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Insurers still wary of Iran, as need for foreign capacity grows
01 November 2016
Axco Insurance Information Services (Axco) has released
its latest country report on Iran, highlighting hesitancy from
international brokers and reinsurers, despite the country offering
vast opportunity following the removal of US and UN sanctions in
January this year.
Iran is the largest non-life insurance market in the
Middle East and was the 29th largest market globally in 2014.
Non-life market premium income (excluding health business) grew
22.6% from 2014-15. Indeed, before sanctions were imposed, economic
development led to above-inflation premium growth in 2010-12,
although the effects of international sanctions hindered growth in
real terms from 2013 onwards.
In June 2010 the UN Security Council imposed sanctions,
which included restricting the provision of underwriting services,
insurance and reinsurance aimed at Iran's nuclear programme.
Considerably harsher EU sanctions were also imposed and resulted in
the supply of (re)insurance capacity from European and US markets
effectively ceasing in 2012.
Insurance penetration in the Iranian non-life market is
low: in 2014 total market premium was 1.27% of GDP with only $69
per capita spent on insurance. By contrast, Israel's per capita
spend on insurance ($690) is 10 times that of Iran's. At $368bn in
2013, Iran's GDP is 27% greater than Israel's, valued at $290bn in
the same year.
A myriad of challenges await foreigners attempting to
enter the market. 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. Last week's US
election result has created further uncertainty around whether or
how a Trump administration would "tear up" Obama's 2015 Iranian
Iran is also plagued by high inflation, which in 2013
reached in excess of 39%. But by 2015 this had fallen to 13.7% and
is forecast to fall to 12.5% for 2016.
Since 2000, there has been a trend towards regulation and
privatisation. State owned and private insurers are in direct
competition and private insurers may have a maximum 49% foreign
shareholding with the correct permissions. There are currently two
state owned companies; Bimeh Iran, which held the largest market
share at just over 40% in 2014, and reinsurer Bimeh Markazi, which
enjoys a compulsory cession of 15% of non-life business and first
refusal on up to 30% of all outwards reinsurance.
There are no other restrictions on reinsurance
arrangements, although overseas reinsurance capacity was seriously
curtailed as a result of recent sanctions. It is thought 16% of
gross capacity requirements was placed overseas in 2010, compared
to 60% 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