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Jul 2021

MENA: COVID-19 amplifies structural challenges facing the region's reinsurers

Source: Middle East Insurance Review | Jun 2021

Reinsurers in the MENA region are facing multiple threats to their credit profile, with the coronavirus pandemic magnifying some of the pre-existing macro-economic and sector-related pressures in the region, said Fitch Ratings.
 
The ratings agency believes these challenges will persist in 2021 and 2022 given the uncertain economic recovery in many MENA countries.
 
The pandemic has amplified credit pressures on MENA sovereigns, as reflected in Fitch’s negative sovereign rating outlook on the region. These pressures negatively affect Fitch’s credit assessment of MENA reinsurers. Sovereign pressures negatively affect reinsurers’ operating environments and business profiles in particular, and also affect their asset risks given their high balance-sheet exposure to local investments.
 
Fitch believes the pandemic will affect MENA reinsurers’ claims less than those of their global counterparts. This is largely due to less exposure to some of the most affected business lines, such as business interruption or event cancellation.
 
However, business volumes will be affected, which, along with higher retrocession costs, will pressure technical results.
 
In addition, high competition from global reinsurers and less developed regional primary insurance markets make the MENA reinsurance market challenging, despite a fairly favourable pricing environment. These pressures will continue in the medium term, said the agency. M 
 
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