With the countdown to full implementation of the new national health insurance programme (Sehati) well advanced, FY 2023/24 could see a major boost for Bahraini insurers, with opportunities in health for both conventional and takaful (Islamic insurance) firms. The private medical segment has already benefitted from enhanced awareness of the scheme, while other nonlife lines of business showed growth during FY 2021/22.
Meanwhile, life and life takaful continue to be constrained by relatively low awareness. This was made particularly acute by the Covid-19 pandemic and the economic uncertainty that followed, which led to a drop in policy retention rates. However, with the IMF projecting the kingdom’s GDP to expand 3% in 2023 to $44.9bn, sector hopes are high that more Bahrainis and expatriates will return to the life market.
Structure & Oversight
The Central Bank of Bahrain (CBB) is the top supervisory and regulatory body for the insurance sector, and is the sole issuer of licences for insurers and takaful firms in the kingdom. The CBB exercises its functions over the sector via the Insurance Supervision Directorate, which reports to the Executive Director Financial Institutions Supervision.
In addition, insurance and takaful firms engage in commercial activities and therefore also require licensing by the Ministry of Industry and Commerce (MoIC). The MoIC is also the jurisdictional authority for International Financial Reporting Standards (IFRS) in Bahrain, which are required to be met by all firms that are publicly traded. January 2023 saw Bahrain’s insurers begin to operate under the IFRS 17 and IFRS 9 accounting standards, with the kingdom’s insurers conducting dry runs of these frameworks in 2022. The takaful equivalents of these, Financial Accounting Standards (FAS) 43 and 30, were also in the process of being introduced in the kingdom as of May 2023.
As of June 2022 there were 21 locally incorporated firms in the sector, along with 10 foreign providers. Local companies consisted of 12 conventional insurers, five takaful providers, two reinsurance companies, one re-takaful (Islamic insurance) firm and one captive insurer. The international branches comprised nine conventional insurers and one reinsurer.
The sector is covered by a number of laws and authorise issued by the CBB, starting with Law No. 17 of 1987, the Bahrain Insurance Law, and more recently by Law No. 23 of 2018, known as the National Health Insurance Law (NHIL). In 2019 the CBB also issued rules for insurance aggregators, opening the way for further development of insurance technology.
The CBB was the first authority in the region to recognise the takaful business in 2005 and issues regular updates for the sharia-compliant segment. A major revision was introduced in 2015, harmonising local sharia-compliant firms with global, Solvency II standards. Bahrain’s takaful and re-takaful companies also have their own sharia compliance boards.
Another key institution in the sector is the Bahrain Insurance Association (BIA), which has around 50 members, including both local and foreign insurance and reinsurance companies, brokers and other service providers. With a reputation for stability, Bahrain has also been home to the Arab War Risks Insurance Syndicate, the Middle East’s main provider of insurance and reinsurance cover for this niche segment since 1980.
Key Players
The sector is dominated by three insurers, which together accounted for around 90% of gross written premium (GWP) in 2022. Gulf Insurance Group (GIG) Bahrain has long been the leading insurer in terms of GWP, accounting for BD85.4m ($226.5m) in 2020, or 51% of the sector’s total. In 2021 the company recorded BD92.7m ($245.9m) in premium, a figure that rose to BD104.3m ($276.7m) in 2022. With CBB figures showing total premium for the sector in September 2022 at BD204.9m ($543.5m), this would give the company a similar, 50% market share in 2022 as in 2020.
The second largest insurer is Bahrain National Holding (BNH), which had a 22% share of GWP in 2020. BNH has a number of subsidiaries, including Bahrain National Insurance (BNI), which issues general insurance policies; Bahrain National Life Assurance; and iAssist Middle East, which provides vehicle assistance services. Its associate, United Insurance Company, issues motor policies – including coverage for vehicles using the King Fahad Causeway to Saudi Arabia – while BNH also has health and medical interests in Health 360, the Al Kindi Hospital and the Al Bayrooni Dialysis Centre.
In 2020 BNH had BD36.7m ($97.3m) in GWP, a figure that reached BD39.9m ($105.8m) in 2021 and BD42m ($111.4m) in 2022, at which point it was a roughly 20% market share. Third largest in terms of GWP is Solidarity Bahrain – the local subsidiary of Solidarity Group Holding, the kingdom’s largest, stand-alone takaful provider. Solidarity Bahrain had an 18% market share in 2020, with the company’s figures showing gross written contributions at BD30.2m ($80.1m) that year, rising to BD31.6m ($83.8m) in 2021. In 2022 that figure climbed to BD46.2m ($122.5m), or around 22% of the total.
Other key insurance players include Arab Insurance Group and GIG Takaful International. In May 2023 GIG Takaful International announced that it was the first takaful player in the Gulf region to adopt FAS 43 and 30. Foreign insurers active in Bahrain include France-based AXA, Switzerland-based Zurich Insurance Group, New India Assurance, Saudi National Insurance Company and US-based Cigna Healthcare.
The kingdom is also home to a variety of captive insurers and captive insurance managers. Bahrain has a dedicated, captive-specific section in the CBB’s regulatory framework, with this segment of the market seeing a recent uptick across GCC jurisdictions where such dedicated arrangements exist. An example of this is Bahrain-based Braxtone Insurance Management, which manages Saudi Arabia-based Alturki Holding’s Masheed Captive Insurance Company.
Lines of Business
According to the most recent figures from the CBB, medical was the largest line of business in the first nine months of 2022, responsible for BD61.2m ($162.3m) in GWP, up from BD58.2m ($154.4m) for the same period in 2021. Second was motor, with BD55m ($145.9m) in GWP – up from BD52.8m ($140.1m) for the same period the year before. Life, meanwhile, accounted for a total of BD32.2m ($85.4m) of GWP over the same period.
Other key non-life lines include fire, property and liability, which recorded BD29.6m ($78.5m) in the first nine months of 2022. Property insurance remains optional, however, with a high number of uninsured properties. “It is imperative for insurance providers to expand their services to include segments such as property, marine and engineering insurance services. Property insurance presents significant growth potential as a substantial proportion of properties in Bahrain currently lack coverage,” Eman Salem Mojali, CEO of BNI, told OBG.
In the first nine months of 2022 medical took the largest share of GWP at 29.9%. Motor was next at 26.9%, followed by life (15.7%), fire property and liability (14.4%), engineering (3.3%), miscellaneous financial loss (2.6%), marine and aviation (2.5%), and other (4.8%). Out of the BD204.9m ($543.5m) total GWP recorded up to September 2022, BD114.1m ($302.7m) was written by conventional local companies and BD58.1m ($154.1m) by takaful companies, while foreign firms accounted for BD32.7m ($86.7m). Given a domestic sector total of BD172.2m ($456.8m), the local industry broke down to 66.3% conventional and 33.7% takaful.
Performance
Bahrain’s GDP contracted by 4.9% in 2020 as a result of the global economic slowdown caused by the pandemic. This was followed by a return to positive growth of 2.2% in 2021. Increases in oil prices of around 50% were a factor in this recovery in 2021, with prices continuing to rise in 2022. At the same time, 2022 also saw non-oil growth in Bahrain reach 6.2%, according to the Ministry of Finance. This delivered overall GDP growth of 4.9% for 2022.
This recovery was also evident in the insurance sector, where the top three players recorded significant growth. For GIG Bahrain, profit attributable to shareholders was BD4.8m ($12.7m) – a company record, and up 14% from the 2021 level of BD4.2m ($11.1m). GIG Takaful International also recorded 8% profit growth, to contribute BD1m ($2.7m) to overall group profit. GWP increased 12% from BD92.7m ($245.9m) in 2021 to reach BD104.3m ($276.7m) in 2022 crossing the BD100m ($265.3m) mark for the first time.
Similarly, BNH saw its net profit rise 4.9% from BD6.7m ($17.8m) in 2021 to BD7m ($18.6m) in 2022, as GWP went from BD39.9m (105.8m) to BD42m ($111.4m). Solidarity Bahrain, meanwhile, reported its net profit up from BD3.3m ($8.8m) in 2021 to BD4.6m ($12.2) in 2022, as gross contributions rose from BD31.6m ($83.8m) to BD46.2m ($122.5m).
For the top insurers, investment income saw significant growth in 2022. BNH, for example, saw an increase of 16%, to BD3.9m ($10.3m). At the same time, medical and motor claims rose between 2021 and 2022, largely as a consequence of the pandemic. Underwriting profits either fell or remained relatively flat – GIG Bahrain, for example, saw underwriting profit fall from BD4.5m ($11.9m) in 2021 to BD3.8m ($10.1m) in 2022, while BNH’s underwriting profit fell slightly, by around 0.6%.
Overall, gross claims were up 2% year-on-year in September 2022. Engineering claims were up 349%, motor claims by 21%, medical claims by 6%. Retention ratios dropped in life, from 87% to 80% over the same period, while other lines showed greater stability. Fire, property and liability increased slightly, from 13% to 15%, as did motor, from 96% to 97%. Loss ratios generally increased, from 56% to 66% in life, 5% to 37% in fire, property and liability, and 52% to 61% in motor.
Meanwhile, motor saw an increase in the number of policies issued – from just over 1m conventional and 142,954 takaful policies issued by Bahraini insurers in the year to September 2021, to 3m conventional and 146,662 takaful in the same period of 2022, as Bahrainis began to travel again following pandemic-related lockdowns and other mobility restrictions. A decline in car sales, due both to the pandemic and then the introduction of value-added tax on January 1, 2022, slowed further growth, however, as did global supply chain issues. One concern among motor insurers is that declining sales means an ageing vehicle fleet, which may be reflected by a future growth in claims.
Conventional insurance policies of all kinds issued by Bahraini firms rose from 1.1m in the first nine months of 2021 to 3.1m in the same period of 2022. The respective numbers for Bahraini takaful policies were 181,350 and 191,126. This demonstrates the major role motor has as a line for takaful firms. Foreign insurers, meanwhile, saw the number of policies issued rise from 55,274 to 67,660. For these overseas-based entities, motor, engineering and life were the largest lines.
Mergers
With the market continuing to be highly competitive, more mergers and acquisitions may also now be on the horizon. In March 2023 BNH announced that it was looking at the takaful market in particular, with plans to acquire one or more of Bahrain’s smaller Islamic insurers. This would also help diversify BNH’s business lines. At the same time, there has been a new entrant into the brokerage business. The UK’s Howden Group received its licence from the CBB in April 2023, with Howden Bahrain now set to provide brokerage and risk advisory services across a range of lines of business.
The year 2022 also saw progress in the Bahrainisation of the insurance sector. In June 2022 the CBB issued a new directive requiring insurance and takaful companies to establish an internal actuarial unit, with a Bahraini national appointed in preparation for them qualifying in the role by 2029. As of mid-2023 the Bahrainisation rate for insurance and re-insurance activities was 50%, regardless of the size of the enterprise or whether it was a local company or a branch of a foreign-headquartered entity.
Additionally, in November 2022 the CBB announced environmental, social and governance (ESG) disclosure guidelines for the financial sector, with reference to insurers and banks. These are expected to be issued in 2023 and follow an ESG reporting survey by the CBB earlier in 2022. Listed insurers have Bahrain Bourse’s 2020 ESG Reporting Guidelines available to them, with both codes aiming to ensure transparency in ESG reporting, according to international best practices.
Health Coverage
The NHIL set forward a scheme for mandatory health coverage in Bahrain, with an initial target of January 2019 for completion. Pandemic-related disruptions delayed its implementation, but the scheme is set to be rolled out in the 2023-24 period.
Indeed, in April 2023 the Ministry of Health announced that the scheme – known as Sehati – would be implemented for foreigners by the end of the year, while Bahraini citizens would be brought under it during 2024. A careful assessment phase is set to follow each stage of implementation, with a trial period without accounting or payment being run through 2023 by selected private and government health facilities. Sehati cards are also due to be rolled out in 2023.
The key body for the implementation of the new scheme will be the government-owned Supreme Council of Health (SCH). In the first phase of the scheme, which applies to expatriates only, employers will be required to purchase health insurance for their foreign employees and their families from designated, licensed insurance providers. The SCH said that two packages will be available for expatriates, one mandatory and the other optional, with the first package to be provided by private companies and the Social Health Insurance Fund Authority (SHIFA), while the second package will be private provision only. Visitors will also be required to purchase coverage, with a mandatory package from SHIFA on offer to them in public facilities.
Phase two of the scheme will include Bahraini citizens, who currently receive free health care from SHIFA without limit – although they may also purchase private health insurance. Three packages will be available under the new scheme: the first, free and mandatory, will be government-funded and available at all SHIFA facilities; the second is an optional extra package, which can be provided by either SHIFA or private health facilities, at a government-subsidised rate; and third, a private package available in private and SHIFA facilities but wholly funded by the employer or beneficiary.
Technology
Financial technology (fintech) has been a key segment in recent years, with cryptocurrency regulation, open banking, robo advisory services and the region’s first onshore regulatory sandbox among the kingdom’s offerings. In addition, Bahrain FinTech Bay was the region’s first fintech facility to launch in 2017, and is fully CBB regulated, with the CBB also launching the virtual innovation platform FinHub 973 in 2020.
Most fintech business in Bahrain is payments, transfers and remittances, and open and digital banking, with insurers offering basic online services to customers. More advanced insurance technology is also present, with Braxtone – the Bahraini representative of AIG – launching its motor claims recovery platform TASWEYA through the CBB regulatory sandbox in 2020.
Future opportunities could lie in facilitating embedded products, particularly in collaboration with telecoms firms. This includes services such as combining mobile phone theft insurance – both physical and cybersecurity – into a mobile phone contract, or home content insurance into a broadband connection.
Outlook
With the kingdom in recovery, the insurance sector is expected to benefit from increased investment across the economy. At the same time, the mandatory health coverage scheme should be a boost for insurers selling licensed products for one of the available packages. Meanwhile, increased digitalisation should increase efficiency and help to cut costs. Tighter regulation will likely mean that smaller providers will face challenges, so the coming years could see more consolidation. It will be important to address long-standing issues in terms of awareness and education, and in life in particular, help the kingdom’s insurers and takaful entities break into a wider market. The new, mandatory health scheme may assist in this, as Bahrainis become obliged to look at a variety of policy offerings and become more engaged with the sector.
Read More from OBG
