Reinsurance in the MENA zone: 2021's renewal conditions

The disappearance since 2015 of several regional reinsurers, such as Best Re and Arab Insurance Group, combined with the difficulties of Trust Re and the transfer of Qatar Re's headquarters to Bermuda, have slightly slowed down the deterioration of pricing conditions as competition remains significant.

This reorganization has opened the doors to newcomers. It also enabled other stakeholders to increase their market share with local insurers.

In parallel with these changes or adjustments, legal cessions remain significant in several countries, offering guaranteed revenues to national and regional reinsurers who are up against difficult environments.

This situation is aggravated by the lack of diversification of their risk profiles and by their size, which prevents them from achieving significant economies of scale. The fact that they lead few programs is also disabling. This state of affairs does not allow them to impose optimal conditions.

While the results of these national or regional reinsurers are regularly good in their own market, thanks to the historical links they have built up there, the underwriting they carry out in other areas generates few positive results.

Because of their size, they can only accept small shares while exposing themselves disproportionately with technically less controlled business, resulting in reduced margins and a very high volatility of their underwriting results outside the domestic market.

Premiums and shareholder's equity of MENA zone reinsurers

Technical ratios of MENA zone reinsurance companies: 2017-2019

Natural disasters have not spared the MENA zone in recent years. While cyclones remain relatively rare, floods are increasingly frequent: Bahrain, the United Arab Emirates, Kuwait and Saudi Arabia are no exception.

Finally, many countries are on major tectonic faults and therefore under the threat of violent earthquakes: Turkey, Algeria, Egypt.

Apart from natural disasters, the major concern of all market players is the global health situation. Will Covid-19 lead to a strengthening of renewal terms? Nothing is less sure.

Measures to exclude this risk have been adopted as soon as the pandemic appeared, in particular during the renewal in July 2020. The public health establishments have assumed most of the costs of the pandemic, thus reducing the impact of the scourge on the health policies written by private insurers.

With life insurance being underdeveloped in MENA zone, the market will suffer more from the economic slowdown due to restrictive measures and lower tax revenues than from the pandemic itself.

The fairly clear trend of strengthening renewal conditions observed on 1 January 2019, was reversed on 1 July 2020.

Another important fact is that the MENA zone, many of whose economies are linked to hydrocarbon prices, will be more disadvantaged by low oil prices than by the direct impact of the coronavirus.

Coupled with lower oil prices, the economic slowdown caused by the pandemic may lead to a contraction of business, thus exacerbating competition between reinsurers.

In fact, the 2021 renewal terms will depend on the most influential reinsurers, meaning those with the capacity to put pressure on the reinsurance programs especially with those on a proportional basis. The Beirut catastrophe, on the other hand, will weigh on the renewal of Lebanese treaties.

Despite this set of recurring negative factors, regional reinsurers have been able to post very satisfactory returns on equity until 2019, thanks in particular to high-return investment policies.

Return on investment and return on equity of MENA zone reinsurance companies : 2017-2019

Rating of the major regional reinsurers