The insurance markets in the MENA region are facing a number of wide-ranging challenges after years of robust growth, says a new note from AM Best.
The firm said in its newest Best’s Market Segment Report that the lingering effects of the Covid-19 pandemic, the global economic slowdown, and a drop in demand for oil and gas were stemming the region’s growth for the first time in years.
It wrote: “As economies emerged from pandemic restrictions through 2021, there was a significant increase in the demand for oil and gas, surpassing pre-pandemic levels. Then, following the sanctions imposed on Russia in the wake of its invasion of Ukraine in March 2022, the price of fossil fuels climbed to levels not seen before.”
The firm also said that investment concentrations and high asset risk profiles were common in the area.
It added: “Nearly half of AM Best-rated MENA insurers held 40% or more of their investment portfolios in equity and real estate investments over the five-year period to 2021, with instances of companies holding more than 80% of their total investments in these higher risk asset classes. Additionally, in part due to regulatory constraints on the movement of capital and the limited availability of investment opportunities in some countries, insurers tend to have significant exposure to single issuers, contributing to their concentration risk.”
It went on: “The relative illiquidity of some of these investments, coupled with generally high debtor balances across the region, further increases risk profiles in terms of liquidity and capital management, and highlights deficiencies in managing these risks. While most AM-Best rated entities in the region are well capitalised according to AM Best’s proprietary Best’s Capital Adequacy Ratio (BCAR), many insurers remain unsophisticated when it comes to managing capital.”
