LONDON-- (BUSINESS WIRE/AETOSWire)-- The Middle East and North African (MENA) reinsurance industry is characterised by its challenging market conditions, borne out of unabating pressure on pricing, overcapacity, and a higher-than-expected number of large losses in recent years, according to a new report by A.M. Best.
The report, titled, “Longstanding MENA Reinsurers Demonstrate Resilience in Tough Market Conditions,” states the impact of the competitive landscape has been more keenly felt amongst regional reinsurers that lack the scale and diversification of their foreign counterparts, coupled with “following” market practices that restrict their ability to dictate terms. Nevertheless, larger established regional reinsurers continue to weather the storm, focusing on bottom-line profitability and portfolio optimisation.
Aneela Mather-Khan, financial analyst, said: “Market conditions for MENA reinsurers are extremely challenging, with pressures on underwriting compounded by economic and political uncertainties. This in turn increases the desire for reinsurers to seek diversification and reduce potential volatility in earnings. In A.M. Best’s view, the long-term trends in credit quality are likely to be dependent on reinsurers’ ability to successfully execute growth strategies in a highly competitive market.”
The report adds whilst there are undoubtedly challenges, the MENA region remains an attractive growth prospect, with underlying insurance market growth and low penetration rates remaining key drivers. The economic outlook for MENA countries is set to benefit from recent increases to hydrocarbon prices. A.M. Best expects rises in insurance premiums to follow gross domestic product growth over the next few years.
Mahesh Mistry, senior director, analytics, said: “The MENA markets still represent robust levels of insurance growth, although this is predominantly linked to mandatory health care. Many MENA markets, particularly non-GCC countries, are being encouraged by world governing bodies to adopt further liberalisation and there remains the perception that the region has a low exposure to natural catastrophe risk. These elements continue to entice reinsurers to the MENA region, despite challenging pricing conditions.”
A.M. Best expects over the medium term, the influx of reinsurance capacity will maintain competitive pressures, and any movement in market dynamics would only stem from a change in attitude from the international reinsurance market.
To access a complimentary copy of this report, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=278186.