Rises anticipated despite stiff competition

Middle East

Reinsurance premiums in the MENA region will grow faster than the region’s GDP, according to a study by the Qatar Financial Centre Authority (QFCA).

In a survey of the senior executives of (re)insurers and brokers in the region, the QFCA found that 53% held the view, despite challenges arising from intense competition and pressure on pricing.

The MENA reinsurance barometer surveyed the countries of the Gulf Co-operation Council (GCC), the Levant, North Africa and Turkey. The region has a population of more than 370 million and generates a combined GDP of roughly $3.5tn, about 5% of the world’s total.

Between 2007 and 2012 the region’s real GDP grew at 4.8% per annum, well above the global average of 3.3%. For 2013 and 2014 the International Monetary Fund (regional outlook April 2013) expects GDP growth in the MENA to slow to 3.4% per annum, largely because of an expected slowdown in hydrocarbon exports.

In 2012, the MENA non-life reinsurance sector was worth an estimated $12bn in annual premiums, almost a third of the primary non-life insurance market volume of more than $37bn.

Reinsurers operating in the region continue to benefit from the non-life insurance markets’ rapid expansion at an average annual growth rate of 7.6% from 2007 to 2012.

However, the QFCA survey respondents also said MENA reinsurance markets were characterised by fierce competition and an abundance of reinsurance capacity, resulting in often unsustainable rates.

Regulatory deficiencies were another concern, with insufficient minimum capital requirements, a lack of minimum retention rules and a lack of regulatory coordination and consistency within the region being mentioned most frequently.

The survey respondents also saw opportunities in the low insurance penetration in the MENA region.

With total premiums accounting for 1.3% of GDP the insurance penetration of the MENA region is a mere fifth of the global average, even though the region’s GDP per capita matches the global average.

The pipeline of planned infrastructure and construction projects was the second most frequently mentioned opportunity, representing a volume of assets of more than $1tn over the next 10 years.

Unchecked competition is considered to be the most serious challenge facing MENA reinsurance markets. This long-standing concern is further exacerbated by a continued influx of frequently naïve capacity in search for instant diversification benefits.

QFCA chief executive Shashank Srivastava said: “The MENA region continues to be an attractive market place for global and regional reinsurers, due to strong economic conditions and prospects, a largely untapped primary insurance market potential and limited exposure to natural perils.

“As a result, the region’s reinsurance markets remain highly competitive. It is, therefore, a particularly encouraging result of the most recent barometer survey that reinsurers operating in the region now pursue a more sophisticated and disciplined approach to business, with beneficial consequences for the region’s primary markets.”

QFCA director strategic development Akshay Randeva said: “The MENA reinsurance barometer is our fourth regular survey of the region’s reinsurance markets, first covering the Gulf countries and now the wider MENA region.

“For the first time, the most recent study provides a numerical value to overall reinsurance markets sentiment. This feature adds to the report’s relevance as a market barometer which is ultimately designed to help improve the transparency of the sector and facilitate more informed decision-making.”