The Balancing Act...
Achieving top line growth in MENA without losing sight of the bottom line profit
There is clearly immense growth potential for insurance and reinsurance in the Middle East and North Africa (MENA) region given the current level of insurance penetration rates. However, how the industry manages to expand this market without compromising the bottom line has been the focus of much speculation over the years, and this delicate balancing act was the main theme of last month’s MultaQa conference.
This has led to a mixture of optimism at the market potential, and some pessimism due to the current market conditions and bleak economic outlook ahead. This was certainly reflected by market sentiment at the conference in Doha, which is in its 10th year, attracting more than 700 delegates from around the world.
And no wonder. According to the MENA Insurance Barometer 2016, the region has a $50 billion insurance market against a gross domestic product of $3.4 trillion, leaving sizeable scope for growth in attracting global re/insurers, but equally presenting a sizeable challenge in achieving this growth.
The potential has led to some market share grabbing, which is reflected in the level of pricing and terms and conditions offered.
Time and again during the conference, discussions turned to the shared responsibility of brokers, cedents and reinsurers to realize sustainable growth by steering the market towards greater underwriting discipline.
In order to achieve such underwriting discipline, there should be a strong focus on retention levels and a balance between cedant and reinsurers exposure.
While there is no sign that capacity is drying up, creating challenging market conditions, market sentiment was focused on the need to think more about the quality and not just the quantity of capacity entering the market. There is a general acceptance that a reduction on overall capacity will sharpen the focus on profitability.
The issue with lower profitability in the market is highlighted by players that have already chosen to withdraw from the region’s non-life insurance market.
There remains a strong reinsurance purchasing culture among local cedents due to the size of the projects and the growth of new products and specialty classes.
With its inextricable links to the energy markets in the region, insurance and reinsurance profitability has also been impacted by shifts in supply and demand for crude oil‑ and this was also a hot topic at MultaQa.
Despite some recovery in the price of oil to around the $40 mark it’s still a long way away from a few years back and with no signs of recovery to such levels in the near future.
This has led to interesting discussions about the long term implications of the current oil prices, with a shift expected from the heavy dependence on the oil industry towards a more balanced economy. This could lead to development in the services, tourism and financial industries to drive growth, and in the United Arab Emirates, we are already seeing the success of this.
Changes in industry also of course present new risks, which in turn require the insurance industry to come up with new solutions to cater for the market requirement. So the impetus is on insurers to bring innovative solutions to the region, and I am sure that will be high up the agenda at future MultaQa conferences.