Growth is back in the MENA insurance industry with total premiums in the 14 markets increasing by almost 5% to $61.8bn last year after a 3.3% contraction in 2018, driven by improved performance in both life and non-life businesses. But the COVID-19 pandemic and the associated economic crisis are expected to pose challenges to performance in 2020.
Total premium volumes in the 14 MENA insurance markets returned to positive growth of 4.8% to reach $61.8bn last year, in contrast to the dismal performance in 2018 where overall premiums shrank by 3.3% to $57bn, according to MEIR’s analysis of Swiss Re’s latest sigma report on world insurance in 2019.
Global insurance premiums reached $6.3tn in 2019, up 2.3% y-o-y, which is lower than the overall premium growth rate of 4.8% in MENA. In terms of the share of global premiums, the MENA insurance markets accounted for a meagre 0.98% last year, compared to 1.1% in 2018 and 1.25% in 2017.
In MENA, the bulk of premiums comes from the six GCC markets – the UAE, Saudi Arabia, Qatar, Kuwait, Oman and Bahrain – which collectively accounted for 44.3% of the region’s market share. The GCC markets saw its total premiums increase by 6.3% y-o-y to $27.4bn in 2019, compared to a lacklustre growth of 1.2% in 2018.
While the MENA insurance markets managed to post solid premium growth, insurance penetration rates in the region remain low in the range of 0.63% (Egypt) to 3.89% (Morocco), compared to the global average of 7.23%, despite the ongoing efforts of stakeholders to boost insurance awareness and acceptance.
Non-life: Iran takes top spot in 2019
The MENA non-life premiums grew by 4.5% to $50.9bn in 2019 after a 3.9% contraction in 2018. The gain was mainly driven by strong growth in Egypt (+16.8% to $1.03bn), Saudi Arabia (+8.6% to $9.8bn) and the UAE (+8% to $10.1bn).
Of the 14 MENA non-life markets, three markets reported negative growth in premiums, namely Tunisia (-3.3% to $653m), Lebanon (-1.6% to $1.1bn) and Qatar (-0.7% to $1.3bn).
One notable development last year was Iran overtaking the UAE to become the MENA region’s biggest non-life market. The UAE toppled Turkey as the biggest non-life market in MENA in 2017 and was also the market leader in 2018.
The Iranian non-life market inched up 1.2% to $10.4bn last year, in light of the prevailing and ongoing economic environments, characterised by comparatively high rates of inflation and falling exchange rates. Inflation was forecast to be 40.6% in 2019 and 31.25% in 2020.
According to sigma’s analysis of the UAE non-life market performance, hardening rates in property and engineering in the country were partly offset by softening in motor third-party liability following the Insurance Authority’s decision to allow price discounting for good drivers. However, the market also benefitted from a new mandatory employee insurance product that employers need to buy for domestic and foreign workers.
In Saudi Arabia, the third-biggest non-life market in MENA, all lines except motor reversed to positive trend with medical, engineering and energy business lines outperforming. In motor, price competition and weaker car sales were the main drag on premiums.
Life: UAE remains MENA market leader
Like its non-life counterpart, the MENA life segment achieved a strong recovery in 2019 with premiums growing by 6.2% to $10.9bn compared to a 0.5% dip to $9.8bn in 2018. While the aggregate life premiums accounted for only 17.7% of total premiums in MENA, the growth in life business has outpaced both non-life and the overall industry growth of 4.5% and 4.8%, respectively.
The life markets across the region remain underdeveloped due to a number of factors including cultural reservations towards mortality-based insurance products, generous social welfare schemes provided by the states for nationals and the limited availability of products. As a result, only two life markets, both in North Africa, have a more balanced life and non-life portfolio – Egypt (life: 45.8% vs non-life: 54.2%) and Morocco (life: 44.9% vs non-life: 55.1%).
In terms of the top three life markets, the UAE retains its number one position with premiums growing by 2.6% to $2.7bn in 2019, followed by Morocco (+7.5% to $2.1bn), while Iran (+1.2% to $1.96bn) moves up one spot to clinch the third position from Turkey (+19.2% to $1.7bn).
Turkey’s life premium growth rate was the second highest in MENA, just behind Egypt’s 27.2% and ahead of Algeria’s 14.3%. On the other hand, three out of 14 MENA life markets reported negative premium growth: Saudi Arabia (-11.9% to $259m), Lebanon (-9.2% to $471m) and Tunisia (-3.3% to $177m).
The UAE has maintained its position as the region’s leading life market with its sustained and diversified expatriate population base, favourable demographics, sound regulatory framework, and business-friendly environment.
In Morocco, the insurance market is driven, to a large extent, by the life segment. Life premium growth typically outpaces non-life business, thanks mainly to the significant role of bancassurance in the North African country. With major insurers being owned by banks, the bancassurance channel generates around 90% of life premiums in Morocco.
Outlook: The COVID-19 challenge
In terms of the market outlook, the COVID-19 crisis has gravely affected societies and economies around the globe and is expected to plunge most countries into recession in 2020.
According to the sigma report, “the COVID-19 pandemic will spark the deepest recession since the 1930s, and we forecast that global GDP will contract by around 4% in 2020”. Globally, this will lead to a slump in demand for insurance this year, “more so for life (we estimate that premium volumes will shrink by 6%) than non-life (?0.1%) covers”.
Within the MENA region, the non-life sector is expected to suffer from this year’s pandemic-induced recession. Oil exporters with structural issues before the crisis and limited financial resources available will be hit hardest. The commodity price collapse, capital outflows, domestic lockdowns and the standstill in travel and tourism will impact sales in related insurance lines such as marine and credit, the report noted.
Motor insurance, a dominant class of business in the region, will also be affected as incomes come under pressure. However, “profitability may be boosted by lower claims frequency on account of restricted mobility in this year’s lockdowns. At best, we see flat profits through 2021”, said the report.
In the short term, the impact of the pandemic will be reflected in a contraction of the life market in 2020. Furthermore, the life business profitability will be negatively impacted by lower interest rates.
The report said an upgrading of regulatory frameworks and consumer protection will continue in the life markets in the region, although the COVID-19 crisis has caused delay in some countries. For example, in the UAE, new regulations for life insurance and family takaful will bring more transparency for customers and also cap commission levels. This could curtail sales in the short term but could be a positive in the longer term.
Moving forward on a more positive note, COVID-19 could also raise risk awareness and highlight the value of life policies across the region as the crisis highlights the need for urgent action to cushion the health and economic consequences of the pandemic. M