A.M. Best: Rated Middle Eastern Insurers Well-Capitalized; Reliant on Reinsurance

December 22, 2014

Insurers in the Middle East have strong levels of risk-adjusted capital, although they continue to rely heavily on reinsurance protection and carry elevated levels of investment risk.

A new report from A.M. Best states that insurance markets in the Middle East are young, characterized by low insurance-penetration rates, a developing non-life sector and an immature life market. Non-life premium growth remains largely dependent on government expenditure, often related to oil revenues, and the continued introduction of mandatory insurance such as health care.

The Best’s special report, titled “Rated Middle Eastern Insurers Well-Capitalised but Reliant on Reinsurance,” notes that despite the challenges, Middle Eastern insurance markets offer significant potential. Analysis of A.M. Best’s rating actions for insurers and reinsurers in the region showed that 78 percent of outlooks were stable as of Nov. 30, 2014, 14 percent were negative and 8% were positive.

“Rated companies in the Middle East tend to be well capitalized, with very strong balance sheets for insurers and reinsurers in the Gulf Cooperation Council in particular,” said Stefan Holzberger, managing director, analytics. “Companies are operating with stronger and more diversified business profiles, while maintaining sound operating results.”

In 2015, A.M. Best expects increased competition from new market entrants and regional insurers seeking to expand may create greater pressure on operating performance. Competition is growing as existing players look to expand outside their home countries or core domestic markets to other neighboring territories.

Yvette Essen, director, industry research, Europe and Emerging Markets, and author of the report, said, “Further introduction of mandatory health care, which is currently the second largest line of business, will create opportunities for insurers. Nevertheless, prudent underwriting needs to be adopted for this under-performing risk.”

Source: A.M. Best

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