BMI View: Israel's insurance market is one of the most well developed in the region, with a high density (premiums per capita) and solid growth indicating a positive outlook for the industry moving forward . Currency fluctuations do mean that over the short term we expect to see a decline in both life and non-life premiums in US dollar terms, though in local currency terms both sectors will continue to record steady single digit growth throughout the forecast period through to 2019.
We hold a bullish view for the Israeli insurance market as a whole, largely due to the rising wealth in the Israeli market. We expect to see a steady rate of growth throughout the forecast period to 2019 with higher demand for life insurance ensuring demand for premiums remains strong. The strong growth of the overall economy will see life insurance penetration remaining consistent at around 2.6% of GDP and this will see per capita life insurance premiums pass USD1,228 in 2019.
However, the fortunes of the two major segments, life and non-life insurance, diverge. The larger life segment will grow a little more rapidly than the overall economy, thanks to successful development and distribution of new products by the leading insurance companies. The non-life segment will grow a little more slowly than the overall economy. This is mainly due to downwards pressure on prices, thanks in part to government policies to promote competition. As such non-life penetration will decline slightly from 1.3% in 2015 to 1.2% in 2019 - also a reflection of wider economic growth in Israel.
Private expenditure in Israel, a key indicator of potential spending on a range of insurance products, will be bolstered by a number of positive factors, including subdued inflation, low unemployment and expansionary fiscal and monetary policy, with tax cuts and public sector wage hikes boosting expenditure. This will drive the growth of the life sector which, combined with a rise in life-spans, will see consumers more concerned about saving for the future.
Rising wealth in Israel will also see greater demand non-life products for motor vehicle insurance, as greater disposable income leads more consumers to purchase new cars (which attract higher premiums), and personal accident insurance, as overall healthcare expenditure rises. Overall however Israel's non life insurance segment will remain small even up to 2019 due to the lack of affordability and competition in the sector. Although motor insurance is expected grow in value over the coming five years, its share as a percentage of non-life premiums will fall from 44.6% in 2015 to 42% in 2019 as the share of personal accident insurance grows rapidly from 5.2% in 2015 to 6.2% in 2019.
Despite growth in the life and non-life sectors, low interest rates mean that investment earning opportunities for Israeli investors remain limited. Life insurers may be particularly exposed as the value of existing debts will not be offset by high-return opportunities. In addition, we expect new rules governing health insurance in the country to curb growth in private health insurance premiums, though this sub-sector is still forecast to grow at a faster rate than other non-life segments across the forecast period. While there have been some movements regarding the sale of leading Israeli insurance, in general the market place is highly consolidated and opportunities for new entrants is extremely limited.
Government reforms to private health insurance regulations have been delayed and will now be implemented from October 2015 and February 2016 (instead of June 2015).
Following the block of the sale of Clal Insurance to a Chinese firm, majority shareholders IDB Holdings have confirmed in May 2015 that they have instructed Citi and Aon Benfield Securities to handle the sale of the company (which was granted a year's sales extension in December 2014).
The Chinese investment firm Fosun has reportedly secured a 5% discount in its purchase of a share of Israel insurance firm The Phoenix from the Delek Group - Fosun and Delek had agreed a purchase price of ILS3.7bn in January 2015 for 42% of shares in The Phoenix. The sale has yet to secure approval from the Supervisor of Insurance and Capital Markets.
Key BMI Forecasts:
Gross life premiums written are forecast to decline by 4.2% to USD7.4bn.
Gross non-life premiums will decrease by 6.1% to USD5.3bn.
Within this sub-total, motor insurance premiums are expected to decrease by 5.9% to USD2,362mn.
Health insurance premiums will also decline by 8% to USD1,021mn.