(BUSINESS WIRE/AETOSWire)-- The Middle East and North Africa (MENA) insurance markets have seen robust growth over the last decade, according to a new report by AM Best. However, in recent years, the region’s economic growth has slowed, attributable largely to the global economic slowdown and the lower price of oil, the commodity on which these markets depend for infrastructure spending. Nevertheless, growth in the insurance segment remains higher in comparison with most mature markets, with the region remaining attractive to investors.
The Best’s Special Report, titled, “Middle East and North Africa Insurance Ratings: Benchmarking,” notes the region has faced significant challenges, with reduced government spending arising from lower commodity prices; stock market volatility; the introduction of value-added taxation; changes in the regulatory landscape; social unrest; and currency depreciation for many of the non-Gulf Cooperation Council economies.
Mahesh Mistry, senior director, analytics, said: “These strains have had repercussions for the insurance industry and will continue to create uncertainty and volatility in the operating environment over the short to medium term. Navigating these risks is extremely important, and negative repercussions from the operating environment can lead to pressure on credit ratings. Risk management and governance practices are becoming increasingly important to ensure companies’ operations are in the soundest of financial health.”
In October 2017, AM Best published its updated Best’s Credit Rating Methodology, which introduced the new building-block approach to the rating process. In light of the update, AM Best has undertaken a review of the insurers and reinsurers it rates in the MENA region from a benchmarking standpoint.
Salman Siddiqui, associate director, analytics, said: “Most of the companies operating in the region are largely single-market players, with some primary insurers having regional diversification and reinsurers operating more widely in Asian and African markets. Our analysis of 55 rated MENA insurance companies shows that most insurers and reinsurers have an abundance of capital and have shown resilient underwriting performance, but still face a challenging operating environment characterised by the high levels of economic, political and financial system risks. Furthermore, the volatility created by small capital bases and concentrated, highly risky investment portfolios, in addition to weak governance and risk management practices, amplify the strain under which many companies operate.”