A.M. Best Special Report: Low Oil Prices and Political Instability Provide Testing Times for Middle East And North Africa Insurance Markets

Once viewed as an economic powerhouse amongst emerging markets, the
Middle East region has recently succumbed to a deterioration in
medium-term economic forecasts. The unrelenting low oil prices and
persisting regional instability are two key challenges likely to dictate
the operating landscape of Middle East and North Africa (MENA) economies
over the near to medium term, and will have repercussions for the
insurance markets across the region.

In a new Best’s Special Report, titled, “Low Oil Prices and
Political Instability Provide Testing Times for Middle East And North
Africa Insurance Markets,” A.M. Best notes that whilst the
short-term impact of political instability and related economic and
financial systems risks can be absorbed by most A.M. Best-rated insurers
in the region, longer-term exposure ultimately requires enhanced
enterprise risk management capabilities and practices.

Significant growth in gross premium revenues in the region over the last
decade has stemmed from an increase in insurable risk, partly driven by
government and private sector investments in energy, infrastructure and
industrial development projects. Mahesh Mistry, director, analytics,
said: "While local insurers often only have profiles and balance sheets
which support them taking a small net share on large property and
engineering risks, they have benefited from strong inward commissions
from regional and global reinsurers that bear the majority of these
risks. Consequently, whilst a slowdown in new energy, property and
construction risks may not impact the net written premium base of most
domestic insurers, given their extremely low retention levels on these
risks, technical profitability may be subject to deterioration."

For insurers operating in the region, the implications of the recent
political instability has been varied. Whilst some countries, such as
those that form the Gulf Cooperation Council, have remained relatively
immune to long-term political instability, other countries have
experienced significant political instability, reform and social unrest.

Myles Gould, senior financial analyst, added: "For most MENA insurers,
political instability and social unrest has not directly impacted their
operations or performance over the short term. However, the political
strains that have arisen in these countries have resulted in heightened
economic issues as well as financial market volatility."

A.M. Best further notes that while some insurers have benefited from the
regional unrest, taking advantage of opportunities such as an increasing
demand for political violence cover, an understanding of the risks of
operating in countries experiencing currency fluctuations, illiquid
asset classes, investment market volatility, high inflation and business
interruption is only one part of the challenge. The real test for an
insurers’ risk management approach is the strength and agility of the
controls, practices and measures that it puts in place to prevent issues
triggering earnings and capital volatility, with the strongest insurers
being those that go one step further and consider “what if” scenarios
and create contingency plans that target the unexpected.

To access a complimentary copy of this special report, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=246518.

A.M. Best is the world’s oldest and most authoritative insurance
rating and information source. For more information, visit www.ambest.com.

Copyright © 2016 by A.M. Best Company, Inc. and/or its
affiliates. ALL RIGHTS RESERVED.

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