Companies operating in the Middle East and North Africa (MENA) region have encountered supressed growth rates as economic and political uncertainties persist, although entities rated by A.M. Best have broadly maintained strong balance sheets.
A new Best’s Special Report, titled, “Rated MENA Companies Maintain Strong Capitalisation Levels Despite Stifled Growth,” states 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 and fiscal budgets remain under pressure. 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. In 2017, the majority of A.M. Best’s ratings actions were affirmations (81%), with upgrades (8%) outweighing downgrades (2%).
Greg Carter, managing director, analytics, said: “In the past year, A.M. Best has undertaken a mixture of upgrades and downgrades for (re)insurers operating within difficult market conditions throughout the MENA region. For some companies, business volumes are under pressure and earnings are declining, but in general, rated entities have maintained strong capital positions.”
The report states that fierce competition and pricing pressure remain in many segments and markets in the MENA region. A.M. Best expects regulatory changes will put further pressure on capital and in the short-term, MENA (re)insurers are likely to continue to feel the impact of the economic slowdown, currency depreciations, austerity measures and volatility in equity and real estate markets.
Yvette Essen, director, research and communications, and report author, added: “Despite the various challenges facing (re)insurers, in A.M. Best’s opinion, there are pockets of opportunities if companies can be selective in their underwriting approaches, focusing on specific products and territories, or even through successful distribution platforms. They could examine portfolio consolidation and a realignment of strategy, and innovate into niche and non-traditional lines. There may also be greater demand for insurance related to alternative energy sources.”