Middle East markets are fraught with political and climate risks that reinsurers are using adaptive pricing and CAT modelling to counter. Hannover Re’s Ms Sharon Ooi spoke to Middle East Insurance Review about the reinsurer’s strategies ahead of renewals.
As political tensions continue to simmer, reinsurers in the Middle East are preparing for risks stemming from trade and business disruptions and extreme weather events.
“We have observed stable pricing for profitable accounts with favourable risk features,” said Hannover Re executive board member Sharon Ooi.
However, the situation differs for loss-affected accounts, which are still undergoing corrections.
“Loss-affected accounts will continue to see price corrections,” she said, indicating that the region is still adjusting to past loss events.
In addition to these price corrections, Ms Ooi said weather-related risks had also reared their head.
“Climate impact is increasing since cyclone Gonu in Oman in 2007, and secondary perils are becoming more and more unpredictable.
“This increase in unpredictable climate events requires the industry to reassess its approach to risk modelling and pricing, especially in a region where natural catastrophes are becoming more frequent,” she said.
Ms Ooi remains optimistic about the market’s long-term prospects.
“The outlook of the Middle Eastern market is positive as the region continues to move on regulation, increase insurance penetration and economic development,” she said, adding that the region’s evolving regulatory framework is setting the foundation for future growth.
Political risks
Political violence and marine war premiums have substantially increased, she said.
Ms Ooi said that one of Hannover Re’s strengths in the region is its proximity to local partners, allowing it to monitor these developments closely and provide timely support.
“Being physically close to our partners enables us to understand current developments better and work closely with them,” she said.
This local presence has been crucial for Hannover Re in navigating the region’s complex risk environment and helping its clients adjust to the shifting dynamics.
“GCC countries are expected to lead the regional growth. We are working closely with our local partners to help them manage their capital and risks,” she said.
Urban sprawl and insurance uptake
Urbanisation, increased insurance penetration and the expected increase in the frequency and severity of secondary perils are all contributing to rising claims costs in the region, Ms Ooi said.
“The reinsurance markets can meet the demand for capacity as long as it is supported by sustainable pricing levels,” she said, of the need for consistent pricing to balance market supply and demand.
“The current geopolitical challenging environment in the Middle East could also lead to supply chain disruption and possible claims prolongation in countries with close proximity to the area of conflict,” Ms Ooi said.
The region’s political climate is an important consideration in managing claims processes and ensuring timely payouts, she said.
Beyond pricing
Ms Ooi said that the effects of climate change and concentrated values are reshaping the way insurers and reinsurers approach risk.
“Climate change and concentration of values call for not only pricing but a change in the underwriting of risk,” she said.
This shift requires companies to take a more comprehensive approach to risk assessment, particularly for natural perils, which need to be integrated into risk models and pricing frameworks.
Political instability in the region further complicates the situation, with supply chain disruptions and claims delays becoming potential risks for insurers and reinsurers. Geopolitical instability could lead to disruptions in supply chains and possibly prolong claims in affected areas, Ms Ooi said.
Prediction for the renewals season
Hannover Re’s approach remains centred on supporting growth alongside its clients and business partners, Ms Ooi said.
“We have a strong understanding of the market dynamics and characteristics in the Middle East,” she said.
Hannover Re’s position as a treaty market leader allows it to play a role in shaping the market, particularly when it comes to bringing about necessary price corrections.
“Being a treaty market leader in the Middle East will enable us to influence the market by working with our partners to bring market correction and create a long-term sustainable environment,” she said.
“We are fully committed to doing so,” she said.
Using Nat CAT modelling to stay ahead
Hannover Re employs a combination of vendor models and in-house-developed models to assess risks, Ms Ooi said.
“We license and use vendor models as well as in-house developed ones,” she said. “Vendor models are validated and calibrated to our proprietary Hannover Re view of risk.
“The models are updated to reflect recent trends in climatology and market developments. Model adjustments generally reflect recent climatological exposure, as well as insurance market trends with a near-future perspective.
“In-house developed models are used to fill gaps in vendor model coverage for perils like flood, hail, or wildfire,” she said.
“All models are used consistently for pricing as well as risk management purposes,” Ms Ooi said. M