By Santhosh V Perumal
Business Reporter
The confidence in the GCC (Gulf Co-operation Council) reinsurance sector is building up and prices are expected either to stabilise or increase in the next 12-24 months despite the Arab Spring, according to a survey by the Qatar Financial Centre Authority (QFCA).
Within the insurance sector, medical and health risk cover is expected to be the fastest growing segment, supported by compulsory insurance requirements
Within the sector, medical and health risk cover is expected to be the fastest growing, fuelled by compulsory insurance requirements which are reshaping some of the region’s non-life markets; followed by engineering, motor, liability and life insurance, a bi-annual market survey conducted on behalf of the QFCA said.
“Over the next 12-24 months, 67% of the respondents expect reinsurance exposure (sum assured) to grow at a faster pace than the GCC countries’ GDP (gross domestic product),” it said.
The assumption is based on the expectation that underlying direct non-life insurance markets will expand more rapidly than the overall economy as insurance penetration rises and approaches levels, which are more commensurate with the GCC countries’ GDP per capita levels. It will also rise in tandem with rapidly growing insurable assets in areas, which are exposed to natural disasters.
“It is clear from the research findings that even in times of global uncertainty the GCC region remains a very attractive market for the global reinsurance industry,” according to Akshay Randeva, director strategic development at the QFCA.
The survey found that the GCC region has experienced a strong turnaround in expectations of reinsurance pricing.
Almost 92% of the respondents expect reinsurance prices in the Gulf region to stabilise or increase over the next 12-24 months, it said. A vast majority of them view current reinsurance prices in the GCC region as below the longer term average and many also say prices are “below technical” but adequate, given low loss experience, the survey added.
In a new development, one-third of the respondents predict a moderate increase in the average GCC reinsurance pricing levels and “this change in outlook for the market reflects a slowing of capacity growth following major insured catastrophe losses in Asia and the US in the first half of 2011.”
Not a single respondent expects a “significant” hardening of prices as there is still excess capacity in the market and additional reinsures are entering the region, according to the survey.
“Global retro markets are hardening as a result of the major losses experienced since the beginning of the year. This effect could improve the overall reinsurance market discipline in the GCC region,” according to Lukas Mueller, head of Middle East and North Africa region, Swiss Re.
Although political changes in the wider Middle East region has had a “limited” impact on the perceived prospects for the industry in the Gulf, the study said, a specific effect of heightened awareness of such risk was observed on reinsurance terms and conditions.
The survey noted that a high 88% of respondents expect the terms and conditions to tighten, up from 18% six months ago, leading to clearer contract definitions, exclusions and event limits.
“The current political uncertainty will weigh on insurance and reinsurance growth in the GCC region. This, however, is partially offset by fiscal windfall gains due to higher than projected oil prices,” said Jonathan Wilton, CEO, ACR ReTakaful (Middle East and Africa).
The established players are widely expected to remain committed to the region and attracted by the growth potential and diversification benefit offered by it. Some of the newcomers, though, may take a more cautious stance given the perception of increased political risk, the survey said.
It found that the share of those expecting reinsurance capacity in the GCC to grow further has fallen from 64% to 50% as a consequence of a sharp reduction in the global reinsurance markets, bringing supply and demand in the region into closer balance.
There are, however, some signs that retention levels may increase, as a result of regulatory pressure and other factors, since 46% of the respondents believe retentions will increase from their average levels of 57% of non-life premium income.
“As a result of these factors, the profitability of the regional industry is stabilising, although at low, but acceptable levels,” the survey said, adding that 71% of respondents expect profitability to remain “stable” or “improve.”
