News Middle East12 Jul 2020

ME & Africa:Flat profits expected at best for this year for non-life market

12 Jul 2020

The non-life sector in the emerging insurance market of the Middle East and Africa is expected to suffer from this year's pandemic-induced recession, says Swiss Re Institute.

At best, flat profits are expected for the sector through 2021, says the institute in its report entitled “Sigma extra 4/2020 World Insurance: Regional review 2019, and outlook”.

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.

Motor business 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.

2019

Non-life sector growth in the region in 2019 was driven by  recovery in the Middle East, where premiums grew by 7.2% after a 5.8% contraction in 2018. The stabilisation was mainly driven by Saudi Arabia and the UAE, where negative inflation pushed real growth rates to 10%.

Hardening rates in property and engineering in UAE 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, 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

In the Middle East, the life market contracted for a second consecutive year last year, with premiums down around 1%. This reflects weak economic conditions, particularly in oil exporting countries where the expat population is shrinking, says the report.

This year’s COVID-19 crisis is hitting the whole region, particularly the oil exporters. In the short term, this will be reflected in a contraction of the life market in 2020. Sector profitability will be negatively impacted by lower interest rates.

An upgrading of regulatory frameworks and consumer protection continues, although the COVID-19 crisis has caused delay in some countries. 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. The COVID-19 crisis could also raise risk awareness and highlight the value of life policies.

Last year, the UAE insurance market led the MENA market in terms of premiums. The table below shows the performance of the largest insurance markets in MENA in 2019 and their world rankings: 

World Ranking

 

 

Country

Premium

$ m

2019/2018

Change %

Share of

world total %

nominal

Inflation

adjusted

2019

2018

2019

2018

2019

37

39

UAE

* 12,712

11,902

6.8

8.9

0.20

38

37

Iran

* 12,380

12,231

1.2

NA

0.20

39

41

Turkey

* 10,933

10,452

4.6

6.9

0.17

41

42

Saudi Arabia

+ 10,081

9,337

8.0

9.3

0.16

50

50

Morocco

** 4,640

4,384

5.8

8.1

0.07

60

64

Egypt

1,899

1,565

21.3

5.8

0.03

64

61

Lebanon

+ 1,611

1,678

-4.0

-6.7

0.03

70

67

Qatar

* 1,383

1,393

-0.7

0.0

0.02

73

71

Kuwait

* 1,334

1,305

2.2

1.7

0.02

75

74

Algeria

** 1,248

1,186

5.3

5.3

0.02

77

76

Oman

* 1,116

1,093

2.2

2.0

0.02

83

83

Jordan

** 865

854

1.3

0.5

0.01

84

82

Tunisia

** 830

858

-3.2

NA

0.01

87

87

Bahrain

* 788

755

4.3

3.2

0.01

 

 

World

6,292,600

6,149,020

2.3

2.9

100.00

 + provisional      * estimated   ** estimated $ value assuming constant insurance penetration           

        Source: Swiss Re Institute, sigma report “World insurance: riding out the 2020 pandemic storm”

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