Qatar Financial Centre publishes its first annual MENA Insurance Barometer

35 senior executives from international and regional insurers, reinsurers and brokers operating in the MENA region participated in the study. According to the interviewees confidence in the future of the region's insurance sector remains strong. In fact, 68% of respondents expect that MENA insurance premiums will grow faster than the region's Gross Domestic Product (GDP), despite challenges arising from the Arab Spring and geo-political tensions.

The MENA Insurance Barometer surveyed the countries of the Gulf Co-operation Council (GCC), the Levant, North Africa and Turkey. The region has a population of more than 360 million people and generates a combined GDP of about US$ 3.3 trillion, close to 5% of the world's total. As an economic block the region would rank as the world's fifth largest economy, almost matching Germany. Between 2007 and 2011 the region's real GDP grew at 4.2% per annum, well above the global average of 3.3%. For 2012 and 2013 the International Monetary Fund (regional outlook November 2012) expects GDP growth in oil-exporting countries to be more than twice the level of oil-importing countries (4.6% versus 2.2%). The oil-exporting countries are expected to benefit from favourable oil prices and continued government spending, in particular in infrastructure and construction. In contrast, the oil-importing countries are confronted with slowing foreign direct investment flows and rising international food and fuel prices. In addition, the crisis of the Eurozone weighs heavily on a number of countries that have important economic links with Europe.

In 2011, the MENA insurance market was worth about $42bn in annual premiums, up from $26bn in 2007. Non-life markets, which accounted for $35bn in 2011, grew at an average annual growth rate of 7.5%, while the life markets, accounting for $6.6bn, expanded by 10.1% per annum, adjusted for inflation. Insurance markets in the MENA region mirror the macroeconomic dynamics of the region as well as the market's low insurance penetration - premiums account for just 1.3% of GDP, a fifth of the global average. However, this gap is narrowing as MENA insurance markets have outpaced GDP growth recently.

In light of these strong economic fundamentals, it comes at no surprise that interviewees consider economic growth as the main strength of the MENA region. In addition, the young, growing and increasingly more affluent population is viewed as another key strength, along with the region's low catastrophe exposure, which contributes to risk diversification strategies pursued by international insurers and reinsurers.

In terms of weaknesses, the Barometer confirms that the MENA insurance markets are characterized by fierce competition and an abundance of (re)insurance capacity, putting pressure on technical results and driving up acquisition costs. Furthermore the region's insurance regulations are still perceived as inadequate by the majority of survey participants (56%). In particular, a lack of consistency in supervisory oversight across the region is criticized.

The MENA region's low insurance penetration is perceived as a major opportunity. Given the average GDP per capita the region's penetration levels should be significantly higher. Therefore, personal lines are expected to benefit most from the rising affluence of the population, supported by compulsory schemes, for example in medical insurance. In terms of threats, political instability and geo-political risks rank highest with the Barometer's interviewees, followed by continued pressure on rates and a further erosion of profitability.

The Barometer also found that only a minority (36%) of respondents expects the MENA insurance market to consolidate over the next 12 months as average levels of capitalization are solid and cultural reasons remain a major obstacle to mergers and acquisitions. Further, some 50% of interviewees expect that foreign insurers will gain market share over the next two years, on the back of superior customer focus, distribution know-how and technical skills.

The prospects of Takaful insurance are viewed critically. Only 38% of respondents expect this market segment to outgrow total insurance premiums. Business models for Takaful insurance are believed to be in need of a thorough review.

Shashank Srivastava, CEO and Board Member of the Qatar Financial Centre Authority said: "The MENA region exhibits above average GDP growth, even faster insurance premium growth, a young and rising population, low levels of insurance penetration and, in most countries, a rather limited natural catastrophe exposure. In sum, the MENA region is an attractive emerging insurance market which any aspiring international or regional insurer and reinsurer should have on its strategic agenda."

Akshay Randeva, Director Strategic Development of the Qatar Financial Centre Authority added: "The MENA Insurance Barometer is our fourth regular survey of the insurance and reinsurance markets, first covering the Gulf countries and now the wider MENA region. The study highlights the tremendous growth dynamics as well as the multi-faceted opportunities and challenges presented by MENA insurance markets. It provides some key market data and intelligence and is designed to help improve the transparency of the sector and facilitate more robust decision-making."

Dr. Schanz, Alms & Company AG, a Zurich-based consultancy, conducted the executive interviews and edited the 1st MENA Insurance Barometer.