GCC Reinsurance Barometer

According to the 3rd GCC Reinsurance Barometer, released yesterday by the QFC Authority, most executive interviewees consider current reinsurance prices in the Gulf region to be below the long-term average. Only a third of interviewees expect a moderate increase in average Gulf reinsurance pricing levels.

Against this backdrop, reinsurers’ continued urge to grow in the Middle East may come as a surprise. A close inspection reveals that selective underwriters can achieve attractive risk-adjusted returns. Even though prices may be below technical levels - a view adopted by many survey participants - they are widely believed to be adequate given low loss experience.

Also, almost 50% of survey participants expect bottom lines to improve. This upbeat assessment is primarily driven by the expected longer-term impact of tightened terms and conditions as a result of the Arab Spring and the major Asian catastrophe losses in 2011. The latter are considered another incentive for reinsurers to expand into the Middle East in light of the region’s perceived limited catastrophe exposure.

This continued influx of capacity will limit the scope for price increases. In summary, opportunistic reinsurers will not turn a quick buck in the Middle East, whereas those who underwrite selectively and take the time to understand the marketplace have more chance of being decently rewarded.