While things are looking more positive for Jordan’s insurance sector in 2013, it nonetheless faces some major challenges, particularly in the dominant motor segment. Regulatory issues have been on compa-nies’ minds in recent times too, with the industry’s overall profitability and sustainability likely to be affected by the outcome of these structural debates. Meanwhile, many insurers report solid growth, with a fair outlook for the next 12 months.

SECTOR STRUCTURE: The chief sector regulator and supervisor is the Insurance Commission (IC), which became a financially and administratively inde-pendent unit in 1999. It has several roles, with two of the major ones being overseeing the development of the sector and protecting the rights of the insured. The IC also issues and revokes licences for insurers and insurance support activities, such as agents and brokers. In addition, it approves new insurance prod-ucts and the senior staff of insurance companies – in order to ensure they meet professional standards – and is also empowered to take corrective action against companies that break the rules.

These rules include the regular submission of financial statements, following a professional code of conduct and professional ethics, meeting stan-dards of corporate governance and following best practices in the disposal of funds and assets. The Insurance Regulatory Act No. 33 of 1999 is the legal underpinning for much of this, together with a range of subsequent acts designed to bring international best practices into the sector. A 2011 set of instruc-tions from the IC governs the activities of the taka-ful (Islamic insurance) segment.

The IC is overseen by its board, which at the time of writing was chaired by Hatem Halawani. Also on the board are representatives drawn from the indus-try, as well as the government. The IC’s director-gen-eral, who is responsible to the board directly, is in charge of much of the day-to-day work of the com-mission. Rana Tahboub currently holds this position.

CHANGE OF PLANS: The commission’s structure was thought to be about to change. As part of gov-ernment reorganisation aimed at cutting operational and administrative costs, in November 2012 Prime Minister Abdullah Ensour announced that the IC would be among six independent public agencies that would be wound down. Following this announce-ment there was discussion within the sector on the relative merits of this plan, which would see the IC’s duties in part reassigned to the Companies Control Department and in part to the Ministry of Trade and Industry. The former body would have held the licensing and supervision responsibilities, while the rest of the IC’s duties would have gone to the ministry.

However, it was decided that this restructuring would not take place, and the IC continues to be responsible for both the short- and long-term devel-opment of the sector. In this it works with two key bodies – the Jordan Insurance Federation (JOIF), made up of sector companies, and the Motor Acci-dent Compensation Fund (MACF). The latter office was established back in 1987 and deals with all mat-ters relating to the administration of compulsory third-party liability insurance (TPL) for vehicle own-ers. This has been an area of some controversy in recent times (see analysis). The MACF was established to act in motor accident cases where the injured par-ty did not have insurance and/or where the respon-sible party was unknown or did not hold TPL.

The number of claims made to the MACF has been steadily increasing in recent years too, with provi-sional figures from the IC showing 65 claims received in the first nine months of 2012, up from 60 the pre-vious year and just 30 in 2008. The three oversight bodies thus form the institutional structure for a sector comprising many firms.

FIRM MARKET: As of the start of 2013, there were 27 insurance companies operating within Jordan, down from 28 the year before, after the de-licens-ing of Gerasa Insurance. Gerasa, a small non-life player with high exposure in motor, was affected badly by the segment’s ongoing problems and, in con-sequence, ran down its portfolio and then exited the market. “There is a need for contraction. The smaller insurers are struggling to survive and many will have to drop motor due to the losses,” Imad Abdel Khaleq, the managing director of Jordan Insur-ance Company, told OBG.

Two other companies are also under IC watch at present: Arab German Insurance and Al Barakah Takaful. The first is a composite life and non-life company, the second an Islamic non-life provider. Issues at both firms have required action from the regulator. Arab German’s licence has been suspend-ed while a corrective plan is worked out to return the firm to normal business. The IC has also appoint-ed a restructuring company to come up with a plan to move Al Barakah out of a non-performing finan-cial condition. Excluding the above two, the sector contains eight functioning, solely non-life players; 17 functioning composite, life and non-life firms; and one solely life company. Excluding Al Baraka, two of the above are licensed takaful operators, with one composite and one non-life.

REINSURANCE & BROKERS: Companies operating in Jordan tend to look outside the kingdom for rein-surance, contracting with international providers for business. In addition, there are a number of support services for the sector that are also watched over by the IC. According to its provisional figures for the third quarter of 2012, there were 583 licences for insurance agents within the kingdom, along with 127 licences for brokers. There were 22 reinsurance broker licences in circulation, 59 loss adjuster and surveyor licences, one cover holder licence, 16 actu-aries, 30 insurance consultants, 16 companies admin-istrating insurance business, 10 bancassurance licences and 33 foreign reinsurance broker licences. All told, there were some 897 licences of all types current in the support sector, up by 5% on the total for the third quarter of 2011.

Another important body within the IC is the Inquiry and Insurance Dispute Resolution Department (IIDRD). This can be brought into play in the event of a dispute arising between citizens and insurers that has failed to be resolved via normal channels. Significantly, the majority of such disputes are in motor, which accounted for 1289 out of 1310 com-plaints in the first nine months of 2012, a number that was 95% higher than the same period of 2011, when motor accounted for 660 out of 685 disputes.

BY THE NUMBERS: According to preliminary data from the IC for the first nine months of 2012, total gross written premiums (GWP) for the sector were up 3% on the same period of 2011. The dollar value of total GWP at the end of the third quarter of 2012 was $548.8m, up from $532.8m at the same time the year before. Breaking this down into life and non-life, the former saw GWP of $52.36m in the first nine months of 2012, up from $49.6m for the same period of 2011, a rise of 6%. Life thus accounted for around 10% of the total insurance sector GWP. Non-life recorded $496.4m in GWP for the first three quarters of 2012, up from $483.2m for the same peri-od of 2011, a rise of 3%, with motor by far the largest line of business by share of GWP. This segment record-ed GWP of $224.9m for the period, up from $220m for the first nine months of 2011, growth of around 2%. Motor thus accounted for 41% of all GWP by the end of the third quarter of 2012.

The second-largest category was medical insur-ance. This saw GWP of $145.9m in the first three quar-ters of 2012, up from $131.4m for the same period of 2011, a rise of 11%. Medical cover thus account-ed for 26.6% of total sector GWP. The third-largest category was fire and other damage to property insurance. This saw GWP of $67.91m in the more recent period, although this was down from $69.11m in the same period of 2011, a contraction of 2%.

GROSS PAID CLAIMS: In terms of claims, the IC pre-liminary figures show gross paid insurance claims at $371m for the first nine months of 2012, down from $398m the same period the year before.

Non-life accounted for 94% of this, with motor again taking the majority – some 55% of the sec-tor’s total claims paid, at $203.5m. This was, howev-er, slightly down on gross paid claims for the same period of 2011, when the figure stood at $222.6m. Comparing the same two periods, medical was sec-ond highest in claims paid, accounting for 31.1% of the sector total, at $115.4m versus $111.7m the year before. Marine and transport came in third, accounting for 3.8% of the sector total, paying out $14.05m in the first nine months of 2012, compared to $5.99m in the same period of 2011. In the life seg-ment, straight life assurance payouts were the high-est, at $20.5m, up 12% on the same period of 2011, when they had totalled $18.3m.

ECONOMIC CONTRIBUTION: Taking these figures and comparing them to the Jordanian economy as a whole, the IC preliminary data shows that the sec-tor’s contribution to total trade was 1.2% in the first nine months of 2012, down some 54% on the same period of 2011 when the proportion had stood at 2.6%, itself down from 3.4% for the whole of 2010. The ratio of GWP to GDP stood at 2.13% at the end of 2011, slightly down on 2.18% in 2010; 2012 GDP figures were unavailable for comparison at the time of writing. This placed Jordan in the top four within the Middle East and North Africa (MENA) region in 2010 and 2011 in terms of the GWP-to-GDP ratio, and well ahead of the Middle East and Central Asia regional average of 1.51% in 2010 and 1.48% in 2011.

On a per capita basis, the Jordanian figure was $98.60 in 2011, up from $94.20 in 2010 and $86.20 in 2009. The growth rate in GWP is in line with that of the rest of the Middle East. Swiss Re’s “Global Insur-ance Review 2012” gave an average real premium growth rate for the region of around 5% for 2012 in the life segment, while in non-life the figure was around 4%, lower than in previous years due large-ly to the political turmoil affecting the Middle East. This growth, though slower than some previous years – in 2009, for example, Jordan’s total GWP grew 9.6% on 2008 – was still considerably higher than that experienced in any developed market, or indeed, in emerging Asia, both of which saw slight shrinkage in 2012, according to Swiss Re.

In terms of comparative insurance penetration, the kingdom has been above average for the region for some time. According to local investment com-pany Capital Investments, the most recent MENA-wide comparative data shows Jordan with total GWP per capita of JD61 ($85.80) in 2009, behind the GCC states and Lebanon, but ahead of the North African countries and Iran. The reasons for this include the lower per capita GDP of non-GCC Arab states, as well as the lower level of public awareness about insurance and cultural and religious attitudes that are unsupportive. Religious beliefs are thought to play only a small part in most customers’ decision-mak-ing over the disposal of their income, with price being the predominant determining factor in Jordan.

KEY ASSETS: While the sector includes a large num-ber of companies, traditionally the top 10 insurers by market share account for around 60% of the total. In terms of total assets, the largest insurer in 2011 – the last year for which full IC data was available – was Jordan Insurance Company (JIC), with JD76.9m ($108m) out of a sector total of JD723.2m ($1.02bn), or 10.6%. Next in the ranking was American Life Insurance, with JD71.6m ($100.7m), or 9.9%; then Middle East Insurance (MEI), with JD69.1m ($97.2m), or 9.5%; followed by Arab Orient Insurance (AOI), with JD60.1m ($84.5m), or 8.3%. In fifth came Al Nisr Insurance, with JD40.8m ($57.4m), or 5.6%; then Jor-dan International Insurance, with JD35.4m ($49.8m), or 4.9%; and Arab German Insurance – since suspend-ed – with JD31.7m ($44.6m), or 4.4%. Next was First Insurance, with JD30.6m ($43m) in assets, or 4.2%. The ninth and 10th spots went to Islamic Insurance, with JD23.4m ($39.9m), or 3.2%, and Jerusalem Insur-ance, with JD22.3m ($31.4m), or 3.1%.

These 10 insurers, including Arab German, thus accounted for 63.8% of total sector assets, and the top five for 43.9%. The picture changes slightly, how-ever, when total premiums written within Jordan are taken into account. The market leader by this indi-cator is AOI, with JD66.1m ($93m) out of a total of JD436.7m ($614m) in 2011, giving it a 15.1% share. Second was JIC, with JD40.5m ($57m), or 9.3%; fol-lowed by MEI in third, with JD29.3m ($41.2m), or 6.7%; and then Arab German, with JD23.4m ($32.9m), or 5.3%. In fifth place was Al Nisr Insurance, with JD20.8m ($29.3m), or 4.8%; then Jordan French Insur-ance, with JD20.7m ($29.1m), or 4.7%; Jordan Inter-national Insurance, with JD17.8m ($25m), or 4%; and American Life Insurance, with JD16.23m ($22.8m), or 3.7%. Ninth and 10th were Islamic Insurance, with JD16.17m ($22.7m), or 3.7%, and Euro Arab Insurance Group, with JD14.4m ($20.3m), or 3.3%.

Thus, in terms of GWP, the top five firms account-ed for 41.16%, with the top three claiming almost a third (31.15%). While full-year results for 2012 were not available at time of press, it seems likely that there was little change in the respective order of market share of GWP in Jordan during the year. Second-quarter results announced by AOI showed growth in GWP of 33% over the second quarter of 2011, reaching JD40.9m ($57.5m) for the first six months of 2012, as well as a 21% increase in assets in the same two periods, to JD65.5m ($92m). JIC saw GWP grow by 15% in Jordan and 12.5% overall in 2012, reaching JD52m ($73.14m), while profits were up 79.5% to JD4.2m ($5.91m) for the year. MEI’s GWP was up 13.8% for the year, from JD29.26m ($41.15m) in 2011 to JD33.31m ($46.85m) in 2012, and its net profit before tax rose sharply, from JD155,622 ($218,882) in 2011 to JD1.58m ($2.22m) in 2012.

RATINGS: In terms of Financial Strength Ratings (FSR) and Issuer Credit Ratings (ICR), in July 2012, AM Best affirmed FSRs of “B++” for AOI, JIC and MEI, along with First Insurance, and ICRs of “bbb+” for AOI and JIC and “bbb” on MEI and First.

DOWN TO BUSINESS: While motor continues to dominate the market (see analysis), several other lines have also been growing in importance in recent years. Top among these is medical, with an 11% rise in GWP between the third quarter of 2011 and the third quarter of 2012. This followed 12.6% growth between the end of 2010 and the end of 2011, and 14.5% growth year-on-year between 2009 and 2010.

This segment’s expansion is helped by Jordan’s growing reputation as a centre of medical excel-lence, supported by the expansion of the private health sector. Meanwhile, public health care remains available to public sector workers via government social security schemes. On the downside, the claims ratio is also high, historically affecting profitability. By the end of third-quarter 2012, gross paid insur-ance claims for medical policies stood at $115.4m, against GWP of $145.9m, or 79%. In early 2013, how-ever, many firms were refocusing their sales strate-gies on medical to compensate for lower premium collection in other lines of business, making the seg-ment increasingly competitive. In 2011 AOI and Arab German were the largest companies in this segment.

In terms of GWP, the next-largest business line is fire and other damage to property, which account-ed for 12.4% of total GWP at the third quarter of 2012. This figure, however, shrank by approximate-ly 2% over this period, from $69.1m to $67.9m. In 2011 a compulsory fire and earthquake insurance regu-lation was passed by parliament, with 2012 seeing the IC working on the implementing regulations, in concert with other industry players.

The third major line is marine and transport, which saw 5% growth in GWP between third-quarter 2011 and third-quarter 2012. Much of this was likely the result of higher premiums being charged for trans-port through conflict zones, due to the ongoing fighting in Syria and the instability in Iraq.

Other lines of business remain relatively small in terms of percentage of total GWP; aviation insurance accounted for 1.3% of the total in the third quarter of 2012, liability insurance 1%, credit and surety ship insurance 0.1%, and other general classes 2.7%.

LIFE COVERAGE: The life segment, meanwhile, stood at around 10% of GWP in third-quarter 2012, with pure life insurance the largest sub-segment, account-ing for $48.83m out of $52.36m of total GWP in life at that time. Investment-linked insurance and annu-ities accounted for $3.51m and $20,000, respective-ly. Despite the low numbers, however, the segment is one of the most profitable, given its low claims ratio. Total gross paid claims, plus maturity and surrender of policies stood at $20.7m in third-quarter 2012.

One factor that is perhaps holding the sector back is the low level of bancassurance in Jordan. Regula-tions make this a difficult channel to use, with banks obliged to create separate bancassurance depart-ments to administer these sales. Given the general-ly low numbers, this negatively affects profitability. Nonetheless, growth is still higher than the sector average, with American Life the dominant player, recording some JD12m ($16.8m) in total written pre-miums for life cover for 2011, out of a sector total of JD40.8m ($57.4m), or 29.3%. Second in the mar-ket was JIC, with JD8.8m ($12.4m), or 21.6%. Al Nisr was third, with JD7.3m ($10.3m), or 17.8%. These three thus control 68.7% of the market.

OUTLOOK: Speaking to OBG, most sector players expect 2013 to see some improvement over 2012, although it is anticipated that growth will remain roughly in line with the 2012 results. Much depends on the regulatory framework, with changes in TPL key to this. Most remain optimistic that the sector will continue to be a profitable and expanding one, although fiercely competitive. Consolidation seems unlikely, however, as many smaller outfits are fami-ly run, while larger ones have ties to international firms. An active role by the regulators is also to be desired in sorting out any financial difficulties among the weaker players. Looking ahead, the potential is still enormous, with low penetration rates signalling that a largely untapped market remains to be insured. Unlocking that potential will be key to future growth.