Underwriting discipline in view of higher losses and tighter regulations has prompted Middle East and North African (Mena) insurers to have a more confident outlook on insurance premiums and profitability over next one year, a Qatar Financial Centre (QFC) survey has found.
The Mena Insurance Barometer, which was launched yesterday, found that as much as 84% of respondents view insurance prices in commercial lines to either remain stable or increase compared to 77% a year ago and 91% expect rates in personal lines to either remain stable or increase against 72% in the previous year. “Rate expectations have improved as higher losses and tighter regulations promote underwriting discipline,” it said.
The barometer also found a more positive view on current insurance prices and profitability, particularly in the personal lines.
It said 84% and 36% of respondents viewed that insurance prices are currently low in commercial and personal lines compared to 91% and 55% respectively in the previous year. Accordingly, 62% and 30% of them viewed profitability in the commercial and personal lines to be currently low against 66% and 39% respectively a year ago.
It also found that 84% (compared to 91% in 2013) of those respondents view current prices in the Mena commercial lines business as below the average of the past five years.
“Competition remains fierce, reflecting the continuing abundant supply of reinsurance and the increasing relevance of brokers,” the barometer said. However, it said internationally quoted transactions are “considerably more attractively” priced than local (co-insurance) deals.
In general, rates in North Africa, the Levant and Turkey were viewed as being more adequate than the Gulf region where competition and pricing pressures are further fuelled by widespread tendering requirements for public projects, it said.
Respondents judge personal lines more favourably with 61% expecting premium rates to be at average levels, against 45% in the previous year. In comparison with commercial insurance, personal lines is characterised by a smaller number of players, higher barriers to entry, greater customer loyalty. As a result, more scope for upward rate adjustments, the barometer said, adding non-price competition (through distribution or services) also plays a “significant” role.
In general, the profitability picture looks brighter as most companies still generate “reasonably” decent underwriting results and enjoy relatively generous commission income from reinsurers and benefit from improving investment returns.
Observing that a majority of respondents do not expect changes to the industry profit margins for the next one year, the study said encouraging developments such as recovering investment markets, a tighter regulatory oversight and improving risk management practices are offset by concerns on an increasing frequency of losses and rising operating expenses. “Natural perils are becoming more frequent in the Gulf region, leading to higher attritional loss ratios. Societies need to strengthen their resilience through tighter building codes and construction standards. For insurers and reinsurers, it is no longer feasible to give away catastrophe protection for free,” Guido Zagatti, Reinsurance manager Mena, Generali, said. Gulf Times