‘Fiercely competitive’ MENA insurance markets to outgrow GDP

The Middle East and Northern African (MENA) insurance markets are expected to continue outgrowing the region’s GDP during the next 12 months, according to the MENA Insurance Pulse 2018, published by Dr Schanz, Alms & Company. About 69% of executives polled expect regional premiums to outgrow GDP in the next year. In terms of current strengths for the region, the most important is its strong direct insurance market growth, followed by significantly improved and modernised regulatory regimes and a relatively moderate natural catastrophe exposure, according to participants. Sami Sayegh, UAE general manager, AIG, said: “From the buyer’s perspective, one of the strengths of MENA is the ample availability of local capacity in the insurance market. With the growth of the (re)insurance hub in DIFC, the region has become much less reliant on capacity sourced from abroad. While this is beneficial to the insurance buyer, one of the flipsides for insurers is fierce competition primarily on the pricing side.” Price adequacy in commercial lines, especially in property business, has improved, mainly in response to severe fire losses, the survey finds. However, the executives interviewed anticipate that geopolitical instability and economic headwinds will continue to weigh on the industry’s outlook. Personal lines business remains the key driver for premium growth. The survey reveals that excess capital and fierce competition are resulting in unsatisfactory pricing and profitability levels in the MENA insurance market place. Other concerns include geopolitical risks, such as the uncertainty over the future of the nuclear deal with Iran, which are dampening the industry’s outlook, and the fact that the region remains highly dependent on hydrocarbon revenues. The executives in the survey also warn of a talent gap, in particular for digital skills, in the industry as workforce localisation requirements are enforced and the influx of expatriate workers slows. And the survey highlights the highly fragmented nature of the MENA region’s insurance market, with more than 200 insurers, and a third of them in the UAE alone. Many of these players are considered “non-viable”, given tightened solvency requirements and major IT investment needs, the survey finds. It also points out that rates and profitability “might have passed the bottom of the cycle”. The executives polled view current prices in the MENA region’s commercial and personal lines business as being at or above the average of the past three years. In addition, a vast majority expects rates in commercial and personal lines to remain stable or increase further during the next 12 months. The survey says that commercial and regulatory pressure for stable prices will continue. “In commercial lines, an increased share of respondents consider overall profitability to be low. Although rates have improved, a higher frequency of large claims and deteriorating reinsurance contract terms and conditions took their toll on technical profitability. Going forward, the executives polled expect profitability in commercial lines to remain unchanged or edge slightly higher. Corrective measures on the pricing, reserving and claims settlement side will continue to make themselves felt,” the survey states. It points out that an increase in the number of large property losses has prompted reinsurers to tighten terms and conditions, for example by requiring higher net retentions from cedants or by cutting commission payments. As a result, original rates in some commercial markets have increased, although it adds that, according to some interviewees, at the April 2018 renewals, property reinsurance rates started to erode again. There is expected to be a higher market concentration during the next 12 months, driven by tightened regulatory capital requirements, in combination with growing investor impatience. “Throughout MENA insurance markets, we are witnessing an encouraging trend towards increasing regulatory and supervisory sophistication. Modern risk-based solvency regimes and qualitative risk management requirements are on the rise. At the same time, existing frameworks are being more effectively enforced. Such regulatory improvements drive mergers and acquisitions and promote industry consolidation, adding to stability and professionalism and serving the interests of both insurers and policyholders,” says Andreas Pollmann, client management executive, divisional unit Middle East/North Africa (MENA), Munich Re. According to the survey: “As far as foreign, non-MENA based insurers are concerned, only a minority of respondents expect their market share to increase over the next 12 months. Interviewees continue to mention some high-profile market exits and retrenchment programmes as a result of underwriting losses and rates below internal hurdle rates.” Nevertheless, the survey stresses that foreign players continue to enjoy major competitive advantages in commercial lines, where they are able to offer seamless global service propositions to their multinational clients, although their footprint in other retail lines such as motor and medical remains very limited. Henner Alms and Dr Kai-Uwe Schanz, the study’s authors, state: “The region’s strong insurance premium growth is still considered the market’s most important strength, followed by significantly modernised regulatory regimes and a relatively moderate natural catastrophe exposure. Going forward, markets are expected to structurally benefit from the region’s still low insurance penetration, which is a mere quarter of the global average. Further, digitisation will contribute to reduce operating and acquisition expenses and enhance the appeal of insurance products to the region’s large young population.” The MENA Insurance Pulse is an annual survey of senior executives from insurers, reinsurers and brokers operating in the region’s $58bn primary insurance markets.

‘Fiercely competitive’ MENA insurance markets to outgrow GDP

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