The reinsurance environment in the Middle East and North Africa (MENA) region is stagnant in many aspects, although it also contains many elements that are in an exciting stage of development.
Some established patterns are unlikely to change, however, including the heavy dependence on reinsurance by primary insurers acting as fronting companies, particularly for commercial risks. In other aspects, there is fast-paced change, with reinsurers in the region increasingly attempting to build a presence in regional and even global reinsurance markets. A.M. Best Co. notes:
- Demand for reinsurance is continuing to grow with new reinsurance entrants providing additional capacity in expanding non-life markets. Conversely, there is little demand for life reinsurance, which reflects the low life insurance penetration in the region and the higher retentions that life risks tend to have.
- Proportional reinsurance is predominantly used, particularly for high-risk and volatile non-life business. Although individual facultative placements have an important role in the market, there are few signs that demand for proportional reinsurance will be waning in the near future.
- Insurers cede up to 90% of their commercial portfolios, as they continue to compete on pricing and lack technical expertise. In addition to reducing risk and volatility to the insurer, some reinsurers pay high profit commissions.
- There are factors which could encourage higher risk retention, although the abundance of reinsurance capacity and the presence of international reinsurers are likely to suppress them. The MENA reinsurance market is diverse, with reinsurance pools and retakaful providing additional capacity.
- Some MENA countries have a national reinsurer to support the local market. However, most of these national reinsurers are in pursuit of risk diversification and premium volume. They are utilising ratings in part to enable them to establish themselves outside of their domestic bases.
- In comparison to MENA insurers, reinsurers in the region tend to retain significantly more risk. Reinsurers tend to write business for their net retention, and A.M. Best’s analysis shows companies commonly have retention ratios in excess of 90%.
A.M. Best’s reinsurance ratings for national reinsurers in these territories fall into the secure category. However, while opportunities for participants remain, the sector faces challenges, including competition from overseas insurers and the fallout from the Arab Spring.
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