Longstanding MENA reinsurers continue to ride competitive pressures and carve out market niches to support their operations. They are steadily making sound returns, but return on equity (ROE) hovers around the mid-single digits, said A.M. Best in its annual commentary on the global reinsurance sector.
The historical technical performance of the region’s reinsurers differs considerably. Many have demonstrated strong non-life combined ratios below 100; however, some have posted weaker technical performance with combined ratios well in excess of 100, driven by volatile loss ratios.
In 2017, there was a continued trend of an increased frequency of both attritional and large losses, with proportional books generally tracking the declining underwriting trends of the commercial business underwritten by the primary market.
While the expense ratios remain steady, loss ratios stand well above those reported by the global reinsurance market over the last five years, which averages around 61%, said the agency.
Moreover, part of the deterioration in profitability is driven by inflation and currency depreciation from non-GCC markets. This is likely to continue in the near term as currencies come under further pressure. Nonetheless, improvements in oil prices are seen as positive for the market over the medium term.
In 2017, MENA reinsurers benefited somewhat from their lack of geographic diversification as they were sheltered from losses caused by hurricanes Harvey, Irma and Maria and earthquakes in Mexico, which hit the rest of the industry.
Investment performance continues to be a key driver of overall operating results and ROE ratios as regional reinsurers face pressures on their technical performance. However, the weak interest rate environment and low-yielding investment markets have resulted in ratios for regional reinsurers remaining in the low single digits.
During 2017, the premium revenue of MENA reinsurers has remained flat, with the 11 reinsurers producing revenues of about $2.2bn.
Biggest regional reinsurers
Presently, due to the small size of MENA insurance markets and targeted profiles of MENA reinsurers, many of these companies fall outside of A.M. Best’s ranking of the 50 largest global reinsurers by some margin, with most unlikely to reach this category over the near term. M