LONDON — Tokio Marine Middle East Ltd, the Dubai-based regional hub of Japanese insurance giant Tokio Marine, plans to launch its new Saudi joint venture which will spearhead its activities in the Kingdom and beyond.
Ajmal Bhatty, President and CEO, Tokio Marine Middle East Limited, confirmed to Saudi Gazette that the Alinma Tokio Marine KSA, the joint venture between Tokio Marine Middle East; Saudi Basic Industries Corporation (SABIC), the world’s largest petrochemicals exporter; Saudi Arabia’s Alinma Bank; and some local smaller investors, will start operations very soon. The new company is capitalized at SR100 million.
“We have been doing business in Saudi Arabia since the 1960s,” said Bhatty. “But because of the new regulations and other developments, every insurance company has to be licensed, capitalized and so on. So we are going through that process right now. The company has recently been quoted, and gone public on Tadawul, and our IPO was very successful, reflecting the market conditions in Saudi Arabia.”
Under Saudi regulations, 20 percent of the shares of Alinma Tokio Marine KSA were offered to the public, and according to Bhatty the IPO was 1,437 percent oversubscribed. In the past Tokio Marine operated in the Kingdom through a sponsorship with a local company.
The core focus of Alinma Tokio Marine KSA initially will be Shariah-compliant general insurance (takaful) — motor, fire and so on; and on the life side the company will offer group business, group life, group credit, group savings, mostly aimed at corporates and institutions and underwritten through bancassurance (bancatakaful) with Alinma Bank, which is one of four Islamic banks operating out of the Kingdom.
Tokio Marine sees this as a natural fit. However, Bhatty agrees that “having a direct sales force is actually the next best thing that you can have. It is not that it has not been done before in Saudi Arabia; there are other companies who have done it and they have been successful as well. But you really have to be at the cutting edge of the training that you give to your sales force, and you get the right mix of people, that can be a very successful way of selling, even in Saudi Arabia. We do have a plan in this respect, but it is something that will happen perhaps in the future.”
Bhatty, a British-trained actuary and one of the most experienced takaful experts of his generation, is aware of the significance of having SABIC as a shareholder.
“Tokio Marine has a long relationship with SABIC. We have done business with the corporation in the Kingdom for a very long time. So it was a natural fit for SABIC to come with us. It is a huge organization with huge needs and corporate activities so it will be something that is good for us to provide them with the support that they need,” said Bhatty.
The Saudi insurance market is projected to grow by 15 percent per annum in terms of the total volume of gross premiums written (GPW) across the sector and this growth is primarily driven by demand from the Kingdom’s young population, especially for motor and medical insurance.
According to a recent S&P report, GPW across the Saudi insurance sector grew from SR5.2 billion in 2005 to SR16.2 billion in 2010 and to an estimated SR18 billion in 2011. GWP comprised 94 percent general insurance (of which group medical insurance accounted for 57 percent and motor insurance for 21 percent) and family (life) insurance accounted for six percent.
According to Sigma/Swiss Re data, GWP in the Kingdom increased from $4.37 billion in 2010 to $4.971 billion in 2011 — an increase of 13.8 percent on the year. Saudi Arabia trailed behind the UAE whose GWP increased from $5.97 billion in 2010 to $6.641 billion in 2011 — an annual increase of 11.2 percent.
The other key driver of insurance in the Kingdom is compulsion through government policy and legislation, such as compulsory health insurance for expatriate workers and motor third party liability insurance (ruksha) for all drivers. Medical insurance, in fact, accounts for 60 percent of the Saudi insurance market, followed by motor insurance, which accounts for 20 percent of the market.
The adoption in July of the Saudi Arabian Mortgage Law by the Council of Ministers will inevitably result in a massive boost for the Saudi insurance market, especially for mortgage takaful.
There are currently 30 locally-incorporated licensed insurance companies and one re-insurance company in the Kingdom, with a further four insurance companies in the process of being licensed, serving a population of some 25 million of which some 20 million are Saudi nationals of which a large percentage is between the ages of 16 and 24, and nine million are foreigners resident in the Kingdom. By the next decade or so the Kingdom’s population is expected to total 45 million.
In 2005 Saudi Arabia introduced the Cooperative Insurance Companies Control Law. This was followed by a Cooperative Insurance Law which is based on the concept of Ta’awuni (mutuality or cooperativeness).
“The cooperative insurance law,” explained Ajmal Bhatty, “is Shariah compliant as SAMA has stipulated, and some of the Shariah scholars also support it, but it’s not necessarily the same as takaful as you know in other countries. There are differences in that. It is basically looking at what is the law, and what is the Shariah compliance. SAMA has no issues with the company having a Shariah board who can then endorse the Takaful and insurance, products. Therefore we will have our own Shariah board. Alinma Bank is very Shariah compliant as an organization, and so we will be as well.”
Insurance penetration in the Kingdom is low. Life insurance is very low and the insurance per GDP is still in the region of one percent or lower. Life insurance per GDP is probably 0.5 percent or less. However, motor and medical insurance, which is now compulsory for everybody, are the two major growth areas and already dominate the insurance market in the Kingdom, with property and industry insurance also developing fast.
Insurance providers recognize that because of the low life insurance penetration, the potential is even bigger than general insurance because of the young demographics of the Kingdom and it is inevitable that the younger generation will be more aware of the need for financial protection and provision for the future for their families.
“I think the introduction of the Saudi mortgage law is a major development for the housing market. I understand that more than 60 percent of households may need new units because of the young demography of the Kingdom. So there is a huge housing market for mortgage finance. And of course that opens up opportunities on the mortgage Takaful side as well. But it has to be handled properly with the right products and processes,” Bhatty said.
He sees potential even for products such as micro-finance with a micro-takaful wrap. Micro-takaful is a product which has social impact. Takaful or Islamic finance is also about social impact, but it’s not that visible. But with micro-finance and micro-takaful, it becomes very visible, because they touch the lives of so many people.
“Micro-takaful can be sold on its own but it works better if there is micro-finance available. Most people actually do have an asset — it may be a machine, it may be livestock — if you give micro-finance to buy or own an asset then you want to protect that asset through micro-takaful. It is also maybe a bit of a myth that you can’t make profit out of micro-takaful.”