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MENA reinsurance markets are expected to harden as rates rise
According to the 2016 MENA Reinsurance Barometer, the MENA reinsurance markets are expected to harden over the next 12 months. For the first time since the launch of the annual survey in 2013 a majority of executives polled believes that average reinsurance rates in the region will increase. This turnaround in expectations is the result of a series of major insured losses which affected the region over the course of the past 12 months and the subsequent retrenchment of some leading market participants.
“Robust insurance sector growth, primarily driven by compulsory schemes, is the most relevant strength of the MENA reinsurance marketplace,” says Yousef Mohamed Al-Jaida, Chief Executive Officer and Board Member of the Qatar Financial Centre (QFC). “Going forward, reinsurers will play an important role in supporting economic diversification strategies across the region as governments are keen to reduce their dependence on hydrocarbon revenues. This transformation is set to result in a significantly more diverse and sophisticated risk landscape which presents major opportunities to insurers and reinsurers.”
The MENA region is an attractive high-growth, low-catastrophe (except for Algeria, Iran and Turkey) market, with positive effects on the diversification of risk portfolios of global reinsurers. However, many reinsurers operating in the region have recently suffered significant losses, especially in the property line of business, and view current pricing levels as technically insufficient. 52% of executives polled therefore believe that average reinsurance rates in the region will increase, markedly up from 19% last year. Reinsurance terms and conditions are also expected to tighten, by 62% of executives, up from 29% in 2015. Higher rates and tighter conditions (higher deductibles, for example) are bound to translate into an improved profitability, as expected by 52% of executives polled, a massive increase from last year’s 19%.
Retention ratios, i.e. the share of risk which insurers retain on their own balance-sheet, are also expected to increase. On average, domestic insurers in the MENA region cede 29% of their premium income to reinsurers, almost 4 times the global average. This strong reliance on reinsurance is expected to decrease: Following the most recent spate of major loss events, reinsurers have stepped up their pressure on cedants to keep more ‘skin in the game’, on top of similar requirements from regulators and rating agencies.
In addition, the likelihood that reinsurance capacity deployed in the MENA region will expand further has reduced sharply to 52%, compared with 91% last year, suggesting that the long-standing oversupply of reinsurance in the region might ease.
A copy of the report can be downloaded at:
http://www.qfc.qa/en/Documents/Research%20and%20Insights/MENA%20REINSURANCE%20BAROMETER%202016.pdf
About the MENA Reinsurance Barometer
The 2016 MENA Reinsurance Barometer is based on in-depth interviews with senior executives of 29 regional and international reinsurance companies and intermediaries operating in the MENA region. Dr. Schanz, Alms & Company AG, the Zurich-based consultancy, conducted and wrote the survey. Now in its fourth year, the MENA Reinsurance Barometer provides a unique overview of the current state and near-term prospects of a market which generates an estimated US$ 13 billion in total non-life reinsurance premiums, approximately 7% of the world’s total. The report also offers an updated summary of key regional (re)insurance market data.
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