Emerging Middle East and Africa - Expect weakness in 2020
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- Life premium growth slowed in Africa in 2019. In the Middle East, the market contracted for a second consecutive year, with premiums down around 1%. This reflects weak economic conditions, particularly in oil exporting countries where the expat population is shrinking.
- We estimate that life premiums in the UAE, the biggest market in the Middle East, returned to growth of close to 5% in 2019 (2018: –5.4%). However, this was offset by Saudi Arabia, which contracted by 11% (2018: –5.6%).
- We estimate that premiums in several markets in Africa (eg, Morocco, Egypt, Ghana and Nigeria), grew at double-digit rates in 2019, in spite of economic struggles. In contrast in South Africa, by far the largest market in the region, life premium growth was less than 1% due to the weak economic environment, which is also affecting sector profitability: low interest rates are impacting as investment returns and lapse rates are increasing.
- This year’s COVID-19 crisis is hitting the whole region, particularly the oil exporters. In the short term, this will be reflected in a contraction of the life market in 2020. Sector profitability will be negatively impacted by lower interest rates.
- An upgrading of regulatory frameworks and consumer protection continues, although the COVID-19 crisis has caused delay in some countries. In the UAE, new regulations for life insurance and family takaful will bring more transparency for customers and also cap commission levels. This could curtail sales in the short term but could be a positive in the longer term.2 The COVID-19 crisis could also raise risk awareness and highlight the value of life policies.
- Overall region non-life sector growth in 2019 was driven by recovery in the Middle East, where premiums grew by 7.2% after a 5.8% contraction in 2018. The stabilisation was mainly driven by Saudi Arabia and the UAE, where negative inflation pushed real growth rates to 10%.
- Hardening rates in property and engineering in UAE were partly offset by softening in motor third-party liability3 following the Insurance Authority’s decision to allow price discounting for good drivers. However, the market also benefitted from a new mandatory employee insurance product that employers need to buy for domestic and foreign workers.4
- In Saudi Arabia, all lines except motor reversed to positive trend with medical, engineering and energy business lines outperforming. In motor, price competition and weaker car sales were the main drag on premiums.
- Premiums in Africa barely moved in 2019 (+0.8%, based on the markets where data is already available). The weak economic environment was a key factor, particularly in the large markets like South Africa and Nigeria. In Kenya, there was positive momentum in medical and liability business, but the overall market contracted by more than 3%. There was a sharp fall in marine premiums.
- Even though COVID-19 reached the region with a delay, we expect the non-life sector to suffer from this year’s pandemic-induced recession. Oil exporters with structural issues before the crisis and limited financial resources available (eg, Nigeria and Angola) will be hit hardest. The commodity price collapse, capital outflows, domestic lockdowns and the standstill in travel and tourism will impact sales in related insurance lines such as marine and credit.
- Motor business will also be affected as incomes come under pressure. However, profitability may be boosted by lower claims frequency on account of restricted mobility in this year’s lockdowns. At best, we see flat profits through 2021.
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1 Alice Haine, "UAE's Insurance Authority rolls out new life insurance regulations", The National, https://www.thenational.ae/business/money/uae-s-insurance-authority-rolls-out-new-life-insurance-regulations-1.934061
2 Profits Continue to Rise for National Insurers in the United Arab Emirates, A.M. Best, 27 February 2020.
3 New employee insurance policies to start on October 15, Ministry of Human Resources and Emiratization, 10 October 2018, https://www.mohre.gov.ae/en/media-centre/news/10/10/2018/human-resources-and-emiratization-new-employee-insurance-policies-to-start-on-october-15.asp