Two years in the planning, Bahrain hopes its insurance regulation will help the country maintain its reputation as market leader for the region, reports Shirish Nadkarni

Bahrain's position in the Arabian Gulf as the leading financial centre of the Middle East, and Dubai's burning ambition to usurp that pre-eminent spot, make comparisons between the two almost inevitable.

However, Anwar Al-Sadah, executive director in charge of Financial Institutions' Supervision at the Bahrain Monetary Agency (BMA), puts it into perspective, saying, "We have our own especial vision for the insurance arena, in that we are very keen to build a proper infrastructure, human resources and regulations.

"We think we have the best regulatory framework in the region, since it took us two years to discover the nuts and bolts of all aspects of the sector, such as solvency margins, corporate governance, risk management and vetting of the board and management of insurers."

While the BMA, the country's central bank and insurance regulator, was established in 1973, shortly after Bahrain gained independence from the UK, it only became the watchdog of the entire financial sector in July 2002.

A modification was required to its original mandate of implementing monetary policy, supervising and regulating the banking sector, and acting as the government's fiscal agent. But there has been no change to its original responsibility of encouraging the growth of Bahrain as a major international financial centre.

A fixed exchange rate against the US dollar since 1980 has provided Bahrain with a high degree of economic and price stability, while encouraging the growth of the economy. The fixed exchange rate remains the cornerstone of Bahrain's macroeconomic management strategy.

International relationships

Over the years, the BMA has established a close working relationship with international institutions active in financial sector supervision and regulations as well as in developing good corporate governance practices.

"These relationships have allowed the BMA to develop a world-class regulatory system that ensures that Bahrain's financial institutions operate on equal standard to those in place in major international financial centres," says Mr Al-Sadah.

The supervision and regulation of the insurance sector and the capital markets fall under the responsibility of the BMA, which is following the same strategy with these sectors as that in the banking sector - working closely with international organisations to ensure that regulatory standards meet top international requirements.

So far as the insurance industry itself is concerned, its beginnings in 1950 were modest, with the establishment of an insurance agency after the UK's Norwich Union Fire Insurance Society appointed Yusuf bin Ahmed Kanoo to be its "sole and principle agents for the Bahrain Islands".

Continued growth

In the 1970s, following the rise in world oil prices and as Bahrain developed as the financial centre for the region, a number of new insurance companies were formed, among them the 1969-born Bahrain Insurance Company, now called Bahrain National Insurance Co, following a merger with National Insurance Co; AlAlia Insurance Company(1976) and Bahrain Kuwait Insurance Company (1976).

Today, there are eight national companies and nine branches of foreign insurance companies conducting direct insurance business in Bahrain. While seven branches of foreign insurers transact general insurance, the American Life Insurance Company (ALICO, 1961) and Zurich International Life Ltd (1986) specialise in the life segment.

Thus, over the years, the insurance sector has grown to become a prominent element within the country's financial services sector. It has also witnessed the development of an offshore insurance industry, primarily serving Saudi Arabia. The number of offshore insurance companies incorporated in Bahrain grew from just one in 1979 to 83 by the end of 2003.

The first Pan-Arab reinsurance company was established in Bahrain in 1980, when Kuwait, Libya and the United Arab Emirates came together and formed the Arab Insurance Group (ARIG), with an authorised capital of $3bn.

Furthermore, both the Arab War Risks Insurance Syndicate (formed in 1980) and the Afro-Asian Oil and Energy Insurance Syndicate (launched in 1999) have their base in Bahrain.

"Our major mission today is to create the requisite infrastructure to facilitate insurance companies that are keen to operate in Bahrain," says Mr Al-Sadah.

"Basically, the penetration rate of insurance all over the Middle East is very low, basically because of a lack of awareness of the sector. The regulator thus has a dual role to play - enhance public awareness of insurance and regulate the sector.

"Obviously, we cannot approve every product that is submitted to us, so it will be our goal to educate the public so they can evaluate products for themselves. We will also strive to create greater transparency and have more disclosures so that customers can assess products for themselves."

Training mission

The BMA hopes to carry this vision forward by enhancing professionalism in the field, attracting the right calibre people and offering excellent training.

"We are working closely with the Bahrain Institute for Banking and Finance (BIBF) to develop quality training modules, to have professional degrees in insurance, and to work with other top centres like London to develop proper credentials for the industry," says Mr Al-Sadah.

It is significant that the BIBF has already established professional degrees in conjunction with the Insurance Institute of London and has the authority to issue diplomas and certificates that are accepted and recognised worldwide.

"Our next major task is to be a facilitator for the setting up of the Bahrain International Insurance Centre, to be located in the financial harbour coming up," says Mr Al-Sadah. "It will have the best facilities for all segments of insurance."

At the moment, the reinsurance arena in Bahrain includes just ARIG and Labuan Re, but Mr Al-Sadah is confident that the world's top reinsurers will choose Bahrain as their base in the Middle East because of the track record and credibility of the BMA.

For the immediate future, the BMA is relying on the pro-active attitude of its insurance development committee, comprising representatives of BMA and key industry players, which meets frequently.

"We will also be having an international insurance summit in Bahrain on 8 and 9 March, that should throw up some interesting angles on further development," says Mr Al-Sadah. "We are very optimistic about the industry's growth in 2005. We have received a number of fresh applications, and will be making some announcements shortly."