The Middle East insurance and reinsurance market is still in emerging stage. There are two categories in between mostly, i.e. the national insurers and multinationals. Multinationals have branches here mostly for only generating new business. The technical aspects are mostly done at headquarters in developed countries. Moreover, the market is highly fragmented which means that the top 3 or 5 dominate the market in terms of premiums and the other dozens of companies compete for the rest of the business. This effectively means that national insurers only at top level in market are able to concentrate on technical aspects and there is normally no major diffusion of technical skills and resources from the multinationals.

The oil crisis has certainly shaken GCC markets as they realize that they cannot remain addicted to oil revenues and must diversify now on a concrete basis. This has brought in a number of structural changes. It is suggested that technical skills should be seen as a source of competitive advantage and of monetary value now when undertaking such structural changes. Industry wide initiatives need to be undertaken to increase awareness and a gradual opening of the black box of insurance operations and specially reinsurance needs to be given priority.

Advice to reinsurers is that the employees should know their terminologies! Reinsurance accounting is far more complex and intricate than insurance accounting and training initiatives in the GCC region need to be increased for reinsurance employees.

For reinsurers, it is increasingly becoming relevant that they should be aware of the cedants’ changing behavior and adapt accordingly. Regulations mean that there is increased pressure to insurers in the GCC region to increase their capital adequacy and retention levels. This is creating preference for reinsurers that can offer more security, line sizes, global offering and network of local presence. National reinsurers are still preferred sometimes because of lower quotations, higher limits given, relationships developed already with them, regulatory requirements to cede a minimum floor to them, some niche markets like marine war and so on. There is a push for smaller reinsurance panels so that monitoring costs are reduced and insurers are better able to assess the counterparties instead of being unaware of them. 

Loss adjustment expenses are generally much more important for reinsurance treaties then for insurance contracts generally. Nothing is being done to highlight this crucial difference in emerging markets.

Regulations have taken a key stage in making structural changes to markets especially UAE and Saudi regulators. Actuaries are more in demand for the value addition they bring from motor pricing, medical pricing, reserving and other quantitative assessments. However, retention ratios for commercial insurance is still very low and actuarial expertise is mostly utilized for personal lines of general insurance. More penetration by actuaries in commercial insurance and reinsurance companies needs to be propagated.

It is vital for insurers and reinsurers to be aware of current and upcoming market trends. For instance, as the supply and production chains of global companies become more geographically scattered and inventories of key components become smaller, the potential for business interruption losses is also escalating.

Reinsurers in the upcoming future are facing:[1]

  • Expanding risk universe
  • Growing risk aversion in modern societies
  • Growth in emerging markets
  • No serious substitutes for reinsurance
  • Reinsurance is embracing and will benefit from new technologies

There is significant correlation between commercial general insurance and reinsurance as most of personal general insurance is retained by insurance companies whereas most of commercial general insurance is ceded to reinsurers. Aside from regulations, actuaries also need to pro-actively show their value addition for commercial general insurance.

[1] The Reinsurance Industry in 2020: Denis Kessler SCOR Re.