Renewed political unrest may hurt the government’s efforts to revive the economy and win investors back following a slow in growth. According to comments from the Bahrain Chamber of Commerce and Industry, the escalation of anti-government protests would be destructive for the economy and security.
Growth has been much slower since the political unrest last year and without a perceived resolution to the underlying issues behind the unrest it is likely that this will further constrain risk appetite in the short to medium-term. For example, the cost to insure Bahrain’s debt against non-payment for five years remains erratic, having climbed to historic highs following renewed tensions.
Despite these concerns, the Middle East as a whole remains one of the most dynamic and attractive insurance markets in the world, particularly because of its nascent growth. Despite enjoying double-digit growth rates in gross premiums, the penetration rate for Takaful across the Middle East remains considerably below the global average.
Mario Valdes, the general manager at MetLife Alico, adds that: “Despite the prevailing global financial challenges, the insurance industry in the Middle East in general, and particularly in the Gulf countries, [has] managed to sustain a steady growth over the years.”
Abdul Rahman Al Baker, the executive director of financial institutions supervision at the Central Bank of Bahrain (CBB), comments that he is “keen to see the regional insurance industry further grow and prosper to the next level of market development.”
The advancement of the Takaful and insurance industry in Bahrain is a key component of the kingdom’s comprehensive strategy to develop a competitive, dynamic and diversified economy. Abdul Rahman adds that the CBB will continue to consult with the industry to ensure that they are responsive to the needs of the industry.
In addition, he believes that: “The global financial crisis provided us with an opportunity to address the weaknesses in the financial system and to build a platform for [the] development and growth of the insurance industry.”
This assertion is backed by recent financial reports from Takaful International Company, which reported what it says is a “proportionate growth in total insurance contributions” amounting to 5% or BHD 17.1 million (US$45.3 million) compared to the same period in 2010, which reached to BHD16.2 million (US$42.9 million).
Younis Jamal, CEO of Takaful International, said: “The company continues its strategy of expanding beyond the regional level to interact on an international platform to attain better standards in the insurance sector, where we have a keen interest to engage in a number of promising foreign markets in the insurance sector.”
According to the latest report published in December with respect to infrastructure projects in the Gulf, the GCC is set to invest more than US$960 billion in 1,638 new projects over the next decade. Over 80% of these projects are in the construction, infrastructure and petroleum industry sectors. According to Abdul Rahman: “All of these projects are expected to produce a lot of insurance and reinsurance business and the region as a whole is likely to benefit from them.”
The regulators all over the world, especially in the MENA region, need to strengthen their regulatory framework so that the insurance industry can capitalize on the growth opportunities. As far as Takaful is concerned, there is a need to implement Takaful-specific accounting best practices in all MENA countries to ensure transparency and protect stakeholders’ interests.
“The financial crisis has been a reminder that markets need effective regulation if they are to operate properly,” said Abdul Rahman.
The focus now, he believes, is on “the Takaful module, an effort to enhance the growth of the Takaful industry, and ensuring that all stakeholders are protected,” with the changes brought about expected to attract new players and foster competition that will ultimately benefit the consumer. — SW