Compulsory lines are the only ones growing in the Middle East, causing commoditisation of products

Farid Chedid

The Middle East’s reinsurance market faces serious challenges in the next few years, headlined by shrinking lines of business, product commoditisation, broader economic problems affecting the region, and unproven reinsurers replacing trusted partners.

That was the message from Farid Chedid (pictured), the chairman and CEO of Lebanese reinsurance broker Chedid Re, speaking to GR for this year’s Dubai World Insurance Congress (DWIC) event.

“Reinsurance in the region is facing challenges, because growth is only coming from compulsory lines of business, and competition on price for those lines is shrinking the margins of insurance companies.”

This is particularly true for mandatory medical insurance business, he points out. This standard product makes for little or no differentiation in product or service provided; the only differential is price.

“And when you look at it from a reinsurance perspective, there is the problem of less and less demand for standardised products, because the cedants don’t need reinsurance support for compulsory lines of business except for the transfer of volatility,” said Chedid.

Lines such as property and engineering have suffered from inadequate pricing and excessive capacity, leading to much lower profitability. Casualty lines, too, have seen prices dropping, leading Chedid to expect them to be loss making or break-even at best.

“Many of the reinsurers that know the region well, seen as credible and demonstrating willingness to pay claims over the past decade, are increasingly either reducing their exposure or repositioning themselves in the region. They are being replaced by untested reinsurers, that have never been involved in the region and not paid claims in the region in the past,” Chedid warned.

“The counterparty risk for local carriers will be huge. The challenge is not whether they have a good rating; it is not their ability to pay claims; the question is their willingness to pay claims,” he added.

The sector’s challenges come within the broader context of the Middle East’s political and economic conditions.

“The economic situation in the region is primarily due to the price of oil, leading to less private investment across the region,” Chedid said. “Tremendous effort is being exerted by each government to push for reforms and capital expenditures to improve infrastructure, in the hope it will improve the economic situation and beside their huge effort to establish the best corporate governance strategies.”

Despite these efforts, there is a certain shortage of new business generating risks to transfer across the region, Chedid explains. “Governments in the Gulf, including in the UAE, are doing all they can, pushing for infrastructure projects but it is not enough, because of the lack of private investment,” he said.

Governments are also working to improve regulation and risk management standards among insurers. “They are doing their utmost to improve the standard of regulation, introducing risk-based regulatory regimes and improving solvency of the region’s insurers,” said Chedid.

“This industry has shown itself to be very resilient. It is solvent, liquid, making money and properly managed, despite the challenges. The quality of talent is improving, and the regulators are improving standards, so these things are all positive, despite the difficulties,” he added.

DWIC coming up

GR is gearing up for the Dubai World Insurance Congress (DWIC) 2019, to be held 27-28 February, co-hosted with the Dubai International Financial Centre.

Expect more Middle East online content between now and then, and more web content and print dailies published live at DWIC. 

Click here to find out more about DWIC, and to register yourself for the event.