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Finance & Banking | Global Arab Network
Kuwait: insurance industry looks forward to 2010
Global Arab Network - Oxford Business Group
Kuwait's insurers have good reasons to look forward to 2010, with signs that the country's economy is gradually returning to form.

Like many other sectors of the economy, the insurance industry has been affected by the international financial crisis, with most firms seeing a reduction in new business written, a rise in policy cancellations and a fall in the value of assets and investments held over the first three quarters of the year. This slow-down has been felt across the industry, with both conventional policy providers and the increasingly active takaful, or sharia-compliant, segment feeling the pinch.

Nevertheless, in mid-November, the government announced that its own fiscal position was far better than might have been expected at the beginning of the year, when it projected a deficit of $16.9bn in the 2009-10 budget. Instead of being in the red, the budget recorded a $17.5bn surplus for the first six months of the financial year.

With oil prices at their current levels of around $75 per barrel, Kuwaiti finance officials estimate that the total budgetary surplus will come in at $34bn for the year, strengthening the hand of the state when it comes to bolstering business and consumer confidence.

On November 1, the governor of the Central Bank, Sheikh Salem AbdulAziz Al Sabah, predicted that the economy would return to positive territory in 2010, after contracting by between 1.5 and 2% this year. Though careful not to put a hard figure on the rate of expected expansion, Al Sabah's forecast should also serve to reinforce confidence.

And confidence is a commodity that Kuwait's insurance sector will need if it is to improve its own position. The sector's situation has been compounded by the postponement of numerous projects and the sharp downturn in car sales due to tighter liquidity conditions, according to Abdulrazzaq Al Wohaib, the general manager of Tazur Takaful Insurance. This has resulted in fewer policies being written, he told local press on November 11.

"We have to consider the fact that the international financial crisis has affected the purchasing power for individuals," Al Wohaib said.

With the Kuwaiti insurance industry dominated by non-life products, which account for some 75% of the market, the sector's wellbeing is significantly dependent on positive sentiment. As confidence flows back into the economy insurers foresee an increase in both business and consumer spending, with completed projects and private assets requiring coverage.

However, that flow of confidence is still a somewhat thin stream, not yet in full spate. By mid-November, the Kuwait Stock Exchange (KSE) eased back to below the 7000-point level, falling to a seven-month low on November 15 after dropping 5.48% in the previous week's trading. Notably though, insurance shares performed far better than other sectoral indices posting a retreat of just under 1%. While still down on their position at the beginning of 2009, listed insurance firms are showing more resilience as the year comes to a close.

In addition, if a long-promised overhaul of legislation governing the sector is enacted this position would be strengthened further, according to Khaled Saoud Al Hasan, the managing director of the Gulf Insurance Company (GIC).

"From a regulatory perspective, there has been little improvement," Al Hasan told OBG. "We continue to wait for the new insurance law to be implemented."

Al Wohaib was another to suggest that reforms would help reinforce the sector, in particular citing the need for an independent authority tasked with putting in place a new regulatory regime. The body's tasks would include setting new conditions and placing restrictions on insurance companies with regard to their investments in a bid to avoid a repeat of the losses encountered during the recent financial crisis, he said. Other responsibilities would include updating regulations related to dealing with client complaints, and establishing and monitoring the conditions of policies and the activities of insurance brokers and agents.

Though it is unlikely that Kuwait's insurers will equal or top last year's total gross written premium level of over $620m, the gradual improvement in the country's economy in the last quarter of 2009 should provide encouragement to the insurance sector coming into the new year.

Global Arab Network

This article is published in partnership with Oxford Business Group


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