In regional terms, Bahrain’s history as an insurance centre is a long one. The domestic insurance sector began to form in the 1950s, when a group of taxi drivers pooled resources to form the nation’s first mutual company in order to abide by a legal requirement to obtain third-party liability insurance cover for their vehicles. That decade also saw the arrival of foreign firms from the UK, the US and India, which in turn encouraged the growth of larger domestic concerns, such as the Zayani Group, thus forming an effective competition. By 1961, the increasingly sophisticated sector had seen the granting of the first licence to offer life assurance, and in 1969 the first insurer to be established as a public shareholding company had been incorporated in the country. Since that time, Bahrain’s insurance industry has consistently shown double-digit year-on-year growth, mirroring the expansion of the wider financial sector. The global financial crisis and recent political unrest have presented the industry with a number of challenges in recent years, but Bahrain’s open and diverse economy, a robust yet flexible regulatory framework, a growing awareness of insurance concepts and a significant pipeline of infrastructure development work form the basis of the market’s potential.

MARKET STRUCTURE: One of the legacies of Bahrain’s history as a financial centre is an insurance industry that contains local, regional and international insurers competing on an equal regulatory basis. As of 2012, some 27 insurance and reinsurance firms are locally incorporated in Bahrain, of which nine are operated according to sharia-compliant guidelines ( takaful) and two are captive insurers. A further 11 overseas firms are licensed to operate within the domestic market. As a result of Bahrain’s financially savvy workforce and favourable business environment, many of these companies also use Bahrain as a base to extend their operations into regional markets (see analysis). The industry is supported by a number of insurance intermediaries, insurance managers and supplementary service providers, including the 33 brokers through which much of the sector’s premiums are channelled, 27 registered actuaries, as well as the loss adjusters, insurance consultants and ancillary service providers that bring depth to the local sector. With a population of just over 1.2m people, of which around 666,000 are non-nationals, Bahrain’s insurance market is a crowded one. The presence of a number of large multinationals has brought a degree of competition which has sometimes been challenging for locally incorporated insurers. According to Joseph Rizzo, the general manager of general insurance business at Bahrain National Insurance (BNI), “Foreign competition is good for Bahrain, but it makes the market competitive for local players. They have a lot of capacity and can therefore retain a lot of business.” Increasing competition in the sector has led to speculation regarding future consolidation. While the 2011 announcement of a partnership that saw MedGulf (Bahrain) acquire 75% of the stakes in Allianz Takaful, represented a consolidation of resources that many in the sector had anticipated, it has not been a common occurrence. The Central Bank of Bahrain (CBB) supports the view that consolidation is inevitable in markets that are fragmented in order to make them more efficient and for better serving the consumers.

MARKET SEGMENTS: Bahrain’s rapidly expanding population and the mandatory nature of motor insurance mean this line of business is the single-biggest segment in the market, accounting for approximately 27% of total gross premiums in 2010 – the most recent year for which the CBB has published consolidated data. Premium growth in this segment has also been boosted by the success of insurers in selling additional coverage to consumers; in 2010, comprehensive insurance premiums stood at 63% of the total motor insurance premiums, compared to 37% for compulsory third-party cover. Long-term insurance, which includes group life, group credit life, unit-linked, level and decreasing term insurance, as well as children’s education policies, is the second-largest business class in the Bahrain market, accounting for 24% of gross written premiums in 2010. Fire, property and liability insurance represents the third largest, with 17% of gross written premiums, followed by medical (15%) and marine and aviation (4%).

MARKET TRENDS: Of particular interest in the Bahraini market is the rapid growth in the life and medical segments over the past decade. This development reflects a growing awareness of these categories of business and the increasing number of companies in Bahrain offering group schemes to their employees. According to the CBB, between 2001 and 2010 long-term business registered a compound annual growth rate (CAGR) of 16%, with annual premium rising from BD13m ($34.32m) to BD51.36m ($135.6m). Gross premiums for medical insurance have increased even faster, from BD1.76m ($4.65m) to BD31.75m ($83.83m) in 2010, showing a CAGR of almost 38% over the period.

The last decade has also seen a significant rise in retention capacity within Bahrain. Since 2001, the reinsurance market has grown to five reinsurance firms and two retakaful companies, and their gross premiums have risen at a CAGR of approximately 25% over the 2001-10 period – a trend that accelerated in 2006 with the arrival of international players to the reinsurance and retakaful market. Significantly, the retention ratio for this segment has risen sharply from 23% to 78% over the decade, and there is now sufficient reinsurance capacity within the Bahraini market for both conventional and sharia-compliant operators. “Over 70% of our panel of reinsurers are retakaful players, so there is no problem. Capacity has been building up over the years, and has been adequate for five years,” said Ashraf Bseisu, the group CEO of Solidarity Group.

Finally, the rapid expansion of Bahrain’s takaful segment reflects a global trend that has seen worldwide takaful contributions grow from $7bn in 2009 to an estimated $12bn in 2011, according to Ernst & Young, an international accounting firm. Nine of Bahrain’s locally incorporated firms are takaful or retakaful operators. The gross contribution for takaful operators has increased from BD1.89m ($4.99m) in 2001 to BD38.55m ($101.78m) in 2010, registering a CAGR of almost 40% (see Islamic Financial Services chapter).

THE PLAYERS: The top-five conventional insurers operating in Bahrain, measured by total assets, are diverse in terms of both ownership and business model. The Life Insurance Corporation (LIC), with assets of BD247.7m ($653.98m) as of January 2011, is a locally incorporated subsidiary of LIC India, and was one of the earliest suppliers of life products to the Bahraini market. Today it offers US-dollar-denominated policies to Bahraini residents and insurance services to holders of LIC’s Indian-registered policies currently residing in the Gulf. Axa Insurance (Gulf), with total assets of approximately BD219m ($578.2m), is another Gulf veteran, having been present in the region for over 60 years. It is the largest international non-life insurer in the GCC, and operates in Bahrain on a local licence. The MedGulf Group, with assets of some BD198.7m ($524.61m), is one of the leading regional insurance companies. Having started its operations in Lebanon in 1980, it has expanded into the Gulf primarily through divisions in Bahrain and Saudi Arabia, providing risk coverage solutions to both the retail and institutional markets. Zurich Life, with assets of BD115.3m ($304.41m), is the largest firm in Bahrain operating on an overseas licence. In 2011, it celebrated its 25th anniversary in the country. The international, multi-line operator offers long-term insurance to the market, and in 2011 signed a new strategic distribution agreement with the Industrial Credit and Investment Corporation of India (ICICI) Bank. The Saudi Arabian Insurance Company, with BD86.6m ($228.64m), is the fifth-largest insurer operating in Bahrain by assets. Locally incorporated, in 2010 it acquired the insurance portfolio and Bahrain operations of the Al Nisr Insurance Company.

PERFORMANCE: As was the case in insurance markets across the globe, the economic crisis that began in 2008 presented Bahrain’s insurance companies with a number of challenges. Most notably, the delay or cancellation of infrastructure projects negatively affected revenue, while the precipitous drop in the value of global capital markets had a similar impact on investment income. Throughout this period, however, the financial position of Bahrain’s insurers has remained stable. Total assets of conventional insurers grew steadily from 2006, rising from BD484.2m ($1.28bn) to reach BD1bn ($2.64bn) by 2010. Total capital resources, meanwhile, dipped slightly in 2008, from BD133.1m ($351.41m) to BD112.7m ($297.55m), before returning to growth to reach BD215m ($567.64m) by 2010. Over the same time-frame, the sector’s consolidated gross premiums ( including both Bahrain and non-Bahrain business of the firms authorised by the CBB) have shown uninterrupted growth, rising from BD200.2m ($528.57m) in 2006 to BD320m ($844.86m) in 2010.

While insurers have waited for regional development pipelines to return to speed, they have been able to alter their investment strategies in a bid to offset losses and ensure future revenue stability. This more conservative approach to investment includes a greater emphasis on liquid or quasi-liquid assets, such as bank deposits and money market instruments. “Following the economic crisis, we have kept as close to cash as possible, and short term rather than long term. We have also fragmented our investments, not placing too much in any one sector. Our policy is to invest as much as possible in the local economy,” said BNI’s Rizzo.

While the political unrest of 2011 has impacted the top-line growth of some insurers in Bahrain, end-of-year results published in the first quarter of 2012 suggest that selective underwriting and a sharpening of bottom-line figures mitigated its effect. Local insurers, such as BNI, reported that they had been able to match their 2010 returns despite the added challenges. Others, meanwhile, have reported gains. Zurich Life, which is in the process of expanding its Bahrain operation, reported a year-on-year rise in net income of 44%.

REGULATION: One of the factors that underpins the robust performance of the insurance industry Bahrain’s regulatory framework, considered among the most comprehensive in the region. In 2003, as part of a strategy to enhance the country’s status as an insurance centre, the Bahrain Monetary Agency (BMA) began to develop an insurance rulebook, formulated in line with the International Association of Insurance Supervisors, which it then went on to implement in 2005. In 2006, the CBB took over the regulatory and supervisory duties of the BMA, and the insurance rulebook now exists as Volume III of the CBB Rulebook, which addresses core areas, including business standards, reporting requirements, enforcement and redress, and industry definitions. Through quarterly updates and ad-hoc communications, the CBB is able to provide timely responses to market events and provide clarification on existing rules where necessary. As financial institutions, Bahrain’s insurers are also subject to the Central Bank of Bahrain and Financial Institutions Law of 2006, part three of which addresses the long-term insurance segment and general insurance provisions. The flexibility and clarity of Bahrain’s regulatory regime largely account for its popularity as a base for foreign insurers, as well as the history of growth enjoyed by its indigenous firms.

OUTLOOK: While the crowded nature of the domestic market and the business interruptions experienced in 2011 have been recent challenges to growth in the sector, the industry certainly enjoys a number of opportunities as well. Life business, in particular, is widely seen as an area with significant growth potential: a growing awareness of the benefits of long-term insurance and an increasingly sophisticated consumer base underlie a growing demand for sophisticated savings schemes, such as unit-linked plans referencing international funds. Of central importance to the expansion of this segment is the question of market access. In this regard, Bahrain’s insurers are likely to increasingly move beyond traditional broker channels and seek partnerships with other financial institutions in order to maximise their exposure to potential clients. Bancassurance in Bahrain is addressed in the CBB Rulebook Volume III, and is dealt with under provisions adopted in 2009 concerning appointed representatives, the comprehensive nature of which has eased the development of this form of distribution. Providers of accident and health insurance, meanwhile, are also looking at airline offices and travel agents as potential routes to revenue.

Bahrain also stands to benefit from Qatar’s winning bid to host the FIFA World Cup in 2022. With World Cup-related infrastructural projects expected to commence in 2013, Bahrain’s insurers will likely be able to benefit from numerous business opportunities. Yet more stimulus will come from domestic public spending, as the government seeks to address some of the social issues which have led to political discontent through an expansionary fiscal policy and a programme of infrastructural development. The coming years may also bring a number of opportunities for medical cover providers, should a much-anticipated health insurance law be approved by Bahrain’s parliament (see analysis).

Finally, while insurance penetration in Bahrain has increased from 1.95% to 2.55% over the past decade, according to figures from the CBB, this remains low in comparison to the 9.17% of North America, 7.89% of Europe, 7.37% of Asia and 4.89% of Africa. An increasing acceptance of the core insurance concepts throughout the Middle East suggests that Bahrain’s insurance market has ample room to grow in the long term.