Iranian insurers have proved that they can thrive, or at least survive, with limited access to the global reinsurance markets, according to the report released by Business Monitor International on Iran’s insurance industry.
According to the report, the overall premiums in the sector jumped by 60% to 140 trillion in the 11 months to February 20, 2014 -- the first 11 months of the last Iranian year, 1392.
It said the largest insurance company, state-owned Bimeh Iran, is one of the biggest groups in the Middle East.
The private sector insurers (i.e. all but Bimeh Iran) accounted for 54.6% of written premiums, Mohammad Ebrahim Amin, spokesman for Central Insurance of Iran – the regulatory organization for the overall insurance sector which provides reinsurance cover to Iranian insurers – said, as reported by BMI.
The nominal growth rate of the sector accelerated from mid-December 2013, the report said. “Moreover, given that non-life insurance accounts for around 90% of total premiums, these figures reflect positively on the segment’s prospects.”
In January 2014, a release from Central Insurance of Iran suggested that written premiums in the first nine months of the Iranian year had grown by 26% relative to the previous corresponding period.
Of the companies whose shares of total written premiums exceeded 2%, good growth in the numbers of outstanding policies were achieved by Bimeh Dana (20%), Bimeh Alborz (10%), Parsian (19%), Novin (35%) and Karafarin (13%). Bimeh Iran and Bimeh Asia, who collectively account for about 60% of all activity in the insurance sector, increased their policy numbers by 1% and 3% respectively, according to the report.
The report further said that as of mid-2014, it remains to be seen whether the partial easing of sanctions against Iran which were agreed to by the United States and the European Union in January 2014 will have a lasting impact on Iran’s insurance sector. The easing in sanctions meant that foreign insurers could provide (re)insurance covers to Iran’s oil industry.
In March 2014, Bimeh Markazi said that two European companies had been given permission to open representative offices in Iran. More recently, local Iranian media reported that as of July 2014, the European union removed sanctions on Moallem Insurance Company (MIC), for its risk coverage of Iranian oil tankers. Similar actions over the next few months may provide ad hoc boosts to specific insurance lines as Iran’s rapprochement with the West gathers pace.
2015 Forecast
According to the report, by 2015, the insurance sector should post high growth rates, in part skewered by high inflation.
The greatest variable in assessing future trends in the sector remains the possibility of the European Union and the United States lifting sanctions.
Growth in premiums will be below the market’s potential operating capacity, the report said. Nonetheless, Iran remains a somewhat rapidly growing market which, by regional standards, is quite large.
The relative size of the non-life segment compared to its life counterpart means that it will be the key source of growth in overall premiums, it said. “Thus identifying compulsory motorists’ third party insurance (CMPTL) and health insurance as by far the dominant lines.
As such, much of the driving force behind Iran’s insurance market in 2015 and beyond will lie with these sub-sectors.
Bimeh Iran
The report identified a number of strengths among Iran’s insurers. Bimeh Iran, the largest state-owned company, has considerable scale, the report said. “As one of the largest insures in the Middle East, it would rank as medium-large in most countries. Moreover, the sector has shown remarkable resilience to continued economic sanctions. However, the alleviation of sanctions would provide a welcome boost to the overall sector.”
At present the local reinsurance market is dominated by Bimeh Iran and the lack of competition has pushed up the cost of outward reinsurance, the report said. As such, companies are forgoing large portions of their gross premiums, which will in turn suppress profitability.
Opening up the market to foreign reinsurers, through the alleviation of western sanctions, would do much to boost the sector. The same is true of increased access to global capital markets as well as foreign investment in the sector, which would help drive innovation.
Future Challenges
Looking ahead to 2015, the report said it expects cautious rapprochement between the west and Iran to bring about gradual improvement to the sector, as Tehran and the P5+1 have set a September 24 deadline to reach a comprehensive deal on Iran’s nuclear energy program.
However, the report underlined that long-term challenges will continue to curtail growth, ensuring that the market operates below its capacity. An opaque regulatory system, heavy government intervention and a lack of public awareness of the benefits of many insurance solutions show little signs of improving over the forecast period. As such, the report forecast that growth will mainly be driven by an increase in the volume of policyholders and an overall stimulation of economic growth. As such it is unlikely that the market breakdown for each sub-sector will change greatly. The same can be said for the market’s competitive landscape, with Bimeh Iran likely to maintain its dominant position, in part because the government views it as a strategic asset.
Nevertheless, the report forecasts that premiums should rise strongly in the non-life segment, since it accounts for about 90% of all business written in the insurance sector. Higher prices/rates for motor vehicle and health insurance, along with an improved economic environment, will be the main drivers of the expansion. In the life segment, promotion of short-tail products should ensure that premiums grow rapidly, albeit from a very low base. If the macroeconomic environment stabilizes, it envisages year on year growth in the segment to consistently exceed 12% in local currency from 2015.
However, the report asserted that an improvement in future retention ratios (i.e net written premiums relative to gross premiums) will depend on market liberalization and the ability of local insurers to access global reinsurance markets, which in turn will necessitate some alleviation of sanctions. While some progress in this area is possible, it does not envisage retention ratios to rise substantially. As such, net premiums should rise broadly in line with gross premiums.
