Coronavirus has transformed the outlook for the economies and insurance industry in the Middle East and Pakistan, with recession expected this year. We expect the economic recovery to start in mid-2021, although downside risks include a resurgence in COVID-19 cases, new government lockdown measures, lower-for-longer oil prices and a low interest rate environment.

The pandemic and recession will negatively impact almost all insurance segments. We expect premium volumes for the region to decline by close to 3% in 2020, primarily due to the sharp drop in economic activity during government-enforced lockdowns, which impacted commercial lines. However, claims from COVID-19 should be manageable due to most insurers’ robust capital buffers.

The long-term outlook remains positive: both life and non-life insurance in the region hold significant untapped potential.

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The key takeaways from the paper include:

  • We project a 7.4% GDP contraction in the region in real terms in 2020, as oil-exporting countries face a triple hit from the pandemic, recession and low oil prices.
  • COVID-19 is likely to disrupt the insurance industry, forcing companies to rethink and re-strategise their value chains. Insurers that align their COVID-19 response to their long-term strategy will emerge stronger.
  • We expect non-life insurance to come under pressure in the short- to medium-term due to COVID-19-linked restrictions on economic activity and lower car sales. We forecast non-life premium growth to contract by 3% in 2020.
  • We expect life premiums to decline by 2.5% in 2020 as COVID-19 negatively impacts demand, prices, fees and investment returns.
  • Life insurance penetration in the region is low at only about 0.3% of GDP in 2019, a fraction of the 3.2% global average.
  • Structural trends are supportive for insurers. For life insurance, we expect the large working-age population across the region to push up demand for savings, protection and retirement products. Increasing take-up of Sharia-compliant products will also support growth.
  • For non-life, we expect the segment to benefit from regulatory support through the expansion of compulsory medical and liability coverage.
  • Reinsurance has grown at a rapid pace in the Middle East and Pakistan since the turn of the century, mirroring growth in the primary market. We expect demand for reinsurance to strengthen as a result of regulatory developments, improving enterprise risk management and solid growth in primary insurance.