Although small and with no national reinsurer, Jordan’s reinsurance industry is still a dynamic market with growth likely in the future. Middle East Insurance Review spoke with experts to find out more.
By Sarah Si
In Jordan, the ongoing conflict in Gaza has raised worries in the reinsurance market due to its proximity, while environmental and weather risks remain unpredictable.
“Reinsurers writing business in Jordan are also under pressure to maintain technical profitability in a market where reinsurance rates are still viewed as inadequate, offer the promised added value and meet worldwide thresholds of recouping losses related to Nat CAT and COVID-19.
“As a result, there are efforts geared towards tightened reinsurance contracts in the form of narrower coverages, de-risking policies through clarity in definitions and factoring inflation into reinsurers’ pricing models,” Guardian Insurance and Reinsurance Brokers and Consultants general manager Hany Abboud said.
No national reinsurer, no problem
Jordan does not have its own national reinsurer.
“The Jordanian regulator has always been professional and competent, allowing access to foreign capacity and ensuring that the demands of local insurance companies can be covered according to individual needs,” Munich Re head of non-life Middle East and Northern Africa Andreas Pollmann said.
Moreover, international reinsurers can offer global diversification of risks to national primary insurers to insure and balance out regional peak or high risks at reasonable cost, he said.
“We also see the combination of local talents and presence of retail and wholesale brokers as catalysts in shaping the dynamic nature of this market and adding value to its clients,” Mr Abboud said.
Lower capacity
Over the past two years, reinsurers have become stricter. This includes offering capacities in a structured manner with lower treaty capacities, increased retention and risk sharing with cedants and lower ceding commissions, according to Mr Abboud.
“The intention is to highlight the importance of underwriting and ceding profitable business,” he said.
Although almost all insurers in Jordan have managed to maintain monetary automatic treaty capacity, the majority had capacities restructured in a way that the ultimate net retentions saw an average increase of 35%, he said.
“This had a direct impact on the cost of Nat CAT non-proportional treaties which increased almost 50% on average,” he said.
Reinsurance rates
According to both Apex Insurance and Reinsurance Brokerage and Consultants CEO Zuhair Al-Atout and Mr Abboud, an issue that has plagued reinsurance rates in Jordan for almost two decades is third-party liability. The premium has been tariffed at $110 for private vehicles – a figure insurers view as largely inadequate, both said.
This line of business has been placed under the excess of loss treaty in the reinsurance market and works with primary layers priced on burning costs and higher layers with fixed rates, Mr Abboud said. Over the past few years, there has been some stability in this area, he said.
For property, there has been an increase in rate movement due to various reasons, he said.
“The first being the general hardening in the reinsurance market. Secondly, there is the reduction in automatic capacities and increased need of facultative reinsurance,” he said.
Life reinsurance has experienced an increase in rate movement. Credit life even experienced movement that equated 300% due to adverse loss performance, according to Mr Abboud.
“We have seen rates going south sharply in the past year but have not yet reached the pre-COVID threshold,” he said.
According to Mr Abboud, over the past two years, business renewals have seen a 30%-40% premium increase, though some flattening of the rate curve happened in 2023 because of the abundance of regional capacities for medium sized risks and favourable loss performance.
Upcoming trends
Overall, market conditions are expected to largely remain unchanged, according to Mr Pollmann. “With climate change, there is no reason to believe that the trend of rising Nat CAT losses will stop or revert anytime soon,” he said.
Inflation may remain elevated as well.
He said, “Inflation will be a strong factor for loss development and will drive losses in all lines. It will need to be considered in pricing and underwriting along all parts of the insurance value chain,” he said.
The market will also remain complex with geopolitical and cyber risks, as well as deglobalisation, he said.
According to Mr Abboud, treaty reinsurers are expected to impose increased retentions on quota share treaties and offer lower ceding commissions.
“On the facultative side, we anticipate major contracts to no longer be afforded coverage on a full sum insured basis and loss limits to be imposed.
“Some other placement conditions would become standard and those related to proper valuation exercises would be carried out by the client to ensure inflation is tackled prudently,” Mr Abboud said.
He also expects premiums to be increased and swing clauses to be included on loss making contracts. Medical coverage is an area that may be affected, Mr Al-Atout said.
Another area he drew attention to was talent. “While there is good talent in top management, the insurance industry is not as lucrative as other industries. It is not easy to lure talent,” he said.
Digitalisation has also swept the reinsurance market, particularly in underwriting.
“Digitalised underwriting processes can significantly speed up processes. With emerging and changing risks on the rise, these tools can help underwriters to focus on critical decisions and fully exercise underwriting,” Mr Pollmann said.
The future
The future of Jordan’s reinsurance industry is bright, due to the country’s strong promotion of the ‘economic modernisation vision’ initiative to foster private entrepreneurship and economic activity.
“This initiative is supported by increased government spending and has a high likelihood to improve and modernise infrastructure and budgetary situations in the mid-term. Insurance is there to back up and protect investments and private initiatives by protecting against adverse developments,” Mr Pollmann said.
Jordan is also expected to achieve its targets for GDP growth, he said.
As of 2021, the Jordanian insurance market was valued at $902.1m, according to GlobalData.
“Motor insurance, third-party liability, property and life businesses as well as endowments, policies and saving policies are still very modest in Jordan. There is huge room for growth,” Mr Al-Atout said.