Cablegate: Insurance - Bahrain's Next Financial Sector Growth

This record is a partial extract of the original cable. The full text of the original cable is not available.




E.O. 12958: N/A


1. Bahrain has targeted insurance as its next financial
growth market. It is revamping the regulatory regime to
facilitate more competition and faster growth. Bahraini
sources relate that based on market penetration (two percent
of GDP), Bahrain is the Arab World's largest and most
sophisticated insurance market. The insurance market enjoyed
double digit growth in 2002. Although desiring sector
expansion, Bahrain is cautious about opening its local market
to international competition. The American Life Insurance
Company is Bahrain's fifth largest local insurer, and one of
two American insurance companies licensed in Bahrain.
Islamic insurance and health insurance could be new products
that expand customer base, but it will require a major
marketing/awareness campaign to educate potential insurance
consumers. If Bahrain opens its market more fully, it could
set an example for how the region as a whole could grow the
insurance business. Seizing that potential could drive
foreign firms to do more advertizing, helping Bahrain expand
its insurance market. END SUMMARY.


2. Over the past year, BMA Governor Shaikh Ahmed bin Muhammad
Al-Khalifa and his staff have repeatedly stated in public and
in private meetings that the insurance sector is Bahrain's
next financial frontier. Shaikh Ahmed and other industry
figures excited about the insurance industry's prospects in
Bahrain and the region frequently cite a statistic that
insurance market penetration in Bahrain is about two percent
of GDP (USD 8.9 billion). In more economies, they say,
market penetration ranges between eight and thirteen percent.
Anwar al-Sadah, the BMA Executive Director charged with
expanding Bahrain's insurance industry, and Samir al-Wazzan,
President of the Bahrain Insurance Association, told POL/ECON
Chief that although the insurance industry has barely
scratched the market's potential within Bahrain, the country
has the highest market penetration in the Arab World. They,
along with AIG's local representative, commented that
Bahrain's more cosmopolitan and better-educated population is
more receptive to insurance as an important component of
family financial management. This, they thought, makes
Bahrain the best location for developing a regional insurance

3. Double digit growth for the sector provides another solid
reason for optimism. According to the BMA's official
statistics, 2002 gross premiums underwritten by both local
(including the 10 foreign companies licensed to operate in
the local market) and offshore insurance companies exceeded
USD one billion, a 13 percent increase over 2001. Bahrain's
84 Offshore companies held 73 percent of the premium and
contributed over 80 percent of this growth. The offshore
sector alone has grown nearly 50 percent in the past two


4. According to al-Sadah, the BMA recognizes that it needs to
open its domestic market, as well as promote offshore
investment, to expand the sector. However, the BMA wants to
proceed carefully and selectively. In the early 90's,
Bahrain closed its domestic insurance market to foreign
companies not already licensed here. Bahrain's national
companies have become accustomed to this protection and would
need time to adjust to increased competition. This, he said,
explained Bahrain's not including insurance in the GATS
market opening offers the GOB sent last year to the WTO.

5. In two conversations with P/E Chief, Bahrain Insurance
Agency President al-Wazzan has indicated the industry would
not welcome market opening at this time. He visibly blanched
at the thought of AIG entering the market with its full line
of products, claiming it would "bury every local firm in the
market." Al-Wazzan received skeptically P/E Chief's news
that Jordanian service companies had benefited from the
competition fostered by its FTA with U.S. However, he seemed
receptive to P/E Chief's suggestion of exploring Jordan's
post-FTA experience, welcoming the idea of inviting the
President of Jordan's insurance association to Bahrain to
address the industry on this topic.

6. The major products in the local market are life, fire,
auto, and marine insurance. Together, they account for 84
percent of gross premiums. Market penetration will also need
new products, according to al-Sadah, al-Wazzan, and Takaful
International's Ahmed Janahi. Like Islamic banking, they
agreed, Takaful, or Islamic insurance, could attract devout
Muslims to buy insurance. Al-Wazzan, who was CEO of Bahrain
Kuwait Insurance Company, put his own reputation and career
behind this view, becoming General Manager of the
newly-formed Solidarity Islamic Insurance and Re-insurance
Company. Al-Wazzan proudly told P/E Chief from his new
office that Solidarity is the world's largest Islamic
insurance company in terms of paid-in capital, USD 150

7. At a more practical level, Takaful International CEO
Janahi seems to be proving this point. His company enjoyed
100 percent growth from 2001 to 2002, with fire and life
insurance leading the way. Janahi told P/E Chief that he had
to change the name of "life" insurance to "family" insurance
to convince devout Muslims to buy policies. According to
Islam, he said, people cannot insure a life, only God can do
that. However, he said Muslims readily accept the concept of
insuring a family's financial future against the unexpected
death or disability of the primary breadwinner.

8. Besides Takaful, industry reps believe health insurance
could take off if the government requires private health
insurance for all resident third country nationals working in
the country (about 250,000 people). The press has reported
occasionally that the cabinet is reviewing the idea. Private
health care professionals in the country are hoping to see
this law proposed. According to two hospital general
managers, the country has seen significant levels of
investment in the health services sector but little growth in
demand, mainly because the government remains the primary
service provider in the country. Our hospital administrator
contacts consistently argue that a private health insurance
requirement for third country nationals is absolutely
necessary for the private health care business to grow.


9. The BMA took over regulation of the insurance sector after
the GOB enacted in May 2002 legislation consolidating
regulation of the financial sector. The BMA's al-Sadah told
P/E Chief that the agency moved quickly to revamp the
insurance industry's regulatory structure, hiring
PricewaterhouseCoopers (PWC) London to draft a new law and
regulations. Al-Sadah stated that these regulations,
developed over the next two years, will comply with
international standards such as those specified in the core
principles of the International Association of Insurance
Supervisors. According to introductory language from the
first of the new regulations, which the BMA released in
mid-April for public comment, the BMA hopes to align these
regulations with those governing banks and the stock exchange
to create a liberal and consistent regulatory framework that
maximizes economic potential.

10. The BMA reported that in 2002, it had licensed 156
insurance companies and brokers to operate in Bahrain.
Twenty of these companies are "national" insurance companies
licensed to operate in the local market. Eighty-four are
offshore firms. The balance are insurance brokers,
syndicates, consultants, representative offices, loss
adjusters, and actuaries.

11. Based on the BMA's annual report, the American Life
Insurance Company (ALICO, an AIG affiliate) is the only U.S.
insurance company licensed to work in Bahrain's local market.
In terms of 2002 gross premiums ALICO ranks fifth in the
domestic market with a nine percent market share. It ranks
second in the life insurance market (after Zurich
International Life, ltd.) with a 46 percent market share.
The BMA's report lists the Arabian American Insurance Co. as
an offshore licensee.


12. Based on our conversations with the BMA and industry
reps, it looks like the insurance sector has potential for
growth for both offshore and local businesses. The
government's willingness to allow offshore investment while
limiting competition in the local market is consistent with
its practice in the banking sector. However, the Bahraini
public does not yet understand the concept of insurance very
well. At the same time, the GOB's leadership hopes that
Bahrain's local market can set a positive example for the
region that Bahrain can exploit before other regional
competitors get into the game. The BMA is trying to raise
public awareness in Bahrain about the advantages of owning
insurance policies, but its resources probably cannot support
a mass market advertizing campaign. On the other hand,
private companies competing for business are usually willing
to deploy significant resources to market their products and
educate the public simultaneously. This suggests that
Bahrain should be thinking about more aggressively opening
its local market to foreign competition.


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