According to the 2014 edition of the MENA Reinsurance Barometer published 14 September 2014, the Middle Eastern and North African reinsurance markets continue to benefit from the region’s robust economic expansion. Growing insurance premiums and a relatively low exposure to natural perils are the main attractions, which drive the unabated increase in reinsurance capacity. The survey, issued on an annual basis by the Qatar Financial Centre (QFC) Authority, also found that fierce competition, intense pricing pressure and higher risk retentions by ceding companies weigh on the sector’s growth prospects.
This year’s Barometer is based on in-depth interviews with senior executives from 34 international and regional reinsurance companies and intermediaries operating in the region. As in 2013, the survey participants consider the region’s robust GDP and insurance market growth as the foremost relevant strength of the reinsurance marketplace. Since 2008 the region’s economies grew at an inflation-adjusted rate of 4.0% per annum, well above the global average of 2.9%. A strong pipeline of infrastructure and construction projects and a relatively low natural catastrophe exposure further contribute to the region’s attractiveness.
However, the MENA reinsurance markets are characterized by excess capacity, which translates into fierce competition and unsustainable levels of pricing. Deficiencies in regulation, such as insufficient minimum capital requirements, but also low levels of risk retention by ceding companies are perceived as key obstacles towards a sound and sustainable premium growth.
Still, opportunities are abound. The region’s low insurance penetration with total premiums accounting for just 1.4% of GDP, a mere fifth of the global average, is seen as a major long-term and structural driver of insurance and reinsurance market growth. A young and rapidly growing population, fuelling demand for medical, motor and life insurance and promoting the development of new insurance products add to the markets’ growth potential.
Political instability weighs heavily on the prospects of the MENA reinsurance markets. Furthermore, the unabated influx of new capacity in search for instant diversification benefits fuels excess reinsurance supply and contributes to an ongoing erosion of market discipline.
Notwithstanding the strong long-term fundamentals, current political uncertainties and highly competitive trading conditions dampen reinsurers’ business sentiment, according to the executives polled. On a scale from -5 to +5 (very bearish to very bullish) current sentiment declined to 0.4, down from 1.2 a year earlier. It is expected to improve slightly to 0.7 by summer 2015 as many executives cherish the hope that prices have hit bottom and that the political turmoil will recede.
Shashank Srivastava, Chief Executive Officer and Board Member of the QFC Authority commented: “Due to its compelling fundamentals the MENA region remains an attractive destination for global reinsurers. The sector continues to benefit from above average economic and premium growth rates, a sizable insurance gap and a young and growing population of increasing affluence. As a leading business and financial centre, the QFC Authority will continue to support growth across a range of sectors in Qatar and the region by offering world-class business infrastructure and enhancing market transparency through thought-leading reports like this one.”
A copy of the report can be downloaded below:
Qatar Financial Centre Authority