Pressure persists for MENA insurers
Insurance companies operating in the Middle East and North Africa (MENA) region have encountered supressed growth rates due to economic and political uncertainties, according to AM Best.
As the MENA region has historically been heavily influenced by oil prices, a decline from the high levels reached at the end of 2014 has impacted economic development.
Governments have cut back on major infrastructure projects in recent years, leading to a depressing effect on insured values and insurance activity – particularly for property, engineering and construction lines.
Sentiment and investment in the region has also been affected by ongoing political instability and conflict, for example, the war in Yemen and the blockade of Qatar. Elevated levels of political instability have unsettled the Gulf Co-operation Council (GCC) countries, leading to currency and inflation risks in the wider economies.
Fierce competition and pricing pressure remain in many segments and markets in the MENA region. AM Best considers excessive or aggressive growth in tough market conditions over a sustained period of time to be a significant threat to a company’s credit quality. The operating environment is also characterised by low investment returns, declining returns on equity, and increased pressure to focus on core underwriting results.
Uncertainty regarding long-term oil prices and the geopolitical situation are likely to persist. Countries running fiscal budget deficits will experience further economic strain, and there is the risk of currencies being unpegged from the US dollar, AM Best noted.
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