In line with the global reinsurance market, GCC reinsurers are experiencing softening renewal rates, according to Moody’s Investors Service in a report titled “GCC Reinsurance: Softer Reinsurance Renewal Rates Beneficial For Buyers”.
The market is characterised by overcapacity, with many international and local players competing for reinsurance business. This, coupled with limited natural catastrophe risks, has resulted in a continued softening of reinsurance rates at the January 2016 renewals for the region. However, the region remains a growth target.
“The additional pressure of softening rates on underwriting margins is credit negative for reinsurers, since it comes at a time when the companies’ investment returns will likely remain low,” said Mr Mohammed Ali Londe, Moody’s Assistant Vice President and Analyst. “We expect these trends to continue over the short-to-medium term, absent significant deterioration in underwriting loss ratios,” he added.
However, Moody’s noted that the GCC insurance market still holds potential for incremental revenues for reinsurers given the high growth potential, as reflected by the CAGR of 16.8% in the GCC primary insurance market between 2006-2014, the low insurance penetration, and typically low Nat CAT levels (except for Oman).
“That said, prevailing low oil prices have resulted in a general slowdown in large infrastructure-related projects and in the value of insured goods, and we anticipate a resulting slowdown in the re/insurance sectors’ growth in the GCC,” said the report.
Another potential negative for reinsurers is increasing retention in the region. As local and regional insurance carriers have become increasingly sophisticated, insurers have sought to capture more of the value chain by retaining more insurance business on their balance sheets and ceding less to reinsurers. Therefore, retention levels in the GCC has increased, with the average retention among Moody’s-rated GCC insurers at 60% in 2014, up from 53% in 2010. But this is still low compared with global insurers’, where average retention is around 90%.