Insurers in Jordan are riding on the back of an economic boom, albeit modest compared to the Gulf states, and regulators are nurturing premium growth via a strict application of the rulebook, as David Banks discovers.

Often eclipsed by the Arabian Gulf, Jordan’s economic growth has a different character to the astronomic rise of its oil-rich neighbours. In the absence of petrodollars and excess liquidity, Jordan is playing its economic game strictly by the book: focusing on growth from the grassroots, investing in education and leveraging the country’s status as a gateway between East and West.

A patchwork of new economic zones in the cities of Aqaba, Irbid and Mafraq typify Jordan’s cautious and organic approach, but nowhere is this seen more clearly than the insurance sector. Although it is one of the smallest insurance markets in the region, it is one of the most effectively regulated. The local supervisor, the Jordan Insurance Commission, has led a number of changes to enhance capital and

promote the skills base, while also protecting the sector from the rigours of foreign competition. Since its inception in 1999, the commission has stood out as an example of good practice in the Middle East, with its regulations cribbed wholesale by insurance supervisors in other parts of the Arab world. Its

success as a regulator arguably outstrips Jordan’s economic profile, as proven by the fact that insurance penetration has reached 2.7% in 2008, much higher than rich neighbours Saudi Arabia and the United Arab Emirates. The next step for insurers and regulators is to place Amman in contention as another insurance and financial hub, as Jordan Insurance Commission director general Dr Bassel Hindawi has stated.

Stringent capital requirements have been a focus for the commission and a series of other major regulations are expected to affect the sector. These include the raising of the minimum required capital for existing companies from 2m to 4m Jordanian dinar, and a required capital of JD8m for new entrants to the market. The raising of the capital requirement has deterred smaller companies from entering the market, and will help consolidate the sector. The insurance industry is also having to face the following regulatory changes: specifying the reserves that insurance companies are required to maintain; tighter rules on accounting and asset

valuation; rules on risk-based capital and solvency margin; greater regulation of reinsurance; requirements for separate subsidiaries for general and life segments; increasing the minimum paid up capital for existing companies at JD4m, and setting a minimum of JD8m for new companies, and JD100m for reinsurance companies.

While Jordan’s insurance market has become a good example of a regulation-led growth market, it is not all good news. A major concern has been profit development as a result of investment losses. In 2007, the market leader reported the most negative profit development by percent for a listed company in the country, according to business analysts at UAE-based Zawya.

In the highly fragmented Jordanian market, there are 28 licensed insurers, nearly all of which are publicly listed. Jordanian registered companies dealing in both insurance and reinsurance in Jordan include: Jordan International Insurance, Middle East Insurance and Al Nisr Al Arabi Insurance, which is more than 50% owned by the Arab Bank.

“The future development potential of the insurance sector will be influenced by a number of factors, which include growth of GDP, privatisation of medical insurance, the evolution of Takaful, and further reforms in insurance legislation,” says Tanya Khammash, head of research at ABC Investments.


A nation of 6m people, The Jordanian population has grown by more nearly 20% in just the last six years, partly due to more than one million Iraqi migrants fleeing the Iraq war, whose wealth is said to have provided a boost to Amman’s economy. 60% of the population under 25 and King Abdullah II has focused on education as a key driver of economic growth. The population is expected to reach approximately 7.5 million by the year 2015.

Jordan has a heritage as a crossroads between East and West, and is emerging as a more significant player in the Middle East, taking a more central role politically and economically. The government’s investment in new economic zones is expected to partially offset any investment problems associated with the global economic slowdown in the long term. GDP growth is predicted to be 4.5% in 2009-2010, lower than the 5.4% expected from 2008. Inflation in Jordan peaked in the first three quarters of 2008, but is forecast to slow from about 16.1% in 2008 to 5% in 2009, according to the Economist Intelligence Unit.

Although GDP growth has slowed since 2005, other indicators remain promising, such as financial services which has remained relatively level at 5.1% growth and the construction sector, which has increased year-on-year and continues at 11.1%. Meanwhile, other growing sectors are water and

electricity (9.2%) and manufacturing (10.6%), boosted by export demand from Iraq.

Economic expansion has focused on Amman and three economic zones in the port city of Aqaba in the south as well as Irdib and Mafraq in the north.

The economic zones are largely funded by the government, but King Abdullah II has also developed favourable tax laws for investors willing to venture out of Amman.

The first economic zone in Aqaba has already surpassed its 2020 targets after just eight years of operations as an industrial, tourism and logistics centre. Mafraq has concentrated on exports following its launch in May 2007.

A third special economic zone is being built in Irbid close to the existing Jordan University of Science and Technology (JUST). The zone is expected to bring new investment in IT and health, drawing from the expertise found at JUST. King Abdullah has also turned his attention to sector-specific developments, calling for new strategies to maximise and modernise the country’s IT and 0agricultural sectors.

David Banks is Deputy Editor of Global Reinsurance.

Business lines - reliance on reinsurance

• International reinsurers had the greatest input into fire, marine and other general accident insurance lines in 2006, which accounted for just over 30% of national premium and were are also highly profitable.
• International reinsurers are also called upon to play a major role in coverage of larger industrial
and commercial risks.
• Aviation and fire insurance both have reinsurance ratios in excess of 90%.
• In contrast, risks related to medical and life insurance tend to be carried by the local insurance companies,
with reinsurance ratios of just 14.5% and 27.4% respectively.
• According to the ABC Investments annual insurance report, life insurance has been one of the most profitable, despite its low penetration.
• Motor is by far the largest segment, claiming nearly half of all premiums in 2006. It was also relatively
unprofitable, as it also accounted for 59% of claims paid.
• While profits were only JD77.44m in 2005, profit growth rates were 91% and 133% in 2004 and 2005 –
however, much of this was attributed to investment gains in those years.