Reinsurance capacity in Mena expected to strengthen: QFC
Reinsurance capacity in the Middle East and North Africa (Mena) is expected to strengthen owing to stronger primary risk cover business and perceived low exposure to natural perils, according to a Qatar Financial Centre report.
“The (Mena) region remains an attractive high-growth, low-catastrophe market, with positive effects on overall portfolio diversification, in particular as global excess reinsurance capacity has continued to expand over the past 12 months,” said Mena Reinsurance Barometer, prepared by the QFC.
This assertion stems from the fact that the percentage of participants expecting reinsurance capacity in the Mena region to expand further has increased marginally to 91%. “The region’s strengths, namely robust insurance market growth, a vast pipeline of infrastructure and construction projects and relatively low natural catastrophe exposure, still prevail over challenges,” said QFC chief strategic and business development officer Sheikh Salman bin Hassan al-Thani.
Overall, reinsurance business sentiment in the Mena region remains “mildly positive” in the light of strong primary market growth and improving regulations, in addition to long-term fundamentals such as a young and growing population, in combination with a low insurance penetration, it said.
“These positive factors offset the negative, such as continued fierce competition and exacerbating political instability,” it said, highlighting that measured on a scale from -5 to +5 (very bearish to very bullish), sentiment currently stands at 0.3, immaterially down from 0.4 a year earlier. It is expected to return to 0.4 by summer 2016.
In addition to compulsory insurance schemes in motor and healthcare, massive infrastructure and construction spending continues to be the most powerful driver of insurance and reinsurance demand in the region, it said, highlighting that as of June 2015, more than $ 1.41trn worth projects are currently being executed across the Gulf region.
However, unabated pressure on prices and the increasing share of self-retained personal lines weigh heavily on the sector’s growth prospects in the region, it said, adding only 17% of executives polled believe that reinsurance premium growth will outpace regional gross domestic product (GDP) growth over the next 12 months, down from 28% a year ago.
Insurance penetration remains remarkably low in the Mena region, given relatively high levels of per-capita income, it said. Non-life and life premiums in 2014 accounted for just 1.4% of GDP less than a quarter of the global average.
However, this gap is narrowing as Mena insurance markets outpace regional GDP growth, according to the barometer.
Between 2009 and 2014 total non-life and life insurance premium volume in the region expanded from about $32bn to more than $51bn, it highlighted.
Finding that life business continues to play a relatively minor role, accounting for just 15% of the Mena insurance market; it said since 2009, life insurance premiums have grown in line with non-life business (at an annual average real rate of 8.3% compared to 8.5%).
“Catch-up for the life insurance sector therefore remains elusive,” the barometer said.