Hedi Hachicha, Scor’s chief underwriting officer for property and casualty treaty business in the Middle East and Africa (MENA) talks new risks, construction demand, and effective regulation
Where is there potential for profitable growth in Middle Eastern markets?
The region’s low insurance penetration offers the greatest potential for growth. Thanks to their growing population and their increasing insurance penetration, the MENA markets have outpaced the GDP growth, especially in personal lines business. They have benefitted from the expanding compulsory insurance requirements as well as the pricing support from the regulatory action.
Are there enough new risks coming to the market?
With the economic activity slowdown in the recent years, the generation of new premiums and new risks has slowed down in most markets. This has been particularly the case in the motor, the engineering and the marine lines of business. But globally speaking, despite continued low economic activity and geopolitical instability, the MENA insurance markets have proved to be resilient. Well established companies have not suffered from this and have met their premium and profitability targets.
Moreover, in most MENA economies, transformation plans have been launched. They aim to diversify the economies and to reduce their dependency to oil and gas in adapting them to the new low oil prices times. All these plans should progressively stimulate the demand of insurance and bring many new risks to the markets.
At the same time, social protection schemes are expected to be more and more be transferred from the public sector to the private insurance sector. Most public health expenditures should be become covered via insurance. Similarly, insurance should replace public or state subsidies in case of catastrophe. More public assets should be insured.
Last but not least, new mandatory insurance products are introduced to better protect the populations against catastrophes, new first-party or third-party risks. As an example, errors and omissions liability (E&O) insurance is becoming mandatory for most professions. More markets are also expected to make mandatory inherent defect insurance for individual constructions. Finally, More and more large or quite exposed industries are likely to buy a cyber insurance.
Is there still demand for insurance in the construction sector?
The recent slowdown has resulted in lower construction activity with fewer assets to insure. But after few years of low demand, we expect to see many new projects coming to the market.
However, after many years of rate reductions, the engineering primary rates in the global market have improved meaningfully. The mega losses of 2017 and 2018 have led many players to reduce their engineering capacity resulting into a shrinkage of the overall engineering capacity offering. The local MENA markets should benefit from this and see their writings increase.
Where is Scor’s base for the Middle East and UAE markets? Why have you set it up there?
Scor covers the Middle Eastern markets from our Paris head office. We have been covering the area for more than four decades and we are the number one or the number two reinsurance player in most of these markets. When we include Africa, the overall MEA region accounts for 6% of P&C writings, even though this region represents less than 2% of worldwide premiums. We are proud of our strong position in the region and we wish to maintain it going forward.
Scor has considered further strengthening our presence locally, but opening any new office must demonstrate added value and economic viability. In reinsurance, a global view and a local presence are both important, but you need to have the right balance between centres of excellence and decentralised access points for marketing one’s services and providing expertise on the ground.
Have regulators been effective in Middle Eastern markets?
Regulators are being very efficient in regulating the market by implementing targeted measures such as actuarial pricing or new solvency regimes. Increased regulation in the Middle East is a good thing, especially the coming introduction of risk-based solvency regimes and the introduction of new compulsory coverage to reduce the protection gap, to protect low-income populations and to develop societies.
The risk-based solvency regimes should continue to stimulate the formation and expansion of local regional champions with more M&A, reducing the protection gap and the fragmentation of markets. A sound regulation with a strong regulator will ensure a sustainable insurance sector.