The Middle East and North Africa (MENA) region remains attractive as a source of re/insurance expansion due to continued liberalisation opening up further market opportunities, as well as the benefits of diversification options, with less natural catastrophe exposures than more established markets, according to A.M. Best.
Natural catastrophe events exposure is benign compared to more mature insurance markets, enabling reinsurers to establish geographically diverse underwriting portfolios without encountering the same levels of earnings volatility driven by natural catastrophe exposures.
A.M. Best said this is especially seen in the GCC countries of Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the UAE.
International players are drawn to the MENA markets as both regional and international reinsurers seek out less catastrophe-prone business to complement their existing portfolios.
The majority of markets have opened up with few restrictions on reinsurance operations, with the exceptions of some countries, Algeria & Morocco, aiming to retain business within their local markets through mandatory cessions.
International players have been further encouraged in the expansion of their regional presence, by the establishment of the Dubai International Financial Centre (DIFC) as a major reinsurance underwriting hub in the Middle East and some wider territories such as Africa and Asia.
However, the region is no exception to the challenges facing the global reinsurance market, and has seen a continual influx of capacity competing for the limited availability of premiums ceded by primary insurers participating in facultative risks.
This is compounded by regional dynamics creating their own set of challenges and complications, such as the fall in global crude oil prices affecting regional investment in energy, infrastructure, and industrial development projects – which impacts demand for reinsurance.
In addition, A.M. Best said, there’s been an increased frequency of medium-to-large losses, particularly from property, engineering, and energy risks.
A.M. Best warned that a prolonged period of low hydrocarbon prices could materially impact re/insurers as “over the last decade, significant growth in gross premium revenues has stemmed from an increase in insurable risk, particularly for property, engineering, and construction lines.”
Other challenges facing the sector include “elevated levels of political instability and social unrest unsettling the region; currency and in ationary risks in the wider (non-GCC) economies; and weak risk management and mitigation practices across many industries, which impact the quality of assumed risks.”
International reinsurers in the MENA region have taken the role of supporting the emerging markets by providing capacity for large-scale commercial and industrial risks, as primary insurers and regional reinsurers lack sufficient underwriting capacity and balance sheets to retain these large-scale risks within their markets.
Global players also provide technical expertise to assist in the underwriting of sophisticated and high-value risks, enabling the market to develop and expand further.
Despite the challenges facing the region, the benefits of operating in the MENA region and the potential for expansion and diversification offered, mean these markets will continue to be highly sought after by global players, particularly due to their less protectionist policies when compared with the booming China market.
