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Re/insurers in Middle East see drop in credit ratings: A.M. Best

8th February 2017 - Author: Staff Writer

Reinsurers and insurers in the Middle East have seen a slight drop in credit ratings, largely due to lower market demand brought on by a sluggish economy, according to A.M. Best’s 2016 performance report.

“Commercial activity is highly correlated to oil demand and the recent period of low energy prices has depressed gross domestic product (GDP) development and consequently investment and construction across the region,” A.M. Best explained.

Although the agency reported insurers and reinsurers in the region enjoyed strong balance sheets, it said these were overshadowed by “pockets of political instability” and fiscal budget pressures which are likely to “continue to result in reduced government expenditure and negative pressures in terms of business volumes.”

But re/insurers appear able to withstand market pressures, and boast strong capitalisation levels, which are driven in part by stringent regional industry regulation.

“In particular, the pro stability of (re)insurers in Saudi Arabia and the United Arab Emirates (UAE) are being affected as regulators are enforcing regular actuarial reserving requirements and pricing reviews,” A.M. Best commented.

Some Middle Eastern insurance market regulators have also set minimum capital levels and risk-based solvency requirements.

These stringent regulations may create some difficulties for carriers in the short-term, but A.M. Best believes in the long-term this pressure on capital will be good for credit quality.

And according to the report, strong capitalisation for re/insurers in the Middle East could help the industry survive the tough days that appear to be looming ahead with low oil prices increasingly impacting the economy.

Another factor A.M. Best named as affecting credit ratings, is levels of Enterprise Risk Management (ERM) that fall below those of re/insurers’ counterparts in more developed markets.

Although the rating agency did report that some companies in the Middle East are now working to improve their focus on ERM practices – so in the long-run, this is expected to become visible as a positive in the industries’ credit ratings.

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