Commercial lines pricing up in MENA region survey finds

Commercial lines pricing has increased in the MENA (Middle East and north Africa) region, according to the latest MENA Insurance Pulse. The survey of executives representing 40 regional and international (re)insurance companies, intermediaries and trade associations finds that 70% of executives polled expect stable or higher rates over the next 12 months, up from 58% in 2016. The survey finds that only a third of executives expect market concentration to increase over the next 12 months, while nearly two-thirds expect the market share of foreign primary insurers to remain stable. It also finds that 43% of respondents believe the overall state of insurance regulation in the region to be adequate, up from 31% in 2016. The MENA Insurance Pulse, published by Dr Schanz, Alms & Company, says that in commercial lines, price adequacy, especially in property business, has improved in response to more frequent fire losses although executives anticipate continued headwinds from slowing economic growth and fiscal tightening. According to the survey, the insurance markets of the Middle East and north Africa are expected to weather the region’s continued economic slowdown and geopolitical instability. It says that over the next 12 months, 76% of the survey respondents expect insurance premiums in the MENA region to grow at a faster pace than regional GDP, up from 61% in 2016. “This bullish assessment reflects the current momentum towards increasing rates and the continued growth in compulsory personal lines insurance. Commercial and regulatory pressure for higher or at least stable prices is expected to continue,” the survey says. It says the majority view is that reinsurers will remain firm on terms and conditions, enforcing continued discipline in original markets. “Having said this, the prospect of shrinking volumes of business as a result of fiscal tightening by governments is weighing on interviewees’ sentiment, with the rating outlook for marine and engineering business considered to be particularly challenging,” the report notes. This year, only 33% consider overall profitability in commercial lines to be low, benchmarked against the past three years, compared to 72% last year. It says rates have somewhat recovered over the past 12 months, and the frequency of larger fire losses decreased markedly in 2016, partly as a result of improved safety regulations, notably for high-rise buildings. The MENA Insurance Pulse finds that 54% of executives polled view current prices in MENA commercial lines business as being at or above the average of the past three years, compared with 11% in the previous year. It adds that 70% expect commercial lines rates to remain stable or increase further over the next 12 months. Market concentration Just a third of respondents, similar to last year, expect market concentration to increase over the next 12 months. According to Dr Schanz, Alms & Company, this is because of the relatively comfortable capitalisation of domestic companies in conjunction with family ownership, which continues to present major obstacles to mergers and acquisitions. However, going forward, it will become more difficult for domestic insurers to raise the additional capital potentially needed to meet new risk-based capital requirements. In addition, as reinsurers insist on higher retentions, an increasing number of shareholders are expected to withdraw from insurance companies, the survey says. As for the market share of foreign primary insurers, 60% (up from 47%) of respondents expect the number to remain stable over the next 12 months. The survey mentions some high-profile market exits and retrenchment programmes as a result of significant underwriting losses and a perceived deterioration of the market outlook. “Some local insurers have also stepped up their game, both in terms of underwriting capacity and expertise. Having said this, foreign insurers expand their footprints in the life and medical segments of the market where they are able to offer seamless global service propositions to their multinational clients and trusted brands to expatriates,” the survey says. Regulation The Pulse found that 43% of respondents believe the overall state of insurance regulation in the region to be adequate, up from 31% in 2016. It says this more positive assessment reflects progress towards introducing solvency margins or even risk-based solvency rules, especially in the United Arab Emirates, in combination with a more rigorous enforcement of existing rules, following the example of the Saudi Arabian Monetary Authority (SAMA). However, some executives raised concerns over the capacity of the region’s regulatory authorities to implement new complex regimes, given the lack of qualified staff and a high reliance on external service providers. Other executives expressed concerns about the trend towards fixed tariff ranges, which could impair innovation and exacerbate a major market weakness, namely the high degree of commoditisation. The survey notes that, in general, the region remains highly heterogeneous as far as regulatory sophistication is concerned, ranging from relatively effective and sophisticated regimes in Bahrain, Jordan, Morocco (coming close to Solvency II), Saudi Arabia and the United Arab Emirates, to rudimentary and/or insufficiently enforced frameworks in parts of the Gulf region. The MENA Insurance Pulse covers 14 countries in the Middle East and north Africa: Algeria, Bahrain, Egypt, Iran, Jordan, Kuwait, Lebanon, Morocco, Oman, Qatar, Saudi Arabia, Tunisia, Turkey and the United Arab Emirates.

Commercial lines pricing up in MENA region survey finds

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