Business Monitor International revised down its forecasts for the Iranian insurance market in an April report forecasting the third quarter of 2015. However, the think-tank said the sector would grow faster in the second half of the year if sanctions are eased.
The slight fall “is largely attributable to continued western sanctions, which have suppressed wider macroeconomic growth,” it said. “However,” it added, “the recent framework nuclear agreement may provide the stimulus for high rates of growth over the second half of the year if financial and oil-related sanctions are lifted, even partially.”
On April 2, Iran and six world powers, known as the P5+1, reached a framework agreement over Tehran’s nuclear energy program, paving the ground for a final long-term deal by the June 30 deadline.
The Iranian insurance market is by regional standards developed. Taking into account the relative size of the non-life segment relative to its life counterpart; it will remain the key source of growth for the sector as a whole. Compulsory motorists’ third party insurance and health insurance remain by far the dominant lines. These will constitute the greatest driving forces behind the increase in premiums over 2015, according to the report.
The regulator, and leading insurers, continues to provide only limited data. However, recent information suggests that total premiums are growing strongly.
Historically, the interrelated issues of sanctions and structurally high inflation have impeded the development of Iran’s insurance sector. Sanctions have limited local insurers’ access to global reinsurance
markets, adversely affecting retention ratios and insurers’ profitability levels.
According to the report, the lifting, even partially, of international sanctions would help reduce inflation. Moreover, a reduction in the barriers to Iranian companies’ access to financial markets would also contribute to an improved forecast for premiums growth. As such, the wider economy should enjoy greater stability than it has done in recent years, which in turn should lead to more consistent rates of growth in the insurance sector.
The greater macroeconomic stability should help mitigate fluctuations to the rial, which historically has prevented accurate readings of the insurance sector in terms of local currency.
Over the long-run there exists considerable upside potential in Iran’s insurance sector. Bimeh Iran, the large state-owned company, possesses significant scale. As one of the largest insures in the Middle East, it would rank as medium-large in most countries. The report said the insurer would benefit from greater access to international markets. However, it added, heavy handed state involvement has given it the substantial advantage of dominating the local reinsurance market, which in turn pushes up reinsurance premiums due to a lack of competition.
Despite the outcome of Iran’s rapprochement with international powers, 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, BMI believes that growth will mainly be driven by an increase in the volume of policyholders for basic compulsory lines. 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.
