Increased competition and new regulations transform the sector

Jordan’s insurance industry is at something of a crossroads. Having shown its ability to grow in a trying economic environment, the sector’s future expansion is challenged by increasing competition and a significant change in the regulatory framework by which it is governed. The optimism which currently surrounds the industry is derived from the growth prospects of the wider economy, against which backdrop the IMF anticipates a 4% rise in GDP over 2015. The extent to which Jordanian insurers will be able to take advantage of the opportunities arising from the nation’s increasing economic activity depends largely on how the structural changes the sector is currently undergoing are finally implemented.

Rapid Development

The growth of the Jordanian insurance industry reflects the maturation of the nation’s economy since its independence in 1946. In the years following the birth of the modern nation the flow of trade through the southern port of Aqaba increased demand for insurance cover to offset the risk of rising vessel and motor movements, resulting in the creation of the first domestic insurer – Jordan Insurance Company.

Over the following decades market competition gradually increased, and it fell to the first industry body – the Jordanian Association for Insurance Companies – to imbue the nascent sector with technical competence and the principles of good governance. By the 1980s, the sector had reached a stage of over-saturation, with 33 companies and 23 agencies and branches vying for relatively modest aggregated premiums of JD33m ($46.62m). A period of market rationalisation was inevitable, and the reckoning came with the recession of the 1980s, when the losses of insurers prompted the government to freeze the issuance of new insurance licences and to introduce the Insurance Practice Monitoring Act, which aimed to strengthen the sector by significantly raising capital requirements. By 1987 the number of domestic insurers in the market had fallen to 17, and it was not until the 1995 that the government lifted the prohibition on new firms, doing so alongside another hike in capital requirements made to ensure the stability of the sector. By the turn of the century the number of insurance companies in the market had rebounded to 27, a high number for the available premium pool, but one supported by a considerably greater degree of technical probity than hitherto seen in the sector.

Market Structure

Nevertheless, insurers today face a level of competition that has made achieving profitability a challenge. After several entries and exits to and from the market since 2000, the number of licensed insurers operating in the industry has levelled off once again at 27. Between them they hold total assets of around JD773m ($1.09bn), according to the Jordanian Insurance Association, and pursue about JD490.8m ($693.3m) in gross premiums. Of the total, 17 firms are composite players, offering products and services across both life and non-life segments. Nine offer only non-life policies, while a single player – American Life Insurance (Metlife Alico) – pursues business exclusively in the life segment.

The market is a highly fragmented one: a 2011 study of the sector by local firm Capital Investments gave it a score of 529 on the Herfindahl-Hirschman Index, a measure of market concentration, and identified only four firms with a market share of over 5%. This trend has continued to the present. According to data from the Jordan Insurance Federation (JOIF), only Arab Orient Insurance Company (with a 16.5% share of gross premiums), Jordan Insurance (10.14%) and Middle East Insurance (7.35%) exceeded the 5% market share threshold as of first-half 2013, with First Insurance – traditionally considered one of the “big four” – claiming a share of 4.9%. However, despite an obvious need for consolidation, the industry has not seen any mergers or acquisitions in more than two decades.

The reasons for this are similar to those elsewhere in the region: a pattern of ownership in which prominent families, none of which wish to cede control of their companies, play a notable part, and a lack of perceived benefits to any partnership with other market participants. “There is really no advantage [to merging] for most companies,” Yacoub Sabella, general manager of Al Nisr Al Arabi Insurance, told OBG. “The majority of the market is concentrated on third-party motor insurance where the premiums are fixed [by the government], so there is no benefit in two motor-focused companies joining to make a larger one. The bigger, successful companies, meanwhile, are quite happy growing organically in the lines they want to be in.” The result is elevated levels of competition and the corollary of low profit margins, especially for the numerous smaller players that claim 2% or less of the available aggregate premiums.


In common with other insurance sectors in the region, sharia-compliant, or takaful, operators play a role in the Jordanian industry. The decision by the regulator to liquidate the struggling Al Baraka Takaful in January 2014 has left two Islamic insurers in the market, which compete for business alongside their conventional peers. While their share of the market is modest – a PwC report published in 2013 suggests that takaful operators account for around 7.9% of the total – the success of takaful across the GCC demonstrates the segment’s potential for growth.

The Wider Industry

The industry’s activities support a network of ancillary services, including 583 agents licensed by the Insurance Commission (IC) as of 2013, 142 insurance brokers, 22 reinsurance brokers (as well as 36 foreign reinsurance brokers), 58 loss adjusters and surveyors, one coverholder, 18 actuaries and 31 insurance consultants.

There are no standalone reinsurers domiciled in Jordan, and therefore the nation’s insurers transfer their risk to reinsurers abroad or – to a lesser extent – to a number of local insurance companies which reinsure one another. The current regulatory system places no geographical limitations on reinsurance activity, demanding only that institutions rated “BBB” or above be used. Europe, particularly Germany and France, is a popular destination for reinsured business, with most firms implementing standard treaty insurance models and turning to facultative reinsurance arrangements on a risk-by-risk basis when established treaty reinsurance agreements are not sufficient. Retention levels vary from segment to segment, with most firms ceding around 10% of premiums on motor and up to 90% on aviation. Thanks to the size of the motor segment, the nation’s overall retention level is higher than that see in other regional markets, where 50%-plus cession rates are the norm across most lines.

Reinsurance capacity has not emerged as a challenge to the Jordanian insurance industry, thanks in large part to the high number of regional and international reinsurance companies that are present in the market, often taking stakes in local firms in order to secure business. For example, AXA, Allianz and Munich Re, among other foreign players, hold strategic investments in Middle East Insurance, Al Nisr Al Arabi Insurance and Jordan Insurance, respectively.

Market Characteristics

Jordan’s insurance market is relatively small compared to many of its regional peers, contributing around 3% to the MENA region’s gross written premiums (GWPs) according to a 2013 report by PwC, compared to the UAE’s 30% and Saudi Arabia’s 23%. This puts it on a level with nations such as Kuwait (4%) and Lebanon (5%), both of which have considerably smaller populations than Jordan. The potential for future growth is therefore significant. As with other markets in the region, activity in the sector is dominated by the non-life segment, which, according to IC data, accounted for 90% of Jordan’s gross insurance premiums in 2013. Life insurance has traditionally been eschewed in Middle East markets, thanks in part to a historical perception that it contravenes Islamic principles. In Jordan it has been growing modestly over recent years, and at a slower pace than non-life lines: between 2007 and 2012 life GWPs expanded at a compound annual growth rate of 8%, compared to the 10% growth of non-life business over the same period, according to PwC. Despite the relatively small size of the market in terms of GWPs, Jordan’s insurance sector performs relatively well when looked at in terms of its relation to GDP: insurance penetration (calculated as a percentage of GDP) stood at 2.13% in 2012, according to a report by the Middle East Insurance Review, second only to Lebanon in the region and well in advance of larger insurance markets such as the UAE (1.98%) and Saudi Arabia (0.75%).


The insurance sector is dominated by the motor segment, which in 2013 accounted for 40.8% of GWPs, for a value in excess of JD200m ($282.5m). Motor insurance is, however, also one of the most problematic lines from the perspective of the country’s underwriters. Insurers offer two main policy types, fully comprehensive and third-party liability (TPL) coverage, with the latter being the minimum compulsory insurance level for car owners as mandated by the government.

The difficulty for insurers lies in the regulatory requirement that in order to sell comprehensive coverage they must also provide TPL cover at a premium that is established by the government. The current premium level of TPL is considered by the industry to be too low, and many insurers accept losses on this line of business which they endeavour to offset with their more profitable comprehensive offerings. The result is a downward pressure on technical results that will continue for as long as this structural challenge to the industry remains.

Medical insurance is the second-largest business line in the sector, accounting for 26.1% of GWPs in 2013. Here again, achieving a profit has represented a challenge for market participants, but in this case as a result of the high levels of competition and low barriers to entry, both of which have served to push the floated premiums downwards. Yet more pressure on pricing has come over the past year as the government’s effort to remove subsidies on electricity and fuel has resulted in health care providers seeking to raise prices for services – in some cases by as much as 20%. Insurance companies negotiate directly with health care providers to establish pricing levels, usually on an annual basis, and therefore the coming year is likely to see insurers request more managed price increases in place of substantial price hikes.

Fire and property insurance represents another significant segment of business for the sector, accounting for 13.9% of GWPs in 2013. Profitability in this area has been underpinned by the IC’s recent introduction of a prevention and self-protection mandate, which requires companies buying fire insurance to produce a certificate demonstrating that they have taken measures to reduce the risk of fire – a development that is credited with reducing loss ratios.

Life Line

Life insurance products and services accounted for 8.7% of GWPs in 2013, and are generally offered according to one of three models: pure life insurance, by which a lump sum is paid on death; combined life and investment policies; and group life insurance – aimed at firms wishing to offer insurance plans to their employees. The slowdown in retail banking and mortgage activity in the wake of the 2008-09 economic downturn, coupled with a decline in the value of equity markets, negatively affected some life business, but low loss ratios make this one of the more profitable segments. A growth rate of 7.8% in 2013 demonstrated a continued interest in life insurance and, while life penetration levels remain low, it is regarded as a promising avenue to future growth.

Other significant lines include marine and transport (5% of GWPs in 2013), which is crucial to the port and trade sectors and incorporates the aviation insurance requirement of commercial, passenger and private aircraft; liability insurance (1.3% of GWPs in 2013), which covers risk related to fraud, theft, professional malpractice and public liability; and credit and surety insurance (0.1% of GWPs in 2013), which covers loans and offers payment protection to the holder of the loan in case of default.


IC data reveal a steady trajectory of growth in the Jordanian insurance sector over recent years. The industry showed its resilience during the global economic crisis by posting a rise in GWPs during the challenging years of 2008 and 2009, when the aggregate total rose year-on-year from JD333m ($470.4m) to JD365.1m ($515.7m).

Since that time the sector’s GWPs have grown steadily to reach JD490.8m ($693.3m) as of the close of 2013. The credit and surety ship insurance segment experienced the fastest growth rate since 2009, expanding by 29.6% over the period from 2009 to 2013, followed by fire and property insurance (11.3%) and the medical business (9.1%). At the other end of the performance table, both the aviation segment and marine lines posted a contraction over the same period of 30.7% and 1.3%, respectively, while motor has grown at a modest 2.3%.

Profits In Range

The difficulty of achieving sustained profitability in an environment in which the state controls motor premiums represents a challenge for Jordan’s smaller insurance companies, many of which have business models built almost exclusively around underwriting motor insurance, but the nation’s larger insurers, generally composite players offering a wide range of lines, have demonstrated their ability to turn a steady profit over a number of years.

The big four players all achieved a technical profit in 2013, with Arab Orient Insurance leading the pack with a net profit for 2013 of JD4.1m ($5.79m); followed by Middle East Insurance on JD3.4m ($4.8m); First Insurance on JD1.3m ($1.84m); and Jordan Insurance on JD680,940 ($961,896).

The robust overall performances of the big four, combined with their diverse business portfolios and strong risk-adjusted capitalisation, has enabled them to retain solid financial strength ratings (FSRs). AM Best has granted Arab Orient Insurance, Jordan Insurance, MEICO and First Insurance a FSR of “B++”, with a stable outlook, which places them at the highest level of the industry in the kingdom.


The regulatory structure of the sector is undergoing a process of significant change in 2014. Since 1999, the IC has acted as a financially and administratively independent regulator for the sector. It has operated with a wide mandate, which includes the oversight and development of the industry, the protection of the rights of the insured, the issuance and revocation of licences for insurers and supporting entities such as agents and brokers, the approval of new insurance products and senior staff within the sector, and the undertaking of corrective action against companies which transgress the rules.

Much of the commission’s authority is derived from the Insurance Regulatory Act No. 33 of 1999, which, together with a range of subsequent acts, has introduced international best practice to a number of areas of the market. For example, the act requires insurance companies to submit regular financial statements, follow a professional code of conduct and professional ethics, meet minimum standards of corporate governance, and adhere to stringent guidelines with regard to the disposal of funds and assets. The IC has also established a regulatory framework which governs the activities of the sector’s takaful providers, which dates from 2011.

However, while the regulator was carrying out routine duties such as receiving and checking financial results as normal as of mid-2014, its position as an independent entity was about to come to an end. This development stems from a government announcement in late 2012 that the IC would be among six public agencies that would be wound down as part of cost-saving measures, and that its mandate would be assumed by the Ministry of Trade and Industry. However, despite the subsequent debate between the government and industry stakeholders, it has not been fully established how exactly this transition will be completed. Wherever government responsibility for the insurance sector ultimately resides, the JOIF will continue to play an important role in its development.

Formed in 1956, the JOIF was the sector’s regulatory authority before it was repurposed as an industry body representing the interests of insurers, developing the technical competence of the sector, and establishing insurance and reinsurance pools as required by the market. Working within the JOIF is the Compulsory Unified Insurance Office, established in 1987, which is concerned with vehicle insurance, including the important issues of allotting the due portions of compulsory vehicle cover to insurance companies and the settlement of accident claims.


Given the central role that regulatory bodies play in developing insurance sectors across the region, the pending dissolution of the IC is of great consequence to the industry. The resolution of this question will therefore remain the most salient industry issue for the time being. While the creation of a robust and modern regulatory framework and the effective supervision of the sector represent determining factors for growth, in the short term the battle for market share will be fought on issues such as product innovation and service provision.

In the longer term, the newly reformed regulator is likely to face increasing industry pressure to expand compulsory schemes beyond medical and motor lines and foster the creation of larger insurance companies by incentivising mergers and acquisitions. In this regard Jordan is likely to follow a regional trend of sectoral rationalisation and growth based on a better understanding of the benefits of insurance cover.

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The Report: Jordan 2014

Insurance chapter from The Report: Jordan 2014

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