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GCC reinsurance sector confidence stays strong

JEDDAH – Market sentiment remains upbeat among reinsurers and brokers operating in the countries of the Gulf Cooperation Council (GCC), the 3rd GCC Reinsurance Barometer survey by Qatar Financial Centre (QFC) Authority released Monday showed.

It said the impact of last year’s near-record burden of global catastrophe losses, the aftermath of the Arab Spring and growing primary insurance markets will translate into an improved pricing and profitability outlook. The annual study, which is now in its third year, is based on in-depth interviews conducted with 33 reinsurance and brokerage executives, representing the majority of the region’s players.

The survey revealed that the confidence in the future of the reinsurance sector in the GCC remains strong. Driven by strong economic conditions and prospects, the region continues to be perceived as one of the world’s most attractive (re)insurance growth markets, benefiting from a relatively low exposure to natural perils.

As in 2011, about two thirds of interviewees expect that reinsurance exposure and premium volume will outpace regional GDP growth.

The GCC region has experienced a strong turnaround in expectations of reinsurance profitability. Of those surveyed, 43 percent expect profitability to improve over the next 12-24 months, compared with the equivalent level of 8 percent a year ago. This expectation is based on a combination of significantly tightening terms and conditions (e.g. event limits and exclusions) as well as moderate increases in prices as a consequence of massive global catastrophe losses in 2011.

The percentage of participants expecting reinsurance capacity in the GCC to grow further has increased from 50 percent to 54 percent.

As of January 2012, $570 billion worth of projects were underway in the region. Current projects in Qatar amount to $63 billion, with a further $108 billion in the pipeline for the next three years.

Based on these strong economic fundamentals, confidence in the prospects of the reinsurance sector in the GCC remains high as the region continues to be perceived as one of the world’s most attractive (re)insurance growth markets, benefiting from a relatively low exposure to natural perils. As in 2011, about two-thirds of interviewees expect that reinsurance exposure and premium volume will grow faster than the region’s GDP.

In terms of reinsurance profitability, the survey has revealed a strong turnaround in expectations. Compared to a mere 8 percent a year ago, 43 percent of interviewees now expect profitability to improve over the next 12-24 months. This heightened sentiment is based on tighter terms and conditions as well as moderate price increases in the region due to the massive global catastrophe losses in 2011.

The GCC remains an attractive high growth, low-catastrophe market and geographic portfolio diversification is viewed as even more essential following last year’s catastrophe losses.

Forty one percent of respondents believe that this capacity growth will be driven primarily by regional and Asian capacity, citing continued strong capital formation in the GCC region and Asia.

“The attractiveness of the GCC as a marketplace for reinsurers continues to increase,” said Shashank Srivastava, CEO and Board Member of QFC Authority. “Economic and associated direct insurance market growth is set to remain well above the global average. In addition, natural catastrophe exposure is moderate, resulting in generally low and stable loss ratios. At the same time, crucial soft factors such as insurance awareness and the professionalism of reinsurers, insurers and brokers continue to improve.”

© The Saudi Gazette 2012, Sep 11 2012

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