks have sold insurance products on behalf of underwriters since 2004, but sales via bank branches largely failed to take off in subsequent years. Because the bancassurance model relies on scale, Oman’s relatively small market, and the dominance of the banking sector by a small number of lenders, act as checks on growth in this channel. However, new tie-ups between banks and insurers continue to be announced in the sector: in May 2015, the sultanate’s largest financial institution, Bank Muscat, signed a 10-year deal to distribute insurance products for AXA Gulf.

Business Lines

Motor insurance is the single biggest source of premiums for both local and foreign companies, accounting for 35% and 42%, respectively, of their total direct premiums in 2015, according to the CMA. The motor segment grew by a modest 2% between 2014 and 2015, and has become highly competitive, pushing domestic premium rates to levels that some industry figures consider uncompetitive internationally. Medical insurance, which is dominated by local firms and accounted for 27% of their premiums in 2015 (compared to 10% for foreign firms), is one of the most promising segments in the country in terms of further opportunities in the coming years. The segment has been boosted by factors such as rising treatment costs and plans, announced in April 2015, to implement a rule mandating all private firms provide health insurance for their employees – although this is unlikely to be fully implemented until economic conditions improve.

Life insurance is underdeveloped in Oman and in 2015 it accounted for 19% of foreign firms’ premiums, compared to 10% for their domestic counterparts, according to the CMA. Most players operating in the segment focus primarily on expatriates, who do not benefit from state-provided social protection, and group life premiums have been the traditional engine of growth. Other important business lines include engineering, which accounts for around 10% of local premiums and 7% for foreign ones, and property, accounting for 11% and 10%, respectively.


The task of overseeing Oman’s dynamic insurance industry falls to the CMA, which took over regulatory responsibilities for the sector from the Ministry of Commerce and Industry in 2004. As well as day-to-day oversight, the CMA is charged with developing and restructuring the legislative and regulatory framework in ways that support the growth of the sector. To this end it regularly issues new legislative updates, circulars and decisions that directly affect the operations of Oman’s insurance companies. The most significant of these in recent years are amendments made to the insurance law in August 2014. The new framework doubled minimum capital requirements for insurance firms from OR5m ($13m) to OR10m ($26m). It also requires local insurance firms to convert to public joint-stock companies and carry out an initial public offering on the MSM – a mandate from which foreign insurers are exempt.

The regulations came into effect immediately for newly established businesses, while existing firms have until the end of 2017 to comply. The amendments also establish a new right of appeal to the CMA should an application to establish or convert a new insurance company be rejected, and it puts in place new penalties for enterprises breaching the insurance law, in the form of fines ranging from OR10,000 ($26,000) to OR100,000 ($260,000). It also allows the CMA to reach out-of-court settlements with firms being prosecuted for committing crimes, in order to reduce the number of time-consuming court cases affecting the industry.

In March 2016 the CMA also fully implemented the Takaful Insurance Law, which brings the nascent sharia-compliant segment in line with the conventional industry, even in the important matters of minimum capital requirements and the necessity of listing on the MSM (see analysis). The most obvious result of these amendments is a strengthening of the industry’s capital base, but another consequence may be new mergers, as companies raise capital to meet the new requirements. The prospect of consolidation is enticing for the regulator, which would like to see a rationalisation of what it sees as a crowded market.

While the ramifications of the new amendments will continue to be felt through to 2017, the CMA is not done and is still pressing ahead with its reform agenda. One issue on the horizon is the question of investment-linked insurance policies, which have yet to appear in the market. The combination of investment and protection products has proved popular in other countries, and in 2015 the CMA issued a circular with draft rules for the business line which it hopes will provide a basis for future growth. The proposed guidelines set out detailed reporting and governance standards, as well as a framework for the management of internal and external funds.

Retention & Reinsurance

The new capital requirement standards established by the CMA should also have an impact on the amount of business local insurers can retain before exporting premiums to foreign reinsurers and brokers. Raising the minimum paid-up capital for both national insurers and the branches of foreign insurers operating in Oman to OR10m ($26m) will allow them to underwrite more risk. This, it is hoped, will in time improve the industry’s overall retention ratio, which stood at 58% in 2015, according to the CMA. While this represents a modest improvement from 57% in 2014, retention rates still vary widely across the sector depending on the line of business, from highs of 84% and 88% for third-party and comprehensive motor insurance, respectively, to 10% in property insurance.

Meanwhile, other lines vary between rates of 58% for health and 17% for marine. To some extent the phenomenon of low retention rates is a legacy of the insurance industry of a decade ago, when modest capital requirements meant that some companies had OR5m ($13m) or less of capital on their books, meaning that they were only of sufficient size to act as virtual brokers, passing on risk to global reinsurers.

For many large commercial projects in Oman insurers continue to play what is effectively a middle-man role, passing on business for major projects to reinsurers, who then determine the rates themselves. The CMA asserts that the globally acceptable retention ratio is 50% or more, and while the sector average surpasses this figure, many parts of the industry have some improvements to make before their retention ratios reach desirable levels. Most insurers operating in Oman have traditionally maintained straightforward treaty arrangements with North American and European reinsurance institutions. Looking ahead, however, the emerging GCC reinsurance industry, which is likely to continue gathering momentum in the coming years, may play a larger role in the Omani market.


The performance of Oman’s insurers is directly linked to trends in the wider economy and, as with other markets in the region, the oil price decline that began in mid-2014 has started to show up in their annual financial statements. Despite the prospect of stalled projects and increasing investor uncertainty, however, the industry as a whole managed to show modest growth in premiums for 2015. According to the CMA, the aggregate gross direct premiums for the sector grew from OR396.53m ($1.03bn) in 2014 to OR442.07m ($1.2bn) in 2015, an annual gain of 11.5%. National insurers showed the most impressive gain, adding 14% to their premiums in 2015, while the aggregate premium growth for foreign firms was recorded at 3.5%. Both national and foreign companies also managed to grow the number of new insurance policies, in both general and life categories, by a combined 6% year-on-year (y-o-y).

While premium-take and policy additions have remained relatively robust, other areas of the sector’s aggregate income statement have fared less well in the new economic climate. Most obviously, the investment activities of insurers, by which they seek to gain a profitable return on the premiums they collect each year, have been negatively affected by the bearish investment climate that has prevailed since the beginning of 2015. While capital directed towards defensive investments, such as sovereign debt brought a healthy return in 2015 – an annual increase of 51% in the case of government bonds – the remainder of the industry’s collective investment portfolio has struggled. Most notably, returns on shares held in national companies decreased by 151% in 2015 compared to the previous year, while shares held in other firms showed a 215% decline in returns, according to the CMA. The poor investment results played a significant role in the sector’s 40% decrease in net profit which the sector posted in 2015; total net profit stood at OR15.6m ($40.5m) for the year, compared to OR26.13m ($67.9m) in 2014.

Late 2015 also brought a reminder of the heightened insurance risks associated with Oman’s varied topography. October 2015 saw flash floods in urban centres. According to the CMA, the damage to roads, vehicles (including construction machinery) and property resulted in compensation payments by insurance companies in excess of OR3.6m ($9.3m), with engineering claims topping the list, followed by motor and property. While there were no similar events in 2016, the profitability of Oman’s insurers remained adversely affected by a slowing economy and investor uncertainty. With no significant oil price rise anticipated in the short term, a similar negative trend is expected to be exhibited in 2017.

Responding To Adversity

Faced with a cooling economy and the decline of regional stock markets, insurers have had to reassess their strategic focus. Adverse conditions have highlighted the importance of good underwriting for technical profit, rather than reliance on investment income. “The underwriting side of the balance sheet has become much more important given the current investment climate,” Lloyd East, CEO of Al Ahlia Insurance, told OBG.

While solid underwriting has emerged as a priority, insurers have also taken steps to minimise damage to their investment portfolios: in aggregate, the sector reduced its holdings in locally listed companies by 10% over 2015, while expanding its holdings in government bonds by 58%, according to the CMA. Corporate bonds, seen as a more defensive investment instrument than equities, also emerged as a popular repository of funds, gaining 23% y-o-y. Bank deposits account for the single largest share of insurers’ investment capital, and this low-risk destination saw a 7% increase in the general insurance line and a 5% increase for life insurance, according to the CMA.

More Variety

Over the medium term, insurers can also respond to a slowing business cycle and increasing competition through the development of new products and services. Concepts such as usagebased insurance, where, for example, telematics technology can transmit driving habit information from vehicle to insurance carrier, is gaining traction in developed markets and is likely to become a common feature of the global industry. Other trends, such as the use of aerial imagery to assess property size, location, damages and proximity to risk, can be implemented regardless of demand and bring the promise of quicker, cheaper processing for insurers.

In the short term, however, the response of the market to unfavourable conditions is likely to take the form of cutting premiums. Like most developing insurance markets, Oman’s insurance sector is primarily price-driven. This is seen most clearly in the motor segment, where decreased car sales and new market entrants have led to a price war that has resulted in a degree of underbidding. While the CMA, valuing open market competition, has not moved to place a regulatory block on these practices, similar trends in the region have led to sector instability. Monitoring this situation, therefore, is likely to be a key priority for the regulator over the coming years.

Room For Growth

In the longer term Oman’s insurance industry has potential to expand. According to the Central Bank of Oman, the nation’s insurance penetration stood at 1.3% in 2014, which was comparable to other GCC markets, but below the global average of 6.5%. Similarly, insurance density (or insurance spend per capita) stood at OR102.3 ($266) in 2015, according to the CMA’s 2015 annual report, compared to the GCC average of OR141 ($366) and the global average of OR252 ($654). These figures suggest there is a large, underserved segment of the economy that insurers can tap into, perhaps aided by an increasing range of compulsory non-life lines as the government continues to implement global standards of regulation and governance.

Life insurance in the sultanate also shows promise, as Omanis become increasingly aware of its benefits and as new products, such as investment-linked insurance, enter the market. Promoting insurance awareness is therefore an important consideration for the industry, whether through direct promotional campaigns – such as an event staged at Salalah Gardens Mall by Al Madina in August 2016 to highlight the benefits of takaful – or bundling the insurance concept with wider campaigns, such as AXA Gulf’s recent Diabetes Detection campaign in the country, undertaken in partnership with Al Noor Medical Specialties Centre and Burjeel Hospital. Encouragingly, there are signs the promotional efforts of insurers and the regulator are showing returns: according to the CMA, insurance expenditure per capita grew at a cumulative rate of 5% from 2008 to 2015, rising from OR72.60 ($189) to OR102.30 ($266).


A slowing economy continued to apply pressure to insurance activity in 2016, which is likely to show up in the aggregate sector results for 2017. In August 2016 the Times of Oman reported that some private companies had begun to exclude chronic and common medical conditions from health insurance plans as a cost-cutting measure, while insurance agents had also recorded a fall in the number of staff health plans being renewed over the year. Slowdowns in construction activity will also negatively affect the engineering insurance segment, while a related concern – lower imports of building materials – will undercut marine insurance premiums.

The main challenge to profits in the medium term is the contraction in car sales, a trend usually seen during an economic slowdown. According to data from the National Centre for Statistics and Information, there was a 26.6% drop in the number of newly registered vehicles in the January to November period of 2015, compared to the same period in 2014. Not only is the industry’s premium take affected by falling registrations, it is eroded by the decreasing value of the aging motor stock on Oman’s roads. Nevertheless, the long-term prospects for the industry are promising. A 2015 report by Alpen Capital calculated that the GCC insurance sector would grow at a compound annual growth rate of 18.7% from 2014 to 2020, to reach $62.1bn. While oil price volatility threatens this trend, low penetration levels, increasing awareness, a growing population, new compulsory lines and ongoing market reform combine to give the industry sizeable momentum.


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