MidEast insurers’ likely to respond well to crisis

Middle Eastern insurers are likely to respond to the global crisis by focusing on underwriting and 'core' businesses, protecting their balance sheets and enhancing risk management in order to limit exposure, Moody's Investors Service said in a new report that reviews how western insurers have reacted to previous crises, especially the one from 2002-03, and predicts the strategic shifts that are likely to emerge in the Middle East during 2009-10.
Moody's new report said that the dramatic changes that engulfed financial markets in 2007-08 were the first real test for many Middle Eastern insurers, many of which had not previously experienced a robust test of their risk management capabilities.
"We expect the events of 2007-08 to usher in a new era of improved risk management and control as insurers in the region focus on core underwriting and insurance risk," said Paul Oates, senior analyst for Moody's MENA insurance ratings.
The global financial crisis led to a major shift in fortunes for some of the largest western insurance markets in 2008-09, and Moody's believes that the GCC insurance sector is also not immune. Indeed, local equity markets experienced greater falls in value from peak to trough than were recorded in western markets.
"Moody's considers the correlation between investment markets and insurance business levels to be high for the GCC and other developing markets," added Oates.
"Moody's expects insurers to make greater use of their investment portfolios as a tool to match liabilities and liquidity management rather than as a method for increasing bottom line profits," he concluded.