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Under construction: Bahrain is seeking a bigger role in the Middle East as an emerging insurance market.

The tiny Persian Gulf kingdom of Bahrain wants to be a major hub in the Middle East insurance industry, and to that end has launched a "major initiative" to figure out how to do that.

The Bahrain Monetary Agency hopes to enhance "Bahrain's status as a major insurance center in the Middle East," said BMA spokesman Nadera Abu All. The agency wants to develop the domestic insurance market, and at the same time "raise the profile" of Bahrain as an insurance center both in the Middle East and worldwide, he said.

As part of its effort, the agency in 2003 published three of eight planned consultation papers on proposals to develop the insurance segment, in collaboration with consultant PricewaterhouseCoopers. The first paper, published in April 2003, dealt with developing a regulatory framework for turning Bahrain into a captive insurance domicile. The second consultation paper, published in June 2003, addresses insurer solvency, and the third, published in September, focuses on business conduct.

"The BMA is in the process of creating a new regulatory framework for the insurance sector," said Abu Ali. "This started in August 2002, when the insurance sector came under the regulatory supervision of the BMA, along with the Bahrain Stock Exchange."

Anwar Khalifa Al Sadah, executive director of financial services supervision at the BMA, said in a December 2003 statement that the agency is seeking to enhance the quality of services, the quality and capacity of insurance professionals and transparency for the industry. The agency also seeks to attract captives and "takaful" business, as well as establishing a "market friendly regulatory framework on a par with international best practice."

Islamic Risk Management

Takaful is an insurance-like approach to managing risk that takes Islamic law into account. Takaful business resembles the Western concept of mutual insurance in some respects, in that the insuring entity is considered to be collectively owned by the policyholders who contribute premiums to the central fund. One crucial difference is that, under Islamic law, the company is not seen as assuming the risk on behalf of the participants-the emphasis remains on individuals, who as participants art- covering each other. Also, there are stricter guidelines governing how the company can invest the funds it holds in trusteeship on behalf of the participating individuals.

Patrick Kenny, president and chief executive officer of the International Insurance Society; said Bahrain is trying to attract international insurance business. The BMA's efforts to clarify its regulatory position on insurance issues, as well as efforts to attract visits from foreign professionals, show the authorities there have a sense of the positive potential of a regulator as a "positive stimulus" for the industry.

Kenny, who was scheduled to speak at a "Middle East Insurance Conference" hosted by the BMA in January, said he is impressed so far with the stability of the country's government and economy, given ongoing political risk and business risk problems in other parts of the Middle East. Kenny has had to cancel planned meetings in Cairo, Egypt, and Beirut, Lebanon, in the past due to such difficulties.

Property/Casualty First

"We had had some discussions with members of the staff there, and I asked them if they had any problems reaching out to people to get them to come to meetings, or to just visit, and they said no, not at all," said Kenny. "I thought that was interesting, since there seems to be a sense of that role of the regulator as a positive stimulus."

Bahrain officials also believe their region is growing significantly economically, said Kenny. "They're talking about premiums growing to $44 billion in the region by the year 2010," he said. "I have to believe that a lot of that is in nonlife, especially property, given the infrastructure and the prevalence of the oil industry in the region."

Aside from property, reinsurance is the other likely market of opportunity in the region, said Kenny. "At this point, I don't think anyone knows what kind of potential there is for life insurance in the region," he said.

Sizing the Market

Currently, Bahrain is a very small insurance market. According to Swiss Re Group's Sigma study, in 2002 Bahrain accounted for only $159 million in premium volume in 2002, up from $156 million a year earlier, and represented only 0.01% of the world market. In the Middle East region, its market is dwarfed by that of Iran, with $1.1 billion in premiums; Saudi Arabia, with $904 million; United Arab Emirates, with $856 million; Lebanon, with $516 million; and Kuwait, with $311 million.

According to the Bahrain government, right now the industry has $180 million in premiums.

Information provided by the BMA shows that there are currently 159 firms engaged in insurance and insurance-related business in Bahrain. Of that, 21 are local insurance or reinsurance firms. Eighty-two "offshore" insurers are doing business in Bahrain, along with 25 brokers and eight loss adjusters.

"A majority of the insurers in Bahrain right now are overseas insurers," said Kenny.

One of Bahrain's neighbors on the Persian Gulf, and perhaps its closest rival for the claim of the Middle East's financial center, the United Arab Emirates, planned its own insurance conference, following that of Bahrain by about two weeks, said Kenny. "What this says to me is that there is a thought by people in the region that now is the time, with the potential uptick in the economy and building going on, and maybe with a lessening of terrorist activity, they see the potential for business expansion and they want to be in on the ground floor," he said.

"They have a huge hotel market and great infrastructure in Dubai," he added. "I think Bahrain is trying to compete with that."

One selling point for Bahrain, along with its rival Dubai, is that it is a stable entity politically in a region that has huge amounts of oil wealth and low insurance penetration. "Another possibility is that, like Hong Kong with China, Bahrain sees itself as a jumping-off point for doing business in the larger markets in the region, such as Saudi Arabia and Iraq," he said. "If they are perceived by the rest of the world as being places of relative calm, they can attract people who are more interested in the economic and financial implications of the region, rather than the geopolitical implications," he said.

Nick Prettejohn, chief executive officer of Lloyd's of London, agreed that Bahrain is interested in establishing itself as a regional hub for financial services, including insurance. "They are trying to build up their financial services center, and I think they want to set themselves up as a rival to Dubai," he said.

The central governance of Lloyd's isn't involved directly in the Bahrain market, although it is likely that some Lloyd's syndicates do have a business presence there, said Prettejohn, who is also a member of the International Insurance Society's board of directors. "Bahrain officials have been seeking information on insurance practices," he said. "They probably have the potential to be a big influence in the Middle East market."

Bahrain

An emerging insurance market

* 2003 Premiums: $180 million

* Insurer Presence: 159 insurance firms, including 21 local insurers, 82 offshore insurers, 25 brokers, 8 loss adjusters.

* Economy: Petroleum production and refining account for about 60% of export receipts, 60% of government revenues and 30% of gross domestic product. Other primary industries include aluminum smelting, offshore banking, ship repair and tourism.

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Sources: Swiss Re, Bahrain Monetary Agency, CIA Fact Book
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Title Annotation:Globalization
Author:Pilla, David
Publication:Best's Review
Geographic Code:7BAHR
Date:Feb 1, 2004
Words:1248
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