Following several years of persisting soft market conditions, pricing and terms in the Middle East and north Africa (MENA) are turning in favour of the region’s reinsurers, according to a new report from AM Best.
In its market segment report, AM Best says the MENA reinsurance market has long suffered from weak pricing, driven by ample supply, creating challenging operating conditions for the region’s reinsurers.
“The current market hardening, partly a byproduct of global reinsurance trends, and partly in response to regional underwriting performance strains, is a clear tailwind for reinsurance providers in the region,” it states.
However, it also says that challenges persist for MENA regional reinsurers. Ample capacity remains in the market and the resultant competition may curtail the extent to which the region’s reinsurers are able to leverage firming market conditions.
Also, the economic fallout from the Covid-19 pandemic adds to the challenges faced by reinsurers operating in the region.
AM Best says that available reinsurance capacity in the MENA region comes from many sources, with global reinsurers, regionally domiciled players, as well as reinsurance groups from Africa and Asia all operating in the market.
“For certain international participants, the appetite to deploy capital in the MENA region is in part driven by the diversification offered, with the region overall exposed to a low level of catastrophe risk,” it adds.
“For others, and reinsurers domiciled in the region, it provides growth opportunities, often in following participations on programmes led by international markets. The composition of capacity has been dynamic in recent periods. Several regional and international players have withdrawn from the market, often because they have struggled to generate sufficient returns,” continues Best.
For the past several years, reinsurance market conditions across the region have been characterised by highly competitive pricing, an abundance of capacity, as well as incidences of large losses. In spite of these departures, in AM Best’s view there remains more than enough reinsurance capital available in the region for the market’s needs.
High-profile changes in regional reinsurance capacity include the reduction in operations since 2018 of Trust International Insurance and Reinsurance Company, and Arab Insurance Group’s decision to enter into runoff in August 2020. Prior to these events, a number of additional local reinsurers faced difficulties, failing to generate sufficient returns, and exited the market over several years.
More recently, several Lloyd’s syndicates and international players have withdrawn from, or reduced their footprint in, the region. AM Best’s estimate of market premiums written by reinsurers domiciled in the region has reduced year on year since 2017, indicating that these changes in capacity have been picked up by international reinsurers, who remain competitive in the market.