MENA reinsurers seek to diversify revenue streams: report

Reinsurers in Middle East and North Africa (MENA) are seeking to alter their portfolios in favor of new or less volatile segments, and look to diversify their revenue streams, AM Best, a global credit rating agency, said in a recent report.

“Well-established regional reinsurers have shown resilience to the challenging operating environment. Although their performance has lagged that of their global peers, they continue to ride competitive pressures and carve out market niches to support their operations,” it added.

Investment performance for the MENA region remains a key driver of overall operating results and return on equity (ROE) ratios as regional reinsurers face pressures on their technical performance. However, the weak interest rate environment and low-yielding investment markets have resulted in ROE ratios for regional reinsurers remaining in the low single digits.

“The increase in underlying yields is expected to also dampen bond performance over the medium term,” the report said.

AM Best said it expects interest in retakaful to continue as the primary takaful market grows and its performance improves

“Demand may remain limited as long as Shariah boards of takaful companies maintain a lax attitude towards enforcing the use of retakaful,” the agency said.

Consequently, it does not expect significant new “standalone” entrants to enter the retakaful market, with the conventional market continuing to supply capacity through branches or subsidiaries.