comment

Is The Market Hardening?

Jihad Ghanem and the Chedid Re team consider how rates have reached such uneconomic levels and whether there is a way out.

Insurers across the Middle East waited anxiously for the renewal guidelines of the leading reinsurance market for the treaty renewal of January 1, 2010, especially after a very soft market and severe economic crisis; the end of which is not yet known.

The negative effect of the above can be simply observed from the financial and technical results of the insurance companies for 2008 and the first nine months of 2009 in the Middle East, especially the GCC countries. Equally important, if not more so, is the impact of the financial crisis on the results of the major reinsurance companies.

Accordingly, no one from the industry should disagree with the necessity to rectify the current terms and conditions of the insurance market in the Middle East and to return to the basics. Such a correction, if it occurs, will be of benefit to all players in the region, with the exception, of course, to the policyholders. These insurance buyers got used to bargain rates and succeeded during the past years to minimise their insurance costs to an absolute minimum; to levels much lower than their initial insurance budgets. This left lots of money on the table, from the insurer perspective, and that was during a period of prosperity and booming economy. However, with today’s crisis and lack of cash, it becomes much more difficult to convince those policyholders of the need to increase their insurance costs back to their initial budgets that were set in the past. Such an increase might exceed 300 per cent in certain cases in order to reach back to the technical prices that are considered adequate to the reinsurers.

Who is to blame?
At first, one tends to blame the leading reinsurers for reaching such soft market conditions by allowing high automatic capacities to the insurers with low retentions – as low as five per cent – and providing a gearing effect to insurers through high commissions on highly unbalanced proportional treaties; in addition to other factors such as the capacity to write facultative inward business with a vast territorial scope, extending way beyond the original location of the insurer.

Pages: 1 2