A report from A.M. Best examines the current state of the insurance market in the Middle East and North Africa (MENA) region. It notes that “over the past decade, the insurance industry has experienced strong growth in terms of premiums. The main drivers of this growth have been the significant economic developments in most countries in the region, combined with the introduction of compulsory insurance covers in many markets.
“At the same time, the number of insurance companies operating in these markets has dramatically increased as investors have come to view insurance as a growth market that delivers good returns to their investments. Many of the new investors were attracted by the introduction of takaful, which provided the opportunity to bring insurance to parts of the population that either had not perceived the need for insurance or were unable to purchase it.”
As a result, Best indicated that “overly optimistic projections for increases in insurance penetration resulted in high expectations on profitability and company valuations. Consequently, new shareholders entered the market with high expectations of returns on their capital and little appreciation for the riskiness of the insurance business.”
This factor, along with “the significant emphasis that many companies traditionally have placed on investment returns,” has resulted in many insurers “becoming akin to high-risk investment funds.”
They are now faced with the global economic slowdown, which has affected the MENA markets, where Best said “growth, although still good, lags behind that of previous years. At the same time, insurers have been experiencing lower investment returns and, in some cases, investment losses that have depleted their capitalization. In this environment, regulators are required to adapt quickly as the benign conditions of previous years are quickly disappearing.”
Source: A.M. Best