Summary of Key Findings
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Confidence in the future of the reinsurance sector in the GCC remains strong within the global reinsurance industry, which perceives the region as one of the leading global growth markets. About two thirds of interviewees continue to expect that reinsurance will outpace the rate of expansion of regional GDP, which is already one of the fastest growing in the world.
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The GCC region has experienced a strong turnaround in expectations of reinsurance pricing. Almost all interviewees (92%) expect reinsurance prices in the GCC to stabilise or increase over the next 12–24 months, compared with the equivalent level of 29% at the beginning of 2011. In a new development, one third of respondents predict a moderate increase in average GCC reinsurance pricing levels. This change in outlook for the market reflects a slowing of capacity growth following major insured catastrophe losses in Asia and the US in the first half of 2011.
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Political change in the wider Middle East has had a limited impact on perceived prospects for the industry in the Gulf region. A specific effect, however, of heightened awareness of political risk was observed on reinsurance terms and conditions, which 88% of interviewees expected to tighten, (up from 18% six months earlier), leading to clearer contract definitions, exclusions and event limits.
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The share of those expecting reinsurance capacity in the GCC to grow further has fallen from 64% to 50%, as a consequence of a sharp reduction in excess capacity in global reinsurance markets, bringing supply and demand in the region into closer balance.
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Only 38% of respondents believe that the share of regional (including Asian) capacity will continue to rise, down from 82%, the reason being that regional companies are perceived to be disproportionately affected by global market developments such as a massive surge in the cost of retrocession.
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There are however some signs that retention levels may increase, as a result of regulatory pressure and other factors, since 46% of respondents believe retentions will increase from their average levels of 57% of non-life premium income.
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As a result of these factors, the profitability of the regional industry is stabilising, although at low but acceptable levels. Almost three-quarters of respondents (71%) expect profitability to remain stable or improve, compared with under half (43%) at the beginning of the year.
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Overall, the outlook for the reinsurance industry in the GCC has improved significantly in the last six months, as the market continues to grow, while capacity growth slows and pricing improves.
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