Middle East, a reinsurance market under pressure

Magazine Issue:

Magazine date:

Dec 2016

The Middle East⁽¹⁾ region has been dominated by four markets: Turkey with 11.4 billion USD of insurance premiums in 2015, the United Arab Emirates with 10 billion USD, followed very closely by Saudi Arabia with 9.9 billion USD and Iran which totals 7.9 billion of direct premiums.

The notable event in the recent 10 years consists in the double digital average annual growth of the Emirati and Saudi markets.
The reinsurance market of these four countries is estimated at 3.5 billion USD.

Major Middle Eastern reinsurers ranked according to 2015 turnover

in millions USD

	Country	Gross premiums
Qatar Re ⁽²⁾	Qatar	1156.2
Trust Re	Bahrain	475.9
Milli Re	Turkey	342.3
Arig	Bahrain	220.4
Saudi Re	Saudi Arabia	214.6
Hannover ReTakaful	Bahrain	184.8
Kuwait Re	Kuwait	130.8
Arab Re	Lebanon	79.3
Emirates Re	United Arab Emirates	62.7
Gulf Re	United Arab Emirates	42,3
ACR ReTakaful	Bahrain	37,8
Oman Re	Oman	19,8

⁽¹⁾Including Turkey and Iran
⁽²⁾ Qatar Re has been domiciled in Bermuda since december 2015 Source: AM Best

The market growth of the Middle East markets is driven by:

the high oil prices before their drop in 2015,
the substantial progression margin provided thanks to a low insurance penetration rate,
the introduction of compulsory covers, especially in Saudi Arabia and in United Arab Emirates,
the initiatives taken by supervisory authorities for the establishment of a legal framework, especially favorable to Takaful insurance.

Local reinsurance size remains relatively modest in comparison with that of their international competitors. The majority of risks remain, thus, covered by international reinsurers.

Moreover, regional reinsurers have rather poor retentions, which triggers substantial cessions in reinsurance.

The attractiveness of Middle Eastern countries has nonetheless faded away. The capacity inflow in recent years has prompted fierce competition among the different players. Loss experience has witnessed an increase in terms of frequency, especially with regard to fire, engineering and energy risks. The fall of oil prices and their steady low levels for long periods have strained demand, compromising investment projects. Eventually, the poor premium average rates and the lack of monitoring in risk management have been prejudicial to the quality of insurance and reinsurance portfolios.

Evolution of loss and combined ratios of non life reinsurance

in %

		Loss ratio				Combined ratio
Company	Country	2013	2014	2015	Average of the last 5 years	2013	2014	2015	Average of the last 5 years
Qatar Re ⁽¹⁾	Qatar	82	84	68	86	111	103	87	108
Trust Re	Bahrain	63	66	63	65	96	98	96	96
Milli Re	Turkey	79	83	88	86	113	116	120	117
ARIG	Bahrain	63	67	66	65	99	104	109	103
Saudi Re	Saudi Arabia	119	75	58	77	154	109	80	107
Kuwait Re	Kuwait	70	68	60	67	97	106	95	98
Arab Re	Lebanon	72	78	69	71	105	113	99	103
Emirates Re	U.A.E	62	67	64	-	98	96	97	-
ACR ReTakaful	Bahrain	28	21	74	100	189	45	121	150

(1) Qatar Re has been domiciled in Bermuda since December 2015 Source: AM Best

The poor technical results have directly impacted the return on equity of the reinsurers concerned. With high combined ratios, the profits reaped from technical operations are poor and even nil. It is the financial products that account for results. In an economic environment where poor interest rates and return on investment prevail, reinsurers can only report inadequate return on equity (ROE) in comparison with those of international players whose ROE are at least twice as high.

Return on shareholder’s equity of the Middle Eastern reinsurers

Source: Best’s Special Report, AM Best

Related article:

Ranking of Middle Eastern reinsurers in 2015 [4]