The lifting of trade restrictions placed on Iran may present significant opportunities for the Middle East and North African (MENA) re/insurance market, with European participants also expected to re-engage and seek a foothold in the country, according to research published by A.M. Best.
Following the planned suspension of a number of sanctions imposed on Iran by the United States and the European Union, international trade with the country is expected to increase substantially over the next few years, said the report titled “Sanctions Removal to Attract Insurers and Reinsurers to Iranian Market.”
A.M. Best predicts the re/insurance community will be interested in the prospects in Iran as it is one of the largest insurance markets in the region, with gross premiums written (GPW) of USD$7.5 billion in 2014, and low insurance penetration.
This change in the market’s prospects, follows the Joint Comprehensive Plan of Action (JCPOA) between the United States, the United Kingdom, Germany, France, China and Russia on July 14, 2015, which resulted in Iran reaffirming that under no circumstances would it ever seek, develop or acquire any nuclear weapons, the report explained.
The JCPOA agreement will result in the lifting of all U.N. Security Council sanctions, as well as multilateral and national sanctions related to Iran’s nuclear program and the European Union will terminate all provisions of its regulations, which cover sanctions and restrictive measures in areas including insurance and reinsurance, A.M. Best’s research continued.
A.M. Best expects the lifting of sanctions to lead to opportunities for primary insurers given the significant levels of underinsurance in Iran, the country’s population of 78 million and its large youth representation.
“With the removal of restrictions, major reinsurers are anticipated to re-engage with the Iranian market,” affirmed Mahesh Mistry, director, analytics.
“The country has significant oil reserves, and increased international trade is likely to stimulate an expansion of infrastructure and business development. The largest European reinsurers will be examining prospects in the Iranian market and are expected to have a first-mover advantage over their American counterparts, as U.S. sanctions are likely to remain in place for longer than European restrictions.”
While the lifting of the sanctions provide an opportunity for reinsurers, there are also additional risks to consider, the report cautioned.
“Given the elevated level of catastrophe exposure associated with the country, particularly from earthquakes, risks must be underwritten prudently in order to ensure accumulated exposures are effectively managed,” said Michael Dunckley, financial analyst.
“In Iran, earthquake exposure is higher compared with countries in the Gulf Cooperation Council (GCC). In addition, the country is exposed to flood risk,” Dunckley added.
In addition to catastrophe risk, reinsurance underwriters will need to consider the state of insured property, the report went on to say. “Ageing infrastructure in Iran and the potential of differing standards in risk management may influence their pricing decisions. However, new entrants to the market may be able to gain some comfort from standardized market wordings and primary insurers’ premium calculations monitored by Bimeh Markazi,” A.M. Best noted.
Source: A.M. Best Company
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