A MENA Insurance Pulse 2017 survey conducted with senior re/insurance executives operating throughout the Middle East and North Africa, reveals an optimistic outlook within industry circles with 76% of participants expecting insurance premiums to outgrow the regions GDP.
This forecast comes despite increasing geopolitical instability and continued economic slowdown.
The survey is based on in-depth interviews with 40 regional and international industry leaders and supported by the Qatar Financial Centre, AIG, Chedid Re, Oman Insurance Company, Peak Re and Trust Re and was published by business research company Dr. Schanz, Alms & Company.
Survey participants showed high hopes for personal lines business, which has seen higher demand after compulsory insurance requirements expanded, and also benefitted from regulatory action pricing support.
Pricing adequacy in commercial lines, and especially in property business, have also risen after the region saw more frequent fire losses.
Study author and Chairman and Partner at Dr. Schanz, Alms & Company, Dr. Kai-Uwe Schanz, said; “The MENA insurance markets continue to grow faster than the underlying economies.
“According to the insurance executives whom we interviewed, the region’s insurance markets strongly benefit from the continued expansion of compulsory schemes and the most recent momentum towards higher prices.”
But despite these upwards market trends in some re/insurance sectors, executives anticipate challenges ahead from slowing economic growth and fiscal tightening.
The study showed that the region hasn’t seen many mergers and acquisitions, due to comfortable capitalisation of domestic companies and family ownership.
Only one-third of those surveyed expect market concentration to increase over the next 12 months.
According to the study, new risk-based capital requirements mean domestic insurers could start looking to raise the necessary additional capital, therefore it appears a vacuum exists for reinsurance demand in the region.
However, despite this potential for increased reinsurance, the study showed that reinsurers have been insisting that insurers retain more risk.
Reasons for reinsurer’s hesitation to take on risk were not clarified, but a possibility is that this is hindered by the same factors preventing M&As – high levels of family ownership, potential complications, or conflicts of interest.
And with primary insurers retaining more risk, the survey said; “an increasing number of shareholders with limited risk appetite is expected to withdraw from insurance companies.”
These region-specific factors, coupled with geopolitical risk and economic volatility, create a challenging operating environment for re/insurers in the Middle East and North Africa.
However, study author Dr. Kai-Uwe Schanz, pointed to what he sees as the biggest takeaway for the industry in the coming year; low insurance penetration, which, when coupled with increasing compulsory insurance requirements, mean growth and opportunity lie ahead:
“Going forward, the region’s low insurance penetration, defined as premiums as a share of GDP which stand at just a quarter of the global average, is the key growth opportunity offered by the MENA markets.”
And in contrast to highly developed Western markets which face tough competition from high market concentration, the re/insurance industry throughout the Middle East and North Africa region still appears set for growth opportunity as it is driven forwards by a less saturated market canvas.
