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S&P:Increasing Supply Chases Reducing Demand In The Jordanian Insurance Market

Global Arab Network - - Adam Turner

Saturday, 11 April 2009 22:57

Today, the insurance sector in the Hashemite Kingdom of Jordan comprises 28 companies, which together write an estimated Jordanian dinar (JOD) 331.6 million of gross premiums, a 13.7% increase on the previous year. Assuming some slowdown in growth during 2009, we expect that gross premiums for the current year will likely struggle to reach JOD350 million (approximately US$495 million), Standard & Poor's Ratings Services noted in a new report, titled "Growing Supply Chases Slowing Demand In The Jordanian Insurance Market."

The "SWOT" analysis (Strengths, Weaknesses, Opportunities, Threats) of the Jordanian insurance sector undertaken in the report indicate that the balance has in our opinion recently moved more toward a slight preponderance of threats and weaknesses over opportunities and strengths. We believe this shift is the result of the combined local effects of the economic downturn and the steadily increasing levels of competition as the market's many players seek to win a growing share of the now only slowly rising "cake" that is the sector's total, annually available premium income.

In essence, the article identifies the following "SWOT" factors:

-- Strengths: Long-established Insurance sector and infrastructure; effective, proactive regulatory supervision; relatively unconstrained, open marketplace; and good supply of well-educated, well-trained staff.

-- Weaknesses: Increasingly crowded market of 28 insurance companies; size of total market relatively modest with below $495 million of gross premiums; uncertain strategies on the part of some core private shareholders; and a business style at some larger insurers that can lack focus for small retail policyholders.

-- Opportunities: New areas of insurable activity being developed, particularly medical and life protection; growing cross-border expansion into neighboring markets; currency link to the U.S. dollar that facilitates diversified investments; and room still remains for insurers to further improve their operational and marketing activities

-- Threats: The most immediate threat is, in our opinion, the local impact of the global economic downturn; competition may also still increase from foreign and other new entrants; there is a degree of dependence upon foreign reinsurers to maintain capacity for larger risks, natural perils (earthquake), and periodic security concerns are also a consideration; while the Unified motor contract regime may in the long run reduce competition and service quality.

Nevertheless, the report concludes that as long as investment losses do not increase significantly during 2009, we believe that it may still be possible for well-managed, risk-conscious insurers in Jordan to achieve overall results in 2009 that exceed those now being reported for 2008.

Global Arab Network

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