Overhaul for Oman’s insurance sector

Oman's insurance sector is facing a major shake up as two of the sultanate's best-known insurers - Oman United Insurance and Al Ahlia Insurance - announced on April 25 they were in talks on joining forces to create the largest insurance company in Oman.

Though the planned merger was only in its initial stages, Oman United Insurance's general manager Mehr Ameen said the move would increase the value of shares of both companies and prepare them for a more competitive future.

"It will strengthen the capital base at a time when more players are entering the insurance field," he said to local press on April 26. "We need strong financial muscle to compete with new entrants."

The Oman insurance sector has already had one major overhaul in recent years. Following the collapse in 2000 of Oman National Insurance Company, the Capital Market Authority (CMA) was given the task of overseeing the industry. Since that time, it has worked to bring the sector's regulations and practices up to accepted international standards.

There are five main domestic players in the Omani market. Between them, the sector generated income of $238 million in 2005, the last year for which full figures are available. However, if the first quarter results for this year of Oman United Insurance is anything to go by, with the company seeing a 13.7% rise in profits, the sector looks on track for a strong performance in 2007 as well.

A number of foreign firms, such as AXA, Al Madina Gulf Insurance Company and Royal & Sun Alliance are also active in the Omani market, with a strong focus on higher premium policies.

Besides, a number of Oman's insurance firms have tie ups with the country's leading banks, giving them a far wider agency reach. For example, National Life works with BankMuscat, Muscat Insurance operates through Oman International Bank and Bank Dhofar is linked to Dhofar Insurance.

One factor that has propelled the insurance industry is the boom in investment throughout the economy, in part driven by the sultanate's privatisation programme. The insurance sector has benefited from the increased levels of foreign investment and the rising number of overseas partners who are used to having comprehensive insurance coverage for their enterprises.

A recent report issued by credit ratings agency Standard & Poor's said the Omani insurance industry offered significant scope for growth, with the strong commercial and retail market boosting premium levels.

However, local Omani insurers' weakness is the relatively small size of their operations. At their present level, they cannot carry major high risk policies such as those needed by operators in the oil and gas industry. Most of these are covered by overseas reinsurers, meaning that while the sector's revenue, performance ratios and projections may look attractive, the underlying numbers remain modest by many international standards, the report said.

"The expectation, therefore, is that although international majors will continue to target 'big-ticket' Omani energy and infrastructure risks and more sophisticated specialty requirements, the local retail and small commercial sectors will remain largely the preserve of indigenous and regional insurers," Standard & Poor's credit analyst David Anthony said on April 22.

It is just this lack of corporate power that the Oman United Insurance-Al Ahlia Insurance merger is seeking to overcome. Al Ahlia is a good example of how the sector is shifting in Oman. In early April, its parent company, Oman National Investment Corporation, sold a 35% stake to Dubai Financial LLC, Dubai Holding's investment arm.

Meanwhile, the sector is having some trouble tapping into the life insurance segment. While policies taken out on motor vehicles account for around 50% of the value of the sector's premiums, life insurance - one of the backbones of the personal insurance market - only represents some 15%. It is in this particular area that the industry can work to sell itself better and increase its overall coverage.

Though small by international standards, Oman's insurance sector has been growing at a rate of around 14% annually for the past few years. A stronger and more consolidated sector will be in a position to challenge for more of the high profile, high premium policy needs in the sultanate.

Jason J. Nash is Head of Research at the Oxford Business Group
(www.oxfordbusinessgroup.com)

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