Global Review: Israel - How to harvest Israel's peace dividend.

(From Reinsurance)

The recent Israeli withdrawal from Gaza - and the wider disengagement plan of which it is part - represents a major shift in the political landscape of the Middle East.

On the Israeli side, the cautious optimism about the peace process is underlined by relative economic and political stability following the turmoil in 2002 and 2003. The GNP, for instance, increased by 4.3% (2003 by 1.2%) in 2004, and the strengthening of the exchange rate of the new Israeli shekel (NIS) compared to the US dollar enabled the Bank of Israel to lower the interest rate by one-and-a-half percentage points in 2004.

Israeli insurers have reported strong results in 2004 relative to previous years, mainly because the phenomenal recovery in the Israeli stock market has boosted their investment income. The local economy is heavily dependent on IT and biotechnology, and the earlier collapse of the high-tech bubble - and, of course, the Palestinian intifada - had a very detrimental impact on stock performance.

Yet even over the last 30 years and more, and in contrast to the insecurity inherent in so many aspects of Israeli society, the Israeli non-life insurance market has remained remarkably stable. It is also fiercely competitive and highly consolidated.

There are five insurance groups that earn around 75% of non-life premiums, and this market share is rising year on year. The top four players are also major players in life insurance. The Migdal Group, for instance - ranked number four in non-life - is the overwhelming leader in life insurance, with a 33% share.

Based on figures produced by the Israel Insurance Association and on information from company financial statements, the total gross non-life insurance premiums amounted to NIS 14.4bn in 2004 ($3.2bn), a 0.8% increase over the previous year.