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Jul 2019

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Jordan: Insurers face pressure on technical performance from competition

Source: Middle East Insurance Review | Jul 2019

Jordan’s insurance market remains highly competitive, with pressure on technical performance accompanied by economic challenges, according to a report by A.M. Best.
 
Despite the market showing reasonable growth rates in recent years, it is also facing a number of challenges, the rating agency noted in its report, ‘Jordan Insurance Ratings: Benchmarking’. Pricing pressure on the core business segments and tariffed motor third-party liability business have hindered operating performance.
 
Additionally, rising fiscal deficits have led to cuts in government spending and tax hikes, and the background of social unrest and weakness in commodity prices is a concern. Furthermore, the widespread lack of awareness and understanding of insurance and risk mitigation among the population is reflective of the low penetration rate.
 
Mr Luca Patron, a financial analyst said, “Even though the challenges of the competitive Jordanian insurance market affected the ratings of some companies in the past, the overall operating performance of A.M. Best-rated companies remains at a good level and above the average market performance, benefitting from economies of scale and brand recognition.”
 
On a global scale, A.M. Best-rated Jordanian insurers are deemed to have a limited business profile. Furthermore, there are limited opportunities for insurers to grow domestically without undercutting competitors.
 
Mr Mahesh Mistry, senior director, analytics said: “Most have very little geographical diversification and are predominantly single-market participants. Moreover, while some companies have moderate diversification on a gross basis, net premiums are geared toward motor and medical. The level of product differentiation between participants is limited, with a lack of innovation and product transformation of new ideas to change traditional market concepts.”
 
The agency’s analysis has highlighted some weaknesses, the most important of which is risk governance, with companies adopting basic or minimum requirements to run their businesses. Most insurers see a steady erosion of their risk-adjusted capitalisation buffers in recent years. Asset concentrations in high-risk investments remain a concern and add significant volatility to operating performance and capital adequacy, while in some cases, insurers have fallen below local solvency requirements.
 
The adoption of prudent risk-management practices is critical to ensure that companies manage their risks effectively and in a controlled manner, the agency said. M 
 
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