MENA needs fewer lemmings and more black sheep

As a slew of re/insurers head to the MENA region in search of opportunities, a senior executive warns that a reality check is needed.

Giles Ward, the regional president of Eurasia and Africa at Ace, cautioned that the region is close to approaching a crisis point as capacity threatens to outpace demand.

Speaking at the MultaQa Qatar 2015 conference, Ward explained that the reality is that risk and insurance awareness are significantly lower than developing regions, the geopolitical landscape remains uncertain and volatility continues to evolve in ways that haven’t been seen before.

“Is there enough to feed all the mouths in MENA? There are many more entering the market than exiting and the market is not growing at a rate fast enough to absorb all this additional capacity in the short term. Companies are betting on superior growth and fighting over a small slice of the same pie,” said Ward.

According to Ward, there are three alterations that must be made. Firstly, surplus capacity must be prevented from masking unprofitable business. He added that while insurance regulation in the region is making good progress, with the low oil prices potentially increasing momentum, much of the reinsurance requirements are still not risk based, which in turn doesn’t encourage a disciplined approach.

His second alternation would be for there to be “fewer lemmings and more black sheep”, making it important for shareholders to ask whether companies understand their pricing or whether they are following the market.

“Many re/insurers in the region have avoided consolidation making it highly fragmented,” Ward said. “Rather than expanding as a herd of small creatures, stronger beasts will be needed to stand out.”

Finally, Ward believes that MENA will need to reduce its addiction to reinsurance as an over reliance on cheap capacity can distort reality.