How changing regulations signal growth opportunities for Kuwait's insurance market

The Kuwaiti insurance sector is undergoing a period of change and growth, as a new regulatory body finds its feet and companies emerge from the Covid-19 pandemic. Stronger oversight and a move towards greater standardisation, coupled with the continuing evolution of digital insurance technology (insurtech), are likely to see that trend continue, with the country’s crowded insurance field likely consolidating in the medium to long term. Sector players remain convinced that the future will see their businesses expand, with Dubai-based investment bank Alpen Capital predicting that the Kuwaiti insurance sector will outperform the regional average in the years ahead, growing by an annualised 5.3% between 2022 and 2026.

Structure & Oversight

Some of the country’s firms date back to the 1960s and 1970s. The Kuwait Insurance Company (KIC) was founded by Emiri decree in 1960 as the first national insurance firm, which oversaw a range of now standard practices. Following its creation, Law No. 24 of 1961 provided the first regulations for the sector. Since 2015 the Insurance Department of the Ministry of Commerce and Industry (MoCI) has been the main oversight body for the sector. Numerous amendments and ministerial resolutions have since been made to the 1961 law. The Civil Code, laid down in Decree Law No. 67 of 1980, covered general principles of insurance contracting and the responsibilities of concerned parties. This was updated in 2011 with a resolution that also governed areas such as minimum capital requirements. In 2017 the MoCI set up a committee to undertake an audit of all insurance companies.

New Regulations

The government then launched a new, single regulation to oversee the sector: Law No. 125 of 2019 on the Regulation of Insurance. This repealed the 1961 law and continues to govern all domestic and foreign insurance and reinsurance organisations based in the country.

A key part of this new regulation concerns the establishment of the Insurance Regulatory Unit (IRU), led by the Supreme Committee of the IRU (SCIRU) and situated within the MoCI. For the first time, the sector has a dedicated supervisory and oversight body, with only the insurers, reinsurers, brokers and insurance agents licensed by the IRU allowed to operate within the country.

The SCIRU began operations in January 2020. The impact of the pandemic notwithstanding, in March 2021 the executive regulations for the 2019 law were promulgated, with these more detailed regulations due to come into effect in March 2022, but with a delay granted until June of that year in order for companies to make the necessary adjustments. A further extension was granted to September 2022 for companies to renew their licences and regularise their status. Licences may also now be renewed every three years rather than annually.

In addition to granting the IRU supervisory, licensing and oversight powers over the sector, the new law sets minimum capital requirements for the issuing of a licence. These now stand at KD5m ($16.5m) for companies conducting life insurance business; KD5m ($16.5m) for those conducting general property and liability insurance; KD10m ($32.9m) for composite insurers; and KD15m ($49.4m) for reinsurers. Brokers, meanwhile, have minimum capital requirements of KD100,000 ($329,100) for general insurance, KD200,000 ($658,200) for reinsurance, and KD300,000 ($987,300) for brokers combining insurance and reinsurance.

Detailed solvency and reporting requirements are also listed under the executive regulations, with the intention of bringing the sector more in line with international best practices. Additionally, the law established the SCIRU’s Disciplinary Board, its jurisdiction and its sanction powers for dealing with breaches of insurance law. It similarly established the Insurance Disputes Arbitration and Settlement Centre, which is tasked with hearing cases and settling disputes between licensed entities. If disputing parties submit to the jurisdiction of the centre, an Amicable Settlement Committee will be formed to put forward proposals for the parties to consider.

As the law’s executive regulations were beginning to be implemented at the close of 2022, their impact on the local market remains to be seen. “The idea behind the founding of the IRU is positive, and steps are being taken to raise awareness among stakeholders of their role and their future plans and strategies. Moving forwards, a greater exchange of information and knowledge between market players and the IRU, and a standardised reporting mechanism for all, would be welcome,” Anwar Al Sabej, CEO of Warba Insurance & Reinsurance, told OBG.

Another key regulatory point is that insurance is not currently on the negative list for foreign investment – a roster of activities reserved for Kuwaiti companies only. Foreign insurers, whether conventional or sharia compliant, can therefore establish wholly owned subsidiaries, licensed branches or licensed representative offices in Kuwait.

New Kuwait 2035

Development of the sector falls within the country’s long-term socio-economic plan, New Kuwait 2035, which sees the development of the private sector and of financial services as key to the country’s development. One step within the vision was the 2014 establishment of the Health Assurance Hospitals Company (Dhaman), a public-private partnership (PPP) in which the Kuwait Investment Authority (KIA) sovereign wealth fund and the Public Institution for Social Security (PIFSS) partner with the private sector and citizen shareholders in operating the country’s health system. This includes hospitals and health centres, as well as compulsory health insurance. November 2020 saw Dhaman introduce a health insurance scheme for some 2m residents working in the private sector, with an initial annual fee of KD130 ($428).

Conventional & Islamic

The 2019 law states that insurance companies can either undertake conventional activities or takaful (Islamic insurance) activities, but not both. The Kuwaiti insurance sector therefore includes both conventional and Islamic insurers, with many of the latter linked to the country’s Islamic banks.

Kuwait Finance House (KFH) has KFH Takaful; Boubyan Bank, National Bank of Kuwait’s sharia-compliant banking subsidiary is behind Boubyan Takaful (BTIC); and Kuwait International Bank (KIB) has KIB Takaful, formerly Ritaj. Other firms include Wethaq Takaful, the first local takaful company to offer products in 2000; First Takaful; Arab Islamic Takaful; Kuwait International Takaful; Al Khaleej Takaful; and National Takaful. Among these, First Takaful and Wethaq Takaful are listed on the Kuwaiti stock exchange, Boursa Kuwait. Insurance is recognised on the bourse as a separate sector, with eight firms listed on its Main Market as of early December 2022.

The Gulf Insurance Group (GIG) – Kuwait’s largest insurer of any kind – also undertakes takaful operations via Gulf Takaful, which operates under the trademark GIG Kuwait Takaful. In 2020 GIG held a 58% market share, with the next-largest insurer, Al Ahleia Insurance Company (AAIC), which had a 13% share of the market. Bahrain Kuwait Insurance Company – a subsidiary of GIG – held 11% that year. This was followed by the Kuwait Reinsurance Company (Kuwait Re), with 7%. AAIC owns 91.74% of Kuwait Re. KIC had a 5% market share in 2020, followed by Warba Insurance & Reinsurance, with 4%, while First Takaful and Wethaq Takaful accounted for around 1% of the market between them, according to Dubaibased agency SHMA Consulting.

In terms of market capitalisation on Boursa Kuwait, in early December 2022 the order was similar, except KIC was the third largest, with a market cap of KD106.3m ($349.8m) compared to GIG’s KD284.6m ($936.6m) and AAIC’s KD110.3m ($363m). Kuwait Re came fourth, with KD67.7m ($222.8m). The largest reported takaful was First Takaful, with a market cap of KD4.9m ($16.1m).

Founded in 2006, the Kuwait Insurance Federation (KIF) is the sector’s professional body, representing its interests to the government, promoting the sector, and educating Kuwaitis on the benefits of insurance and takaful. It also organises courses in cooperation with specialised training centres and programmes for students and sector employees. The KIF’s secretary-general as of late 2022 was Adel Al Rumiah. In April 2022 there were 25 Kuwaiti and 11 non-Kuwaiti insurance and reinsurance organisations operating within the local market. The total contribution of the sector to GDP is around 2%.

Performance

Kuwait’s insurance market is driven by a combination of factors, chief among them population and economic growth. Regarding the first, the national population stood at 4.3m in 2021, according to the World Bank, up from 3.2m in 2011 and 2.1m in 2001. IMF projections suggest that the number will continue to grow, with the fund projecting a 1.7% compound annual growth rate (CAGR) from 2022 to 2026.

The composition of the population is also a factor, as non-Kuwaitis are required to obtain private insurance. While expatriates make up a smaller share of the population than they do in the UAE or Qatar, they still represented around 70% in 2018. That number fell during the pandemic to around 68%, with the government stating in 2020 that it intended to target a level of around 30% going forwards. According to figures issued by the Public Authority for Civil Information, expatriates accounted for 66% of the total population as of mid-2022.

Expansion

Economic growth has long been tied to the global hydrocarbons market, with low oil prices slowing real GDP expansion from 2014 until recently. Kuwait recorded GDP growth of 2.4% in 2018, followed by a tightening of 0.6% in 2019. The pandemic then saw GDP contract by 8.9% in 2020, before recovery in 2021 to an estimated 1.3% growth, according to the IMF. The fund’s forecast for 2022 is for a more robust 8.7% – the highest in the GCC – followed by 2.6% in 2023, largely on the back of increases in the production and price of oil. This should translate into growth across the insurance sector, as Kuwaitis and expats alike benefit from the return to more buoyant economic activity.

Between 2015 and 2020 Kuwait’s insurance market posted a CAGR of 7%. Despite economic headwinds stemming from lower oil revenue and Covid-19 restrictions, the country remained relatively resilient over the five-year period. This can be largely attributed to the 26.6% sector growth witnessed in 2017 – the highest in the GCC – after a decision from the Ministry of Health (MoH) to raise annual health insurance fees in November of that year. In tandem with this growth, Kuwait’s share of the GCC market expanded from 3.4% in 2015 to 4.3% in 2020.

The pandemic had a mixed impact on the sector, with the initial economic crunch balanced by a decline in claims during lockdowns due to lower general activity by the population. The crisis also provided insurers with an opportunity to demonstrate the value of their products, while also increasing IT applications amid the expansion of remote work.

Life

The life insurance market in Kuwait faces headwinds stemming from cultural reservations and limited awareness of life insurance products. The government provides citizens with retirement programmes and other benefits, often crowding out private life insurance. The majority of gross written premium (GWP) come through corporate business accounts, with international companies in particular serving as major clients.

Between 2015 and 2020 GWP in life declined by a CAGR of -3.7%. At the end of this period life accounted for 10.9% of total GWP, at around $100m. The life insurance penetration level was around 0.1% of GDP in 2020 – roughly unchanged since 2015 – although the population had grown, from 3.8m to 4.3m. Life insurance density decreased from $35.90 in 2015 to $26.50 in 2020.

There was expansion in the life segments of corporate balance sheets, with GIG reporting growth in its total net investment income from life from KD2.1m ($6.9m) in 2020 to KD3m ($9.9m) in 2021. In 2022, however, GIG recorded KD110,000 ($362,000) in net investment income from designated life insurance in the first six months of the year. AAIC witnessed its segment results from life and medical increase from KD218,600 ($719,400) at the close of 2021 to KD444,300 ($1.5m) at the end of the first half of 2022. Results from the life sector for BKIC were not available as of early December 2022, but Kuwait Re posted losses in segment results for life for 2021 – at KD319,700 ($1.1m) – and the first six months of 2022, at KD199,100 ($655,200).

Non-life

Health and motor have been key drivers in the non-life segment’s growth in recent years, particularly since the MoH introduced health insurance requirements for expats and cover for retired public employees. At the same time, motor business has grown with the economy and the population. Indeed, according to a 2021 report from the Competition Protection Authority, car and health insurance constituted 64% of total insurance premium.

From 2015 to 2020 non-life GWP grew at an annualised rate of 8.9%, reaching $1bn by the end of the period. The non-life insurance market accounted for 89.1% of the total GWP in 2020, up from 81.5% in 2015. The penetration rate, meanwhile, grew from 0.6% to 1% of GDP, with a non-life insurance density of $217 as of 2020, an increase from $158 in 2015.

Since then, a number of regulatory developments have been driving further growth. While health insurance has been mandatory for foreign residents in Kuwait’s private sector since 2017 – now provided by Dhaman – more recently, mandatory health insurance for expatriates over 60 years of age, regardless of their qualifications, has also been introduced. The Public Authority for Manpower made possession of such a policy a requirement for the issuing or renewal of a visa in January 2022 (see Education & Health chapter).

Expatriates will have to purchase their policies from a list of approved insurance and takaful companies which must also be listed on Boursa Kuwait, both boosting the capital market and obliging insurers to meet the bourse’s standards for listing. This should increase transparency in the sector, with companies obliged to report regularly and fully.

Since late 2019 the local authorities have also made it mandatory for all visitors to Kuwait to have a private health insurance policy, with only emergency care available to foreign visitors. At the close of 2022 moves to apply this to visitors on commercial visas were under discussion. If the legislation is approved, the proposed fee would be KD20 ($65.82).

The IRU has drawn up a list of approved companies for the issuing of compulsory, third-party liability (TPL) motor insurance. This came in January 2021, after consultations between the unit and the Ministry of Interior’s General Department of Public Relations and Media Security, along with the Traffic General Department. A total of 22 companies were authorised at the time, with periodic adjustments to the list made since. Additionally, a standard car rental contract was introduced in 2022. This sets out the rights of all parties involved and should ensure that insurers alone cover costs of repair in the event of an accident, rather than insurers and renters.

Ratings

For the main insurance outfits, non-life is the largest segment of their business. GIG, for instance, reported net investment income from nonlife of KD24.2m ($79.6m) for 2021, up from KD12.8m ($42.1m) in 2020. This put non-life’s share of the company’s total net investment income at 88.9% for 2021. In terms of lines of business, the biggest share of GIG’s gross liabilities went to motor, with KD154.3m ($507.8m), or 32.6% of the total; followed by engineering, with KD141.5m ($465.7m), or 29.9% of the total. Other major lines of business that year included property, with KD92.7m ($305.1m); general accident, at KD57.4m ($188.9m); and marine and aviation, with KD27.9m ($91.8m).

GIG had its financial strength rating and issuer credit upgraded to “A” from “A-” by ratings agency Standard & Poor’s with a stable outlook. AM Best reaffirmed GIG’s financial strength rating of “A” and issuer credit rating of “A” with a stable outlook. GIG also had its “A3” insurance financial strength rating reaffirmed by Moody’s Investors Service with a positive outlook. In addition, the Kuwaiti insurer performed one of the GCC’s largest insurance acquisitions during the course of the year, purchasing AXA’s Gulf operations – which rebranded and now operates as GIG Gulf – for $474.8m in September 2021. This came after GIG issued Kuwait’s first-ever perpetual bond, a KD60m ($197.5m) issuance made in two tranches in November of that year. GIG’s GWP have risen consistently in recent years, from KD394.1m ($1.3bn) in 2019 to KD444.4m ($1.5bn) in 2020 and KD548.5m ($1.8bn) in 2021. The group also saw a 13% rise in GWP in the first half of 2022, even discounting its new acquisitions from AXA Gulf.

The year 2021 also saw AAIC’s “A-” rating reaffirmed, with the insurer reporting GWP of KD113.9m ($374.8m) in 2021. Its subsidiary, Kuwait Re, contributed KD69m ($227.1m) to that total. KIC similarly saw its financial strength rating reaffirmed at “A-” by ratings agency AM Best in 2021, while recording GWPs of KD38.1m ($125.4m) in 2020 and KD46.9m($154.3m) in 2021. At present KIC is pursuing plans to expand its operations outside Kuwait, with Egypt a particular focus.

Engineering and other construction-related insurance often benefit from public spending on infrastructure. The government’s FY 2021/22 budget includes around $65bn of projects, with some 5% based on private sector partnerships. This should provide a boost to the sector as more insurable assets come on the market in the years ahead.

Technological Innovation

Kuwaiti insurers have been investing heavily in recent years to facilitate the adoption of the latest apps and other IT solutions. “Every insurance company is paying close attention to the growth and development of digital solutions and insurtech. This is mainly driven by customer demand, especially from the new generation that prefers to explore, compare and purchase insurance products and services through their smartphones,” Al Sabej told OBG. 

By catering to customer demand, insurers are following a major government drive to provide the regulatory and other frameworks necessary to boost uptake of financial technology (fintech) and expand the broader financial services sector. On this score, the Central Bank of Kuwait (CBK) launched its fintech regulatory sandbox in 2018. The government then announced a $200m technology investment fund and established a dedicated fintech unit in 2019. More recently, in 2022 the CBK formalised digital banking, with further fintech developments promised in line with realising New Kuwait 2035, the country’s long term development plan.

Fintech Adoption

A 2020 report by management consulting company Deloitte on fintech adoption in the GCC found that around 15% of Kuwaitis had adopted some kind of fintech, with the most popular insurtech services being connected health, with 26% of adopters using such tools, followed by auto insurance, at 19%, and home insurance, at 12%.

The majority of adopters were also relatively young. Those using connected home insurance, for example, were all within the 20- to 30-year-old age group. Another standout from this survey was that while peer-to-peer insurance was relatively low across the GCC – the highest level of adoption was 18% in Saudi Arabia – it was not present at the time in Kuwait. This indicates that there is significant room for growth in the country’s nascent insurtech industry.

“Insurtech will remain a core factor for premium growth leading to significant increases in the insurance penetration rate, as it is required to help customers apply advanced payment techniques and business solutions,” Khaled Al Sanousi, group executive manager at GIG, told OBG.

Outlook

With new regulations, a robust array of sector players and a return to economic growth, there are reasons to be optimistic about Kuwait’s insurance industry. Indeed, Alpen Capital predicts the country’s insurance sector will see the highest growth rates in the GCC over the next few years, with a CAGR of 5.3% between 2022 and 2026, to reach $1.6bn in value. Life insurance is projected to grow at a CAGR of 4.7%, and non-life is forecast to expand 5.4%, accounting for $1.4bn of the sector total.

The IRU’s role will be key in ensuring this expansion takes place in line with best practices. The further rollout of regulation, particularly in capital requirements, listing, reporting and the maintenance of buffers against risk will ensure that Kuwait’s insurers – both takaful and conventional – continue to provide customers with well-developed products, while also having sufficient room for innovation.

That will likely mean some consolidation in the years to come, with smaller insurers either amalgamating or turning to the provision of more niche services. “Some of the challenges we expect are most companies, even bigger ones, will have to change some of their internal approaches or policies and procedures, adjust their pricing rates and levels of capital, as well as focus on building internal control functions to help comply with the new laws and regulations,” Al Sanousi told OBG.

At the same time, as fintech and insurtech take off, the sector will become more competitive, as potential policyholders shop around for the most suitable products. This should be welcomed by industry players and provide an important platform for growth, along with assistance from government policy as it expands mandatory insurance business.