Best’s Market Segment Outlook: Gulf Cooperation Council Market Outlook is Negative
A new Best’s Market Segment Outlook, “Gulf Cooperation Council Market Outlook is Negative” states that challenges include persistent low hydrocarbon prices (and the resultant pressure on public spending), the introduction of value-added tax (VAT), political tensions and trade embargos and the unrelenting level of price competition. Insurers in the GCC have historically relied on government spending for premium growth – particularly for infrastructure projects. As hydrocarbon prices are trading below fiscal break-even levels, governments have been reconsidering their economic policies, and have demonstrated increasing spending restraint.
The report notes that government-related engineering and property policies are considered highly profitable, benefiting from heavy reinsurance participation and strong levels of inward reinsurance commission. A contraction in premiums derived from these policies, whilst not material to the net premium levels for insurance companies, could potentially put insurance profits under pressure.
Over the medium term,
On a positive note, GCC carriers are increasing their focus on risk management. The balance sheets of GCC insurers generally remain well-capitalised and capable of enduring catastrophe stress scenarios, although insurers remain more vulnerable to shocks in investment markets, which may become more severe in the face of economic and political uncertainty.
To access a complimentary copy of this report, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=270360.
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