First challenge: the economic and political environment is not conducive to the development of the insurance and reinsurance market. Apart from hydrocarbons, investors are too reluctant to develop business.
Second obstacle: a multitude of major claims, especially those of catastrophic character, has been reported in the MENA region, an area that is no longer perceived as being safe from natural phenomena. Floods and destructive storms have become commonplace there. The availability of pricing models taking into account these new exposures (among direct insurers and reinsurers) constitutes a certain risk factor.
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Third impediment: despite the withdrawal of some local reinsurers, the overcapacity of reinsurance supply has not disappeared. All reinsurance giants are present in the area. Moreover, the powerful rise of Dubai’s DIFC has offset local reinsurers’ loss of capacity.
Fourth issue, in absolute terms, the area is generating few reinsurance premiums given that most oil risks are directly placed in London. The same scenario applies for major aviation fleets such as Emirates, Qatar and Etihad Airways. Few premiums and a large number of reinsurers make that the terms and conditions obtained by local ceding companies remain very competitive. It is noteworthy that the development of health and motor portfolios in Saudi Arabia and United Arab Emirates are not generating a portion of premium that is particularly wanted by reinsurers.
Finally, the difficulties encountered by local players Trust Re and Arig have, to a certain extent, made it possible to relieve the pressure on these markets. While Trust Re and its subsidiary Oman Re are trying to maintain their position, Arig has joined the list of struggling Middle Eastern reinsurers. Takaful Re, Capital Retakaful, Emirates Retakaful have terminated their underwriting operations in recent years in addition to the departure of Qatar Re to Bermuda. It is worth noting as well that Mena Re’s facultative underwritings have slowed down.
These hardships have affected the results obtained by regional reinsurers who, in an attempt to survive, are operating a diversification of their portfolio toward Asia and Sub-Saharan Africa, hence their further exposure and declining results. Nearly half of local reinsurers have, since 2016, posted a combined ratio above 100% while at the same time return on equity (ROE) is in clear regression.
It seems one brand’s pain is another’s gain. Regional reinsurers who have withstood the purge, got an opportunity to expand their portfolio in a less competitive environment. Conventional reinsurers, on their part, Swiss Re, Munich Re, Hannover Re, Scor and Lloyd’s have consolidated their positions and refined their risk management pattern.
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