GCC in­sur­ers face soft­en­ing re­newal rates

The Pak Banker - - 6BUSINESS -

GCC rein­sur­ers are ex­pe­ri­enc­ing soft­en­ing re­newal rates amid over­ca­pac­ity and lim­ited nat­u­ral catas­tro­phe risks. How­ever, de­spite the soft­en­ing rates, the re­gion re­mains a growth tar­get, Moody's In­vestors Ser­vice said.

The mar­ket is char­ac­terised by over­ca­pac­ity, with many in­ter­na­tional and lo­cal play­ers com­pet­ing for rein­sur­ance busi­ness. "This, cou­pled with lim­ited nat­u­ral catas­tro­phe risks, has re­sulted in a con­tin­ued soft­en­ing of rein­sur­ance rates at the Jan­uary 2016 re­newals for the re­gion," Moody's said.

"The ad­di­tional pres­sure of soft­en­ing rates on un­der­writ­ing mar­gins is credit neg­a­tive for rein­sur­ers, since it comes at a time when the com­pa­nies' in­vest­ment re­turns will likely re­main low", said Mo­hammed Ali Londe, Moody's as­sis­tant vice- pres­i­dent and an­a­lyst. "We ex­pect th­ese trends to con­tinue over the short-to-medium term, ab­sent sig­nif­i­cant de­te­ri­o­ra­tion in un­der­writ­ing loss ra­tios," added Londe.

How­ever, Moody's notes that the GCC in­sur­ance mar­ket still holds po­ten­tial for in­cre­men­tal rev­enues for rein­sur­ers given the high growth po­ten­tial, as re­flected by the com­pound an­nual growth rate (CAGR) of 16.8 per cent in the GCC pri­mary in­sur­ance mar­ket be­tween 20062014.

The low in­sur­ance pen­e­tra­tion and typ­i­cally low nat­cat (nat­u­ral catas­tro­phe) lev­els ex­cept for Oman are other fac­tors be­hind the growth po­ten­tial, Moody's pointed out. "That said, pre­vail­ing low oil prices have re­sulted in a gen­eral slow­down in large in­fra­struc­ture re­lated projects and in the value of in­sured goods, and we an­tic­i­pate a re­sult­ing slow­down in the (re)in­sur­ance sec­tors' growth in the GCC."

An­other po­ten­tial neg­a­tive for rein­sur­ers is in­creas­ing re­ten­tion in the re­gion. As lo­cal and re­gional in­sur­ance car­ri­ers have be­come in­creas­ingly so­phis­ti­cated, in­sur­ers have sought to cap­ture more of the value chain by re­tain­ing more in­sur­ance busi­ness on bal­ance sheet and ced­ing less to rein­sur­ers. There­fore, re­ten­tion lev­els in the GCC have in­creased with the av­er­age re­ten­tion among Moody's-rated GCC in­sur­ers at 60 per cent in 2014, up from 53 per cent in 2010.

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