MENA’s insurance markets have grown significantly over the past decade, with premium surpassing $52bn in 2015, according to a report from AM Best.
The largest markets remain Turkey, the United Arab Emirates (UAE), Saudi Arabia, and Iran, noted the rating agency.
Growth in insurable risk has stemmed from a combination of increased insurance penetration, historically high oil prices in the years leading up to 2014, the introduction of compulsory covers for medical healthcare and liability business classes, as well as infrastructure development and increased commercial activity, suggested AM Best.
“The region’s reinsurance markets are generally perceived as a source of expansion, with continued market liberalisation and the gradual removal of sanctions from Iran expected to yield further opportunities for reinsurers,” the study said.
“Furthermore, the robust, albeit deteriorating, profitability achieved by leading primary insurers over the last five years has enhanced the region’s attractiveness to both foreign and domestic reinsurers,” said AM Best.
Most MENA markets are open, with few restrictions on reinsurance operations, reported AM Best, despite initiatives in some countries aimed at nurturing local market growth and the retention, at the expense of international firms’ share of local markets.
“In recent years, mandatory cessions have been important to the dynamics of reinsurance markets in Algeria and Morocco, where local players are or have been obliged to place a component of their reinsurance programme with state-backed reinsurers,” said the re/insurance credit ratings firm.
“This typically bolsters the government’s involvement and participation in local insured risks and is often a mechanism aimed at supporting the country and its insurance sector in the event of natural catastrophes,” said AM Best.
Perceived low catastrophe risk exposure has contributed to the region’s attractiveness to international re/insurers seeking diversification, the report continued.
Such firms have also upped the quality of risk management, and underwriting data and analytics, the rating agency thought.
“A significant contributor to premium growth in the region has stemmed from the expansion of “big ticket” commercial and industrial risks, for which the direct writers and regional reinsurers are typically only capable of supporting a minimal retention,” said AM Best.
“This reflects the fact that primary insurers and regional reinsurers alike usually lack sufficient underwriting capacity and balance sheet size to retain these large-scale risks within their markets,” the rating agency added.
The report included a number of stumbling blocks acting as barriers to further market growth.
These included: continual influx of capacity, driven by both domestic and foreign reinsurers, as well as capacity on offer from primary insurers participating on facultative risks; increased frequency of large losses, particularly from property, engineering, and energy; the prolonged period of low oil prices; the region’s political instability and social unrest; low insurance premium rates compared with other emerging markets; and weak risk management and mitigation practices across many local sectors, impacting the quality of insured risks.