Qatar Re has emerged as the top reinsurance player in the Middle East and North Africa (Mena) region with its gross premiums doubling in 2015 to $1.16bn, according to global insurance rating agency A M Best.
Moreover, Qatar Re was ranked 35th amongst the top 50 global reinsurers, the agency said, adding the Mena reinsurers’ profiles typically remain small compared with international peers although insurance markets in the region grew significantly over the past decade to witness premium collections surpass $52bn in 2015.
“Notable growth in insurable risk has stemmed from a combination of increased insurance penetration, historically high oil prices in the years leading up to 2014, the introduction of compulsory covers for medical healthcare and liability business classes, as well as infrastructure development and increased commercial activity,” it said in a report.
There has been notable growth for some Mena reinsurers over recent years, with Qatar Re in particular having reported a doubling of its premium base during 2015, it said, finding that Trust International Insurance and Reinsurance came at the second spot with gross premium of $475.9mn.
The other top contenders from the Mena region had largely reported less than $300mn in gross premium during 2015.
The rating agency said the robust, albeit deteriorating; profitability achieved by leading primary insurers over the last five years has enhanced the region’s attractiveness to both foreign and domestic reinsurers.
The majority of markets are open with few restrictions on reinsurance operations, despite initiatives in some countries aimed at nurturing growth and the retention of business within the local market, it said, adding many Mena markets are also seen to have relatively “benign” exposure to natural catastrophe events, particularly for risks emanating from the Gulf Cooperation Council (GCC) countries.
“This enables reinsurers to establish geographically diverse underwriting portfolios without encountering significant earnings volatility driven by natural catastrophe exposure. This is attractive for domestic reinsurers, as well as foreign reinsurers looking to complement their existing portfolios with less catastrophe-prone business,” it said.
A significant contributor to premium growth in the region has stemmed from the expansion of “big ticket” commercial and industrial risks, for which the direct writers and regional reinsurers are typically only capable of supporting a minimal retention, according to the report.
Despite this seemingly attractive and prosperous reinsurance landscape, the Mena reinsurers have to cope with prevailing issues and challenges such as the continual influx of capacity, driven by both domestic and foreign reinsurers, as well as capacity on offer from primary insurers participating on facultative risks and increased frequency of large losses, particularly from property, engineering, and energy.
Moreover, they also had to face a prolonged period of low oil prices, affecting insurable risk and investment markets; low insurance premium rates compared with other emerging markets; weak risk management and mitigation practices across many industries, impacting the quality of assumed risks; and political instability and social unrest in the region.
Finding that the influx of capacity in the region and the resulting prevailing competitive market conditions that have grown ever fiercer over the last three years presents one of the most significant issues; A M Best said the abundance of capacity and weak pricing conditions have resulted in technical performance becoming increasingly strained for many regional reinsurers.
With technical performance continuing to be pressured for many regional reinsurers, a significant driver of overall operating results and return on equity ratios continues to be investment performance.
The composite group of regional reinsurers’ combined non-technical operations accounted for 88% of overall operating profits in 2015, with technical operations only accounting for 12%, the report said.
“With earnings so heavily dependent on investment income, and given the weak interest rate environment and low-yielding investment markets seen in recent years, return on equity ratios of regional reinsurers remains in the low single digits,” A M Best said.