15 November 2016 Insurance

Insurers ‘hesitant’ of Iran despite growing need for foreign capacity

International brokers and reinsurers are hesitant to enter Iran’s non-life insurance market, despite the experts seeing vast opportunities in the country following the removal of US and UN sanctions in January, according to Axco Insurance Information Services.

As the largest non-life insurance market in the Middle East, Iran’s non-life market premium income – excluding health business – grew 22.6 percent between 2014 and 2015.

Axco said that before sanctions were imposed, economic development led to above-inflation premium growth between 2010 and 2012, although the effects of international sanctions hindered growth in real terms from 2013 onwards.

The sanctions imposed by the UN Security Council in June 2010 included restricting the provision of underwriting services, insurance and reinsurance aimed at Iran’s nuclear programme.

Further sanctions from the EU were imposed, which resulted in the supply of re/insurance capacity from European and US markets effectively ceasing in 2012.

According to Axco, insurance penetration in the Iranian non-life market is low; in 2014 total market premium was 1.27 percent of gross domestic product (GDP) with only $69 per capita spent on insurance.

By comparison, Israel’s per capita spend on insurance ($690) is 10 times that of Iran’s.

However, at $368 billion in 2013, Iran’s GDP is 27 percent greater than Israel’s, valued at $290 billion in the same year.

For foreigners attempting to enter the market, Axco suggests that they face a number of challenges.

Specifically, US primary economic sanctions remain, precluding US companies from re-entering Iran, with the largest bottleneck in future business with Iran likely to be US banks, according to Axco.

Axco believes there is further uncertainty around whether or how a Trump administration would “tear up” Obama’s 2015 Iranian nuclear agreement.

Axco has also noted a trend towards regulation and privatisation, one which has continued since 2000.

State-owned and private insurers are in direct competition, and private insurers may have a maximum 49 percent foreign shareholding with the correct permissions.

State-owned Bimeh Iran holds the largest market share at just over 40 percent in 2014, and reinsurer Bimeh Markazi has a compulsory cession of 25 percent of non-life business and first refusal on up to 30 percent of all outwards reinsurance.

According to Axco, there are no other restrictions on reinsurance arrangements, although overseas reinsurance capacity was curtailed as a result of recent sanctions.

Axco suggests 16 percent of gross capacity requirements was placed overseas in 2010, compared to 60 percent a few years prior.

Tim Yeates, managing director at Axco, commented: “Iran is attempting to attract foreign business back into its borders, as it stated it will be taking applications for energy projects. However, foreign investment will remain slow if there isn’t the appropriate coverage available for these types of projects. The gap may have to be filled by governments.

“Despite all the challenges Iran has faced over the past few decades, Iran offers huge opportunities, which we see only growing as there is more foreign investment. However, it’s important to understand the risks and challenges that the Iranian market offers.”

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