The MENA region remains an attractive destination for the global reinsurance industry. According to the 2015 MENA Reinsurance Barometer, published today, strong primary insurance market growth and a perceived low exposure to natural perils still lure further regional and global reinsurance capacity to the region. However, unabated pressure on prices and the increasing share of largely self-retained personal lines business weigh heavily on the reinsurance sector’s growth prospects.

“Reinsurance capacity is expected to further expand in the MENA region. This is the main finding of the MENA Reinsurance Barometer which we have been publishing since 2011,” says Sheikh Salman bin Hassan Al-Thani, Chief Strategic and Business Development Officer of the Qatar Financial Centre. “The region’s strengths, namely robust insurance market growth, a vast pipeline of infrastructure and construction projects and a relatively low natural catastrophe exposure, still prevail over the challenges. Excess capacity, a lack of technical expertise and political instability are major challenges for the region.”

The MENA Reinsurance Barometer is an annual survey based on in-depth interviews. In 2015, senior executives of 32 regional and international reinsurance companies, ceding companies and intermediaries operating in the MENA region were interviewed. The 2015 edition shows that between 2009 and 2014 the region’s total non-life and life insurance premium volume expanded from about US$ 32 billion to more than US$ 51 billion. Growth is driven by the low insurance penetration in the region, with premiums accounting for just 1.4% of GDP in 2014, less than a quarter of the global average. However, as the region’s governments introduce compulsory insurance schemes in motor and healthcare the gap is slowly narrowing. In addition to the expansion of personal lines business, massive spending on infrastructure and construction continues to be the most powerful driver of insurance and reinsurance demand in the region. More than US$ 1.4 trillion worth of projects are currently underway in the GCC region alone.

However, only 17% of executives polled still believe that reinsurance premium growth will outpace regional GDP growth over the next 12 months, down from 28% a year ago. The main reason is continued pressure on rates, in combination with the rapid growth of personal lines, such as motor and health insurance, which are characterized by lower cession rates. All interviewees agree that prices are below the five-year average and 45% of them are convinced that they will decline even further.

Nevertheless, 91% of participants expect reinsurance capacity in the MENA region to continue expanding, albeit more moderately than before. The region remains an attractive high growth, low-catastrophe market, with positive effects on overall global portfolio diversification. The share of those expecting capacity to increase by more than 10% dropped from 18% to 3%, suggesting a deceleration in growth.

Retention levels in the region remain low compared with other markets – on average domestic insurers in the MENA region cede 30% of their premium income to reinsurers. Only 42%, down from 65% of respondents, expect rising retentions over the next 12 months.

In light of strong primary market growth and improving regulations, current reinsurance business sentiment remains mildly positive at 0.3, measured on a scale from -5 to +5 (very bearish to very bullish). In addition, long-term fundamentals such as a young and growing population and low levels of insurance penetration support a positive outlook, offsetting negative factors such as continued fierce competition and exacerbating political instability in the MENA region.

A copy of the report can be downloaded at: http://www.qfc.qa/Documents/MENA_reInsurance2015.pdf

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