Insurance Industry Analysis Kuwait 2020 PDF

Insurance Industry KUWAIT 2020 TABLE OF CONTENTS SHMA Consulting About Us……………………………………………….…….3 Our Services………………………………………………..4 Limitation and Disclaimers……………………….…5 Performance Summary Insight for CEOs………….……………………...……….6 Market H...

Insurance Industry KUWAIT 2020 TABLE OF CONTENTS SHMA Consulting About Us……………………………………………….…….3 Our Services………………………………………………..4 Limitation and Disclaimers……………………….…5 Performance Summary Insight for CEOs………….……………………...……….6 Market Highlights..……………………..…….…………7 Industry Benchmark…………………………………...8 Impact of COVID-19…………………………………..9 Market Share & Premium Market Share………………………………………….….10 Gross Written Premium……………………………...11 Net Written Premium………………………………...13 Premium Retention Ratio…………………………...15 Net Earned Premium………………………………....16 Claims and Ratios Net Incurred Claims…………………………………..17 Loss Ratio………………………………………………....18 Expense Ratio……………………………………………19 Combined Ratio…………………………………………20 Profitability Analysis Net Profit/(Loss)………………………………………...21 Asset, Liability and Equity Classification..……23 Return on Equity…………………………..……………25 Return on Assets…………………………..……………26 0  Insurance Industry 2020 – Kuwait About Us SHMA Consulting first offered actuarial services relating to insurance in Saudi Arabia in 2003 and currently provides actuarial services to 08 companies in Saudi Arabia, 11 insurance companies in the UAE and other insurance companies in the GCC (Kuwait, Oman, Qatar and Bahrain). SHMA Consulting has been providing actuarial services to insurance companies since 1990 and to companies in the GCC (starting with the UAE) since early 1997. We are currently engaged with some of the biggest names in the UAE Insurance Sector, including ADNIC, ADNTC, Orient, etc. 3  Insurance Industry 2020 – Kuwait We provide a range of services to our valued business partners across the globe, including Europe, the Middle East, Southeast Asia and the Far East. Our specialty services include financial reporting, product and business development and enterprise risk management. In addition, our firm provides expert personnel outsourcing for allowing organizations to engage in full-time consulting for long-term cost-effectiveness. Life Insurance Retirement Benefits Valuations for financial reporting IFRS, statutory & embedded valuations Advise on benefit design and cost-benefit Product development, pricing & reserving analysis Experience studies Pension benefits administration Advising on agency & broker compensation Benefit communication material structures, reinsurance arrangements, Provident fund maintenance software and audit underwriting policies and capital adequacy of retirement schemes and funds Our Services ERM Framework and risk management policies Actuarial reserving and certifications and procedures Underwriting and pricing solutions Risk identification tools and training Data and predictive analytics Risk measurement and quantification by using a Advising on reinsurance arrangements, capital model underwriting and claims practices Asset liability management policy Profitability and capital adequacy analysis Advising on risk appetite and controls General Insurance ERM and Capital Modeling 4  Insurance Industry 2020 – Kuwait Limitations and Disclaimers ❖ The data used for the preparation of this report has been collected from Boursa Kuwait. The data was extracted from the financial statements of the listed companies. ❖ Insurance Industry Kuwait has 08 insurance companies. We have included the 08 insurance companies in our analysis. 06 of the 08 companies write conventional business, while 02 of the insurance companies write Takaful business. ❖ For the First Takaful Company, Kuwait Reinsurance and Wethaq Takaful Insurance, the Income Statement is slightly different from the amounts in the notes. However, the difference is immaterial and has no impact on our analysis. ❖ For Takaful companies, the net profit/(loss) shown in the report is related to the shareholder only. ❖ This Industry report is intended to provide general information only; we are not providing actuarial, investing, accounting, business, financial, legal, tax, or other professional advice or services through it. This research is not intended to replace professional advice or services, nor should it be used to make any decisions or take any actions that may damage your finances or business. ❖ The content of this industry report published by SHMA Consulting provides information to the general public and insurance sector. The objective of this report is to use our professional’s research and experience to bring compliance and information sharing to the industry. ❖ The information, materials and opinions presented in this report are for general information purposes only, are not intended to constitute legal or other professional advice and should not be relied on or treated as a substitute for specific advice relevant to particular circumstances. Although, we make reasonable efforts to update the information in this report. 5  Insurance Industry 2020 – Kuwait Insights for CEOs Retention Ratio Takaful vs Conventional Business 2019 2020 2020 2019 60% 50% Conventional 40% 30% Takaful 20% - 200,000 400,000 600,000 800,000 10% Total Gross Written Premium 0% Total Profit / Loss KD 763 Mn Takaful Conventional KD 47.9 Mn Loss Ratio 7.8% 2020 2019 Combined Ratio 2019 2020 Conventional 140% Total Assets 120% 100% 80% KD 1,871 Mn Takaful 60% 40% 20% 0% 20% 40% 60% 80% 100% 120% 140% 0% 2.7% Takaful Conventional 6  Insurance Industry 2020– Kuwait Market Highlights ❖ Kuwait's insurance market is expected to generate nearly USD 2 billion in premium by 2024, which represents an annual growth rate of 8.2%. According to Alpen Capital, the life and non-life business are expected to grow by 5.8% and 8.5%, respectively between 2019 and 2024. ❖ First Takaful Insurance, owned at 53.447% by International Financial Advisors (IFA), is investing in an Islamic Insurance Company to be established in Pakistan. The amount of investment approved by the First Takaful Board of Directors was set at USD 3 million. The amount of the investment approved by First Takaful’s board of directors was set at USD 3 million. The new Pakistani insurer will focus its activity on marketing a savings insurance product. ❖ The Board of Directors of Kuwait Insurance Company has approved the creation of a life insurance company in Egypt. The new entity share capital is set at EGP 100 million (USD 6.3 million). ❖ Insure & Secure group launches the mobile application “Saiyarti”. This is a digital platform that provides access to users who can underwrite, track and renew their compulsory motor third-party liability insurance policy. Internet users can also get estimates and account statements. ❖ AM Best has confirmed its financial strength rating of “A-” (Excellent) and long-term credit “a-” of Kuwait Insurance Company (KIC). The outlook for ratings is stable. 7  Insurance Industry 2020 – Kuwait Industry Benchmark 2019 Retention Ratio 51% Weighted Average Retention Ratio 53% Loss Ratio 71% Expense Ratio 16% Combined Ratio 87% 67% Weighted Average Loss Ratio 2020 Retention Ratio 51% 17% Weighted Average Expense Ratio Loss Ratio 67% Expense Ratio 18% Combined Ratio 85% 84% Weighted Average Combined Ratio 8  Insurance Industry 2020 – Kuwait Impact of COVID-19 ❖ The ongoing COVID-19 Pandemic has had a significant impact on the global economy and the ability of individuals, businesses, and governments to operate. Across the globe, travel, trade, business, working arrangements and consumption have been materially impacted by the pandemic. ❖ On 11 March 2020, the World Health Organization (WHO) declared the Coronavirus (COVID-19) outbreak as a pandemic in recognition of its rapid spread across the globe. Governments all over the world took steps to contain the spread of the virus. The insurer is closely monitoring the situation and has activated its business continuity planning and other risk management practices to manage the potential business disruption the COVID-19 outbreak may have on its operations and financial performance. ❖ The insurer may be impacted by any policies, practices, laws, or regulations introduced by governments that require or compel insurers to defer insurance premiums, pay claims in relation to COVID-19 losses which would not otherwise be payable under the relevant policy, or in the normal course of business. The extent of the impact on our business and results of operations is largely dependent on the evolving future developments and the actions taken globally to address its impact. 9  Insurance Industry 2020 – Kuwait Market Share Proportion 10  Insurance Industry 2020 – Kuwait Gross Premium (KD 000’S) 2019 2020 500,000 450,000 400,000 350,000 300,000 250,000 200,000 150,000 100,000 50,000 - GULF INSURANCE AL-AHLEIA BAHRAIN KUWAIT KUWAIT KUWAIT INSURANCE WARBA INSURANCE WETHAQ TAKAFUL FIRST TAKAFUL COMPANY INSURANCE INSURANCE REINSURANCE COMPANY COMPANY INSURANCE COMPANY COMPANY COMPANY Major Share of the total gross written premium in Kuwait’s Insurance Industry belongs to Gulf Insurance Company and Al-Ahleia Insurance Company (69% in 2019 and 71% in 2020), followed by Bahrain Kuwait Insurance. In addition to this, Wethaq Takaful Insurance and First Takaful Insurance captured the smallest market share. Moreover, there was a significant change in Gulf Insurance Company’s Gross Premium, which increased by KD 50 million while Gross Premium for other insurance companies did not vary much by year. 11  Insurance Industry 2020 – Kuwait Gross Premium – Movement First Takaful Company -40% Wethaq Takaful Insurance -32% Warba Insurance Company 3% Kuwait Insurance Company 1% Kuwait Reinsurance Company 0% Bahrain Kuwait Insurance 5% Al-Ahleia 3% Gulf Insurance Company 13% -50% -40% -30% -20% -10% 0% 10% 20% Gulf Insurance Company experienced the highest growth rate in its gross premium (12.78%), while First Takaful Company Insurance experienced the highest decline (-40.30%). On average, Kuwait’s Market has seen a growth of 7.78% in the year 2020. Only the Takaful companies experienced a major decline in their gross premium. 12  Insurance Industry 2020 – Kuwait Net Premium (KD 000’S) 2019 2020 250,000 200,000 150,000 100,000 50,000 - GULF INSURANCE AL-AHLEIA BAHRAIN KUWAIT KUWAIT KUWAIT INSURANCE WARBA INSURANCE WETHAQ TAKAFUL FIRST TAKAFUL COMPANY INSURANCE REINSURANCE COMPANY COMPANY INSURANCE COMPANY COMPANY Like Gross Premium, Net Premium has not changed significantly in 2020, with the only significant change being an increase of KD 10 million in Gulf Insurance Company’s Net Premium. The change in net premium of the Takaful companies, although significant for the individual companies, is not significant to the insurance market as a whole. This is because they comprise only 1% of the total net premium. 13  Insurance Industry 2020 – Kuwait Net Premium – Movement First Takaful Company -31% Wethaq Takaful Insurance -62% Warba Insurance Company 6% Kuwait Insurance Company -2% Kuwait Reinsurance Company 1% Bahrain Kuwait Insurance 2% Al-Ahleia 4% Gulf Insurance Company 5% -70% -60% -50% -40% -30% -20% -10% 0% 10% All the conventional companies except Kuwait Insurance Company saw their net premiums grow, with the highest growth being seen in Warba Insurance Company and Gulf Insurance Company (5.5% and 5.37% respectively). The net premium for Kuwait Insurance declined by 2.41%. As stated earlier, even though both Wethaq and First Takaful Company have shown negative movements in their net premiums (61.55% and 30.76% respectively), their contribution does not have any significant effect on the market. Overall, the insurance industry experienced an increase of 3% in the net premium. 14  Insurance Industry 2020 – Kuwait Retention Ratios 2020 2019 First Takaful Company 68% 59% Wethaq Takaful Insurance 29% 51% Warba Insurance Company 52% 51% Kuwait Insurance Company 43% 44% Kuwait Reinsurance Company 89% 88% Bahrain Kuwait Insurance 40% 41% Al-Ahleia Insurance Company 74% 73% Gulf Insurance Company 43% 46% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% On average, the retention ratio for the industry in the year 2020 is 51%. Kuwait Reinsurance Company has retained most of its business in 2019 and 2020 (88% and 89% respectively), followed by Al-Ahleia Insurance Company, 73% in 2019 and 74% in 2020. The retention ratio increased by 9% for the First Takaful Company, while Wethaq Takaful Insurance experienced a decrease of 22% in its retention ratio. The conventional companies did not experience a major change in their retention ratios. 15  Insurance Industry 2020 – Kuwait Net Earned Premium (KD 000’S) 2019 2020 200,000 180,000 160,000 140,000 120,000 100,000 80,000 60,000 40,000 20,000 - Gulf Insurance Company Al-Ahleia Insurance Bahrain Kuwait Insurance Kuwait Reinsurance Kuwait Insurance Warba Insurance Wethaq Takaful Insurance First Takaful Company Company Company Company Company Net earned premium was the highest for Gulf Insurance Company (181 million in 2019 and 187 million in 2020), followed by Al Ahleia Insurance Company (66 million in 2019 and 73 million in 2020), while the lowest net earned premium was for Wethaq Takaful Insurance of about 1.6 million in the year 2020. Moreover, it can be seen that net earned premium increased for all the conventional insurance companies while net earned premium decreased for the Takaful companies. 16  Insurance Industry 2020 – Kuwait Net Incurred Claims (KD 000’S) 2019 2020 140,000 120,000 100,000 80,000 60,000 40,000 20,000 - GULF INSURANCE AL-AHLEIA BAHRAIN KUWAIT KUWAIT KUWAIT INSURANCE WARBA INSURANCE WETHAQ TAKAFUL FIRST TAKAFUL COMPANY INSURANCE INSURANCE REINSURANCE COMPANY COMPANY INSURANCE COMPANY COMPANY COMPANY Gulf Insurance Company had the highest net incurred claims of 129 million in 2019 and 2020. There was no significant change in net incurred claims for all six conventional companies, however, the net incurred claims decreased by 62% and 45% for Wethaq Takaful Insurance and First Takaful Insurance, respectively. 17  Insurance Industry 2020 – Kuwait Loss Ratios 2020 2019 47% First Takaful Company 56% 119% Wethaq Takaful Insurance 188% 57% Warba Insurance Company 66% 50% Kuwait Insurance Company 59% Kuwait Reinsurance 70% Company 68% 69% Bahrain Kuwait Insurance 74% Al-Ahleia Insurance 67% Company 75% 69% Gulf Insurance Company 71% 0% 20% 40% 60% 80% 100% 120% 140% 160% 180% 200% In 2019 and 2020, the highest loss ratio was for Wethaq Takaful Insurance (188% and 119% respectively), and the lowest was for First Takaful Company (56% and 47% respectively). All the companies, except for Kuwait Reinsurance Company, have shown an improvement in their loss ratios. Although Wethaq Takaful Insurance was able to reduce its loss ratio by 69%, it still has a loss ratio of more than 100%, while all the other companies have a loss ratio below 100%. 18  Insurance Industry 2020 – Kuwait Expense Ratio 2020 2019 First Takaful Company 92% 50% Wethaq Takaful Insurance 26% -24% Warba Insurance Company 32% 26% Kuwait Insurance Company -15% -16% Kuwait Reinsurance Company 19% 21% Bahrain Kuwait Insurance 19% 17% Al-Ahleia 15% 9% Gulf Insurance Company 19% 19% -40% -20% 0% 20% 40% 60% 80% 100% In 2019, where all companies had shown positive expense ratio, the expense ratio of Wethaq Takaful and Kuwait Insurance Company was in the opposite direction. In 2020, the highest expense ratio was incurred by First Takaful Insurance (92%), while the lowest expense ratio was for Kuwait Insurance Company (-15%). There was no change in the expense ratio of Gulf Insurance Company. Expense ratio increased for all the companies except Kuwait Reinsurance Company, with Wethaq Takaful Insurance experiencing a significant increase of 50% in its expense ratio. 19  Insurance Industry 2020 – Kuwait Combined Ratios 2020 2019 139% First Takaful Company 106% 146% Wethaq Takaful Insurance 164% 89% Warba Insurance Company 92% Kuwait Insurance 35% Company 43% Kuwait Reinsurance 89% Company 89% 87% Bahrain Kuwait Insurance 90% 82% Al-Ahleia 83% 87% Gulf Insurance Company 90% 0% 20% 40% 60% 80% 100% 120% 140% 160% 180% The highest combined ratio for 2019 and 2020 was for Wethaq Takaful (164% and 146% respectively), the lowest for 2019 and 2020 belongs to Kuwait Insurance Company (43% and 35%). Except for First Takaful Company and Kuwait Reinsurance Company, combined ratios for all the companies declined. Although Wethaq Takaful Insurance was able to improve its position by decreasing its combined ratio by 18%, the ratio is still greater than 100%. The combined ratio for Gulf decreased from 90% to 87% in 2020. 20  Insurance Industry 2020 – Kuwait Net Profit/(Loss) (After Tax) (KD 000’S) 2019 2020 25,000 20,000 15,000 10,000 5,000 - (5,000) (10,000) GULF INSURANCE AL-AHLEIA BAHRAIN KUWAIT KUWAIT KUWAIT INSURANCE WARBA INSURANCE WETHAQ TAKAFUL FIRST TAKAFUL COMPANY INSURANCE REINSURANCE COMPANY COMPANY INSURANCE COMPANY COMPANY In 2020, all six conventional companies have shown an increase in their Net Profit, with Gulf Insurance Company earning the highest profit of 20.094 million. Both Wethaq and First Takaful Company have shown negative net earnings in the year 2020. The highest net loss was for Wethaq Takaful Insurance in 2019, but in 2020, First Takaful Insurance had the highest net loss. 21  Insurance Industry 2020 – Kuwait Net Profit/(Loss) (After Tax) - Movement First Takaful Company -777% Wethaq Takaful Insurance -1567% Warba Insurance Company 60% Kuwait Insurance Company 10% Kuwait Reinsurance Company 11% Bahrain Kuwait Insurance 39% Al-Ahleia 22% Gulf Insurance Company 31% -1650% -1450% -1250% -1050% -850% -650% -450% -250% -50% 150% The highest movement in the net profit is of the Wethaq Takaful Insurance, which was experienced a further increase in its net loss by about 15.67 times. First, Takaful Company experienced a decrease in its net profit by about 7.77 times. All other companies have managed to increase their net profit for the year 2020 when compared with 2019, with the highest increase being 60%. for Warba Insurance Company. 22  Insurance Industry 2020 – Kuwait Asset Classification - Aggregate Cash and cash equivalents 8% Other Assets 39% Investments 39% Receivables, net 14% Investments constitute about 39% of the total assets, while Net Receivables constitute about 14% and Other Assets constitute about 39%of the total assets. 23  Insurance Industry 2020 – Kuwait Liability and Equity Classification - Aggregate Total Equity, 28% Total Liabilities, 72% Total liabilities Total Equity About 72% of the assets are financed by liabilities, and about 28% are financed by equity. 24  Insurance Industry 2020 – Kuwait Return on Equity (ROE) 2019 2020 40% 14% 11% 11% 11% 20% 10% 9% 9% 9% 9% 8% 7% 5% 3% 0% -1% -11% -20% -40% -60% -71% -80% -100% GULF INSURANCE AL-AHLEIA BAHRAIN KUWAIT KUWAIT KUWAIT INSURANCE WARBA INSURANCE WETHAQ TAKAFUL FIRST TAKAFUL COMPANY INSURANCE REINSURANCE COMPANY COMPANY INSURANCE COMPANY COMPANY The Return on Equity ratio essentially measures the rate of return that the owners of common stock of a company receive on their shareholdings. Return on Equity signifies how good the company is in generating returns on the investment it received from its shareholders. Return on Equity for Kuwait Reinsurance remained constant at 9%. Except for First Takaful, Wethaq Takaful and Kuwait Reinsurance, all companies have been able to utilize their equity better in 2020. Wethaq Takaful Insurance experienced a further decline of 10% in its Return on Equity. 25  Insurance Industry 2020 – Kuwait Return on Assets (ROA) 2019 2020 20% 10% 6% 6% 5% 4% 3% 3% 3% 3% 2% 2% 2% 1% 1% 0% -1% -10% -11% -20% -30% -40% -40% -50% -60% GULF INSURANCE AL-AHLEIA BAHRAIN KUWAIT KUWAIT KUWAIT INSURANCE WARBA INSURANCE WETHAQ TAKAFUL FIRST TAKAFUL COMPANY INSURANCE REINSURANCE COMPANY COMPANY INSURANCE COMPANY COMPANY Return on Assets (ROA) is an indicator of how profitable a company is relative to its total assets. Comparing profits to revenue is a useful operational metric but comparing them to the resources a company used to earn them cuts to the very feasibility of that company's existence. Return on Assets for all eight companies was under 10% for the years 2019 and 2020. ROA increased for all the companies except First Takaful Insurance and Wethaq Takaful Insurance. 26  Meet the Team Zeeshan Ali ASA, AIA, APSA, Zaid Muzammil Muhammad Umar Kashmayen Manager Senior Consultant Senior Actuarial Analyst Actuarial Analyst Syed Ibrahim Hassan Jafary Actuarial Analyst 27  Insurance Industry 2020 – Kuwait Feedback About Us SHMA Consulting is proud to present Insurance Industry Analysis – SHMA Consulting has been providing actuarial services to KUWAIT for the Year-End 2020. We have a dedicated and talented insurance companies since 1990 and to companies in the GCC pool of individuals to bring you industry insights in the form of this (starting with the UAE) since early 1997. report. We welcome your feedback on the analysis presented in this report. [email protected] https://www.linkedin.com/company/shma-consulting/ P.O. Box 340505, Dubai, UAE. www.shmaconsulting.com +971 56 183 1095, +971 52 831 4612 28