Best’s Special Report: Stormy Currents Emerging for MENA Reinsurers
A new special report published by A.M. Best, titled, “Stormy Currents Emerging for MENA Reinsurers,” states that while domestic markets remain important to MENA reinsurers, in a global reinsurance world, they are also looking further afield for diversification in order to stabilise earnings against the uncertainties and volatility of their local markets.
Mahesh Mistry, senior director of analytics, said: “The profile of the region’s reinsurers has not changed materially over the past few years, and they concentrate on prudent underwriting and risk selection in order to maintain profitability. However, given the pressure on rates experienced in core product lines, coupled with the higher frequency of property losses, MENA reinsurers have gradually reduced their exposure to MENA markets, and supplemented revenues by focussing more on Asian and African markets, where pricing is more attractive.”
The report states that while reinsurance markets in the MENA region are competitive, for international reinsurers, they are also considered to be a source of expansion. This is owing to a range of factors, including continued market liberalisation, and the majority of markets being open with few restrictions on reinsurance operations.
Yvette Essen, director of research and report author, said: “Many of the region’s markets are perceived to be attractive as they have benign exposure to natural catastrophe events in comparison with other more mature insurance markets. Reinsurers are drawn to the prospect of establishing geographically diverse underwriting portfolios without encountering the significant earnings volatility driven by natural catastrophe exposure. Regional and international reinsurers are seeking less catastrophe-prone business to complement their existing portfolios.”
The report notes all A.M. Best-rated reinsurers domiciled in the MENA region are generally well-capitalised. It states that while balance sheet strength is strong for rated MENA reinsurers, underwriting profitability remains the main concern, with many companies delivering marginal to weak performance. Therefore, reinsurers in the region are dependent on investment income to generate earnings. While investment yields are low, pressure to improve underwriting margins is growing, and any failure to improve technical performance is likely to put greater pressure on ratings as this weakness gradually erodes balance sheet strength and the profile of the companies.
To access a complimentary copy of this special report, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=266043.
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