Competition and socio-political conditions are seen as the key challenges facing the region today, overtaking regulations, said members of the MENA Insurance CEO Club (MICC) in a survey on “Prospects and Challenges in MENA”. We look at the highlights of the survey’s findings.
MICC, the think tank of the region’s insurance industry, undertook a survey among its members between December 2015 and January 2016 to collate the collective wisdom of the Club members on the various challenges and prospects in the region.
1 Key challenges facing the MENA market
The survey showed that competition/ pricing was ranked as the top challenge facing the MENA market today (86%), followed by socio-political instability (71%) and regulation/ capital standards (50%). Regulatory change was named as the top challenge (60%) in last year’s survey.
“Both commercial and personal lines in the region are affected by excessive competition, with new and smaller companies being the biggest victims,” said Mr Yassir Albaharna, CEO of Arig. “We would recommend that the insurance market makes a concerted effort to achieve pricing discipline and utilise opportunities for consolidation. Also, striving for premium growth instead of bottom-line returns could further exacerbate pricing conditions and ultimately, market capitalisation.”
To help ease the competition, Dr Michael Bitzer, CEO of National Health Insurance Company – Daman suggested that regulators step in to set minimum prices, while Mr Mahomed Akoob, CEO of Hannover ReTakaful called for actuarial evaluation of pricing. “Stay the course and not succumb to dumb underwriting,” recommended Mr Christos Adamantiadis, CEO of Oman Insurance Company, while Mr Elie Nasnas, General Manager of AXA Middle East said the company is trying its best to differentiate itself with a high level of quality of service, professionalism and innovation.
As for socio-political volatility, “nowhere is this most acute than here in the Middle East,” said Mr Mark Cooper, General Representative Middle East, Lloyd’s of London. “Things are moving very quickly and we need to ensure that we stay vigilant and see what we can do to help support more stability across the region.”
On regulations, there needs to be a more homogenous approach, he added. “There has been considerable progress made in the last 12 months or so, with numerous legislative changes having been made. However, it does need to be more consolidated and regional in its approach and thinking.”
2 Priorities for regulators
Compared to last year’s survey which saw improving risk management practices ranked by 80% of CEOs as what regulators should give most priority to, this year’s survey results showed no dominating theme. Instead, half of the CEOs surveyed identified improving risk management practices and market conduct as the main priorities.
3 Top attributes for a company’s success
Shifting from price to service competition was also named by half of CEOs surveyed as a key reason for the success of a company (50%), followed by a strong and well-trained team, and the ability to perform effectively in difficult or complex environments (43% each). Having a dynamic CEO was named by just 36% as the most important success factor, compared to 60% in last year’s survey.
4 Priority areas in terms of development
Unsurprisingly, profitability was cited by the majority of CEOs (86%) as the most important area in terms of their companies’ development. Optimising distribution (50%) came in second. Regional expansion was cited by only 14% of CEOs as a priority, perhaps a reflection of a cloudy economic outlook.
5 Top factors influencing the need to change strategy
On the top factors impacting the need for CEOs to change their strategies, economic reasons dominated at 57%, followed by shareholders’ expectations (50%). Changes in regulation and customer demand were listed only by 43% as key factors.
6 Top challenges in the next 12 months
Uncertain economic growth was named by 86% of respondents as a key challenge facing their companies over the next one year, followed by changing demographics and socio-economic trends (50%). Talent availability and new product development were seen by only 36% as key challenges.
7 Top opportunities in the next 12 months
Members named customer data analytics and improving operational processes (64% each) as the key opportunities for companies over the next one year. Better use of capital was cited by 43% as another key opportunity.
| The one big dampener of 2015
“The biggest dampener was the newly emerging rating requirements for many insurance companies in the region. Most of the good business is being placed with ‘A’-rated reinsurance companies, a fact that is causing us to have limited access to good business. If it wasn’t for our reliability and very good reputation, we would have lost even more business due to this requirement.”
– Mr Ronald Chidiac, General Manager, Arab Reinsurance Company
“2015 was a year of deep crisis in Lebanon, which affected the morale of the teams.”
– Mr Elie Nasnas, General Manager, AXA Middle East
“The dampener remains unbridled competition with no rational basis and unrealistic pricing.”
– Mr Mahomed Akoob, CEO, Hannover ReTakaful
“The difference of 2015 is that it witnessed a combination of a stress on both underwriting and investment results. The one big dampener is the challenge of managing this situation.”
– Mr Fahad Al-Hesni, CEO, Saudi Reinsurance Company
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| Most positive factor of 2015
“The interaction between the industry and the regulator (Saudi Arabian Monetary Agency), resulting in new regulations to improve the Saudi market.”
– Mr Fahad Al-Hesni, CEO, Saudi Reinsurance Company
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| Expectations for 2016
“2016 will be tougher than 2015, but we are eager to grow the business, look for alternative channels and optimise current ones. Our focus is on bottom-line results and customer service.”
– Mr Fateh Bekdache, Vice Chairman/ General Manager, AROPE Insurance
“2016 will not be much different in terms of market outlook. Competition will remain tough and prices will not rise to a profitable technical level anytime soon. More regulatory reforms are expected to take place in the region, and this will definitely push the markets in the right directions, but it will not be for 2016. Traditional reinsurers will face more and more pressure from foreign capital being injected in the region.”
– Mr Ronald Chidiac, General Manager, Arab Reinsurance Company
“For 2016, barring any catastrophic events of significance, the supply of reinsurance is expected to continue to exceed demand and reinsurers’ profitability will remain under pressure. Disciplined underwriting will be essential, in order to compensate for low investment returns. The pressures witnessed in the reinsurance market in 2015 are set to continue into 2016, with excess capital and reduced demand likely to signal continued softening of rates.”
– Mr Yassir Albaharna, CEO, Arig
“A slowdown in growth in insurance markets, and financial challenges for under-performing companies.”
– Dr Bassel Hindawi, Chairman/ CEO, DIFC Insurance Association
“New regulations coming into place, and after the recent loss at the Address Hotel, awareness regarding building quality, differential rating, and terms and conditions.”
– Mr Christian Vogel, CEO, Gulf Reinsurance Limited
“2016 will be the first full trading year for Lloyd’s as a market. From this perspective we are very excited. We do see a growing appetite in the markets for more specialist capacity and underwriting, and this is a position that the Lloyds’s market will be looking to capitalise on. We are also looking forward to building out the Lloyd’s franchise either through service companies, coverholders or Lloyd’s brokers as there is an increasing interest in this region. However, we are cautious to ensure that we build the right skills and the right products with the right underwriting strategy and capabilities, and not just add more capacity to the market. 2016 should be a very good year for Lloyd’s.”
– Mr Mark Cooper, General Representative Middle East, Lloyd’s of London
“A very stretched year, both from a top line as well as a profitability perspective.”
– Mr Christos Adamantiadis, CEO, Oman Insurance Company
“A soft market and continued competition.”
– Mr Mahomed Akoob, CEO, Hannover ReTakaful
“Companies will focus more on maintaining existing business (with organic growth almost nil) and we will witness more mergers and acquisitions.”
– Mr Fahad Al-Hesni, CEO, Saudi Reinsurance Company
“More pressure on rates despite everyone recognising the unprofitability.”
– Mr Brian Reilly, CEO Middle East, Zurich Insurance Company
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