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Home > Insurance Markets White Papers > MENA Reinsurance Barometer No. 2

Insurance Markets White Papers

MENA Reinsurance Barometer No. 2

Dr Schanz, Alms & Company, on behalf of the Qatar Financial Centre Authority

Summary of Key Findings

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  1. On the back of robust economic and insurance premium growth, and in combination with a perceived low exposure to natural perils, the MENA region continues to be an attractive destination for regional and global reinsurance capacity. However, fierce competition, pricing pressure and increasing retentions weigh heavily on the sector’s growth prospects in the region. Only 28% of executives polled believe that reinsurance premium growth will outpace regional GDP growth over the next 12 months.

  2. The tightening of terms and conditions slowed to a halt in the last 12 months, ending a trend which started in 2011. The share of interviewees citing loose terms and conditions, against the five year average, decreased from 38% to 23%. However, going forward, terms and conditions are no longer believed to be immune to the very competitive pricing environment.

  3. The percentage of participants expecting reinsurance capacity in the MENA region to expand further has increased sharply from 50% to 88%. The region remains an attractive high growth, low-catastrophe market with positive effects on overall portfolio diversification, in particular as global excess reinsurance capacity has continued to grow over the past 12 months.

  4. Only 35% of interviewees, down from 50% in 2013, believe that the share of regional and Asian reinsurance capacity will increase at the expense of traditional Western capacity. This is driven by the abundance of global (Western) capacity and a series of Western reinsurers establishing local representation in the region.

  5. Retention levels in the region remain low compared with other markets – on average domestic insurers in the MENA region cede 30% of their premium income to reinsurers. However, 65% of respondents, virtually unchanged from the previous year, expect aggregate retention rates to increase over the next 12 months, as risk retention becomes more attractive in a low investment yield environment. In addition, the overall portfolio composition of regional insurance markets is shifting towards personal lines – medical and motor insurance are now compulsory in many MENA markets – which exhibit higher retention rates.

  6. Overall, reinsurance business sentiment in the MENA region remains positive in light of strong long-term fundamentals, such as a young population, robust GDP growth and a significant catch-up potential in insurance markets. Measured on a scale from -5 to +5 (very bearish to very bullish) sentiment currently stands at 0.4, down from 1.2 a year earlier. It is expected to improve slightly to 0.7 by summer 2015. Deterioration in sentiment primarily reflects a heightened degree of political instability in parts of the region and a further intensification of competitive pressures driven by global rather than regional factors. Optimists point to the region’s strong economic fundamentals, increasingly sophisticated market participants and the scope for new and innovative products.

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White Paper details

Original publication date:
September 2014
Copyright © Qatar Financial Centre Authority, 2014

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