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MENA FOCUS

Exhibit 2: MENA reinsurers - Non-life underwriting ratios

Loss Ratio (%) Combined Ratio (%)

Company Country 2012 2013 2014 Syr Av. 2012 2013 2014 5-yr Av.
Qatar Re Qatar
Trust Re Bahrain 87 82 84 82 114 111 103 106
Milli Re Turkey
66 64 67 66 95 95 97 94

70 79 83 84 99 113 116 108

ARIG Bahrain 59 63 67 65 97 99 104 102
CCR Algeria
SCR Morocco Algeria 47 47 40 44 78 76 72 75
Saudi Re
Morocco 50 28 77 57 84 67 90 88

Saudi Arabia 59 119 75 87 84 154 109 120

Kuwait Re Kuwait 68 70 68 71 94 97 106 101
Arab Re Lebanon 65 72 78
Emirates Re UAE 59 62 65 71 97 105 113 104

67 96 98 92 100

Gulf Re UAE 72 86 128 83 104 121 258 125

Tunis Re Tunisia 55 50 58 57 100 98 100 100
ACR ReTakaful Bahrain 77 28 21
Average 64 66 72 90 178 177 39 133

71 98 100 103 101

Notes:
Excludes companies for whom financial data was not available.
Takaful Re is consolidated into Arab Insurance Group (B.S.C.).
Gulf Re’s 2014 combines ratio is increased by the adoption of intragroup reinsurance protection.
All averages calculated on a weighted basis. Combines ratios reflect the sum of the loss ratio and expense ratio.
The loss ratio is calculated using net claims incurrent / net earned premiums.
The expense ratio is calculated using net operating expenses / net written premium.
Source: A.M. Best research

assume and impose stricter risk mitigation requirements on Rating issues for MENA reinsurers
higher-risk commercial properties, such as requiring water- All A.M. Best-rated reinsurers domiciled in the MENA
sprinkler systems and fire retardant structures. region are generally well capitalised. They have secure
Financial Strength Ratings (FSRs), with the highest rating
With premium rates in the market expected to remain assigned at present an FSR of A. The outlook for the FSRs
stagnant over the medium term, regional reinsurers have and Issuer Credit Ratings (ICR) on all of the companies
sought to improve their approach to risk selection and are is currently stable or positive.
expected to continue to hone their risk appetites even further
over the coming years. Many regional reinsurers have invested Existing A.M. Best-rated reinsurers have been
significantly in advancing their risk management functions, strengthening their capital positions through retained
which not only enables companies to improve underwriting earnings, and new entrants typically hold surplus
practices but more importantly limits earnings volatility by capital to support their expanding franchises. Capital
understanding aggregation and accumulation of large losses. requirements are largely driven by underwriting risk,
An increasing focus on data quality, surveying techniques and with most reinsurers adopting conservative and diverse
risk mitigation practices is assisting reinsurers to improve their investment profiles and high net retentions that minimise
underwriting approach. exposure to counterparty credit risk.

The overarching decision for all MENA-domiciled Operating performance remains profitable for most
reinsurers remains whether to grow their profiles, which given MENA-domiciled reinsurers; however, for many, this
the current competitive environment is likely to put pressure on reflects robust investment income which has offset
underwriting margins, or whether to focus on profitability at increasingly pressured underwriting earnings. The
the expense of profile and market share. This decision remains persistence of thin technical margins coupled with an
all the more pertinent for new entrants which need to grow in increase in large loss experience from commercial lines
order to offset high start-up expenses. has resulted in diminishing underwriting results for many
regional reinsurers in 2014.
Given that technical margins in the MENA region have
been declining in recent years, regional reinsurers are looking Overall, A.M. Best believes that whilst MENA-
further afield, mainly to the Indian sub-continent, the Asia- domiciled reinsurers continue to grow their presence
Pacific territories and North Africa, to search for higher-margin and penetration in the region, they remain small when
business which compliments their existing portfolios. Whilst compared with their international counterparts. Technical
this can be viewed as a positive step, aimed at improving performance remains pressured and a key rating issue
technical performance, there is undoubtedly execution risk over the medium term. However, improving enterprise
associated with expanding into unfamiliar markets. This is risk management goes some way to reduce earnings
particularly true given the higher anticipated catastrophe risks v ol a t i l i t y.
that may be assumed by writing new business, and which could
result in unexpected volatility in company earnings. Mr Myles Gould is Senior Financial Analyst and Mr Mahesh
Mistry is Director, Analytics with A.M. Best.

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