The Middle East and North Africa (Mena) reinsurance sector is poised to harden over the next one year as prices and premiums are slated to grow faster, according to Qatar Financial Center Authority (QFCA).

Moreover, reinsurance premiums are also expected to outpace the region's gross domestic product, said the QFCA's Mena Reinsurance Barometer, which was released on Tuesday.

On hardening of reinsurance sector, it said this turnaround in expectations is owing to a series of major insured losses that affected the region over the past 12 months and the subsequent retrenchment of some leading market participants.
"Over the next 12 months, reinsurance prices are expected to increase, following many years of continued price erosion and market softening. Among other factors, this is also driven by a reduced inflow of additional reinsurance capital in the market. In other words, reinsurance supply is peaking," Kamal Nagi, chief Strategy and Business Development Officer at the QFCA said in the presence of Akshay Randeva (director of Strategy and Business Intelligence) and Kai-Uwe Schanz of Schanz Alms and Company.
Retention ratios, which are the share of risk that insurers retain on their own balance-sheet, are also expected to rise. On average, domestic insurers in the Mena region cede 29% of their premium income to reinsurers, almost four times the global average. This strong reliance on reinsurance is expected to decrease.
This, according to Nagi, reflects increasing pressure from regulators, rating agencies and the reinsurers themselves who want their customers to have more skin in the game for the sake of better risk management.
Although 52% of the respondents of its survey viewed reinsurance capacity to grow in September this year (against 91% in the year-ago period); it found a higher 48% of them held that retention levels to increase (42%), 38% said reinsurance premiums to grow faster than GDP (17%), 52% said reinsurance prices to improve (19%), 62% held that reinsurance terms to tighten (29%) and 52% expect improvement in reinsurance profitability (19%).
The likelihood of reinsurance capacity in the Mena region to expand further has reduced sharply to 52%, compared with 91% last year, suggesting that the long-standing oversupply of reinsurance in the region might ease, it said.
Finding that insurance penetration remains "remarkably low" in the Mena region, given relatively high levels of per-capita income; the barometer said non-life and life premiums in 2015 accounted for just 1.6% of GDP, slightly more than a quarter of the global average. "However, this gap is narrowing as Mena insurance markets outpace regional GDP growth," it added.
Besides compulsory insurance in motor and healthcare, infrastructure and construction spending continues to be the most powerful driver of insurance and reinsurance demand in the region, it said, highlighting that as of April 2016, about $1.46tn worth projects were underway in the Gulf region alone with construction dominating the portfolio with a share of almost two thirds.
Nevertheless, the pipeline of infrastructure and construction projects, a long-standing key strength, has dropped out of the top three ranking in 2016, reflective of slowing construction activities, except for event-linked projects as preparation for the Dubai World Expo 2020 and the 2022 FIFA World Cup in Qatar.