Reinsurers Ease Middle East Restrictions, Sources Indicate

Reinsurers, including Swiss Re, have become more willing to provide cover for the Middle East in the industry's January policy renewal season, removing a clause which allowed them to pull out if the Gaza conflict escalated, industry sources told Reuters. This shift reflects greater competition in the market rather than an improved outlook for the region.

The reinsurance market has become more competitive after years of a so-called hard market of rising rates and stricter policy terms and conditions, following losses due to wars, a global pandemic, and natural catastrophes. Reinsurance rates fell 5-15% at Jan 1 for less risky property catastrophe business, broker Guy Carpenter said last month.

After the war in Gaza started, reinsurers inserted a clause in January 2024 to exclude claims arising from the outbreak of war in Israel and other named territories, including Egypt and Iran. This clause allowed reinsurers to cancel cover for the region if they felt that a conflict had escalated. However, this clause has been removed from many reinsurance policies, providing some comfort to insurers in the region.

The Middle East reinsurance market size is projected to exhibit a growth rate (CAGR) of 3.30% during 2024-2032. The growing replacement of traditional indemnity-based insurance models by parametric solutions, increasing frequency and severity of natural catastrophes, and rising integration of artificial intelligence (AI) for streamlining underwriting processes represent some of the key factors driving the market.

However, reinsurers are still cautious about providing coverage in places like Israel and Lebanon. The Israeli cabinet is set to meet to give final approval to a deal with Hamas for a ceasefire in Gaza and a release of hostages. While this could help stabilize the area, there are still concerns about the commitment of both sides to a more permanent peace deal, which reinsurers are considering as they adjust their policies.

In conclusion, the shift in reinsurance policies, with reinsurers removing escalation clauses and becoming more willing to provide cover for the Middle East, has several impacts on businesses operating in the region. The removal of these clauses provides more certainty for insurers and businesses, potentially leading to lower premiums and more coverage. However, businesses should also be aware of potential risks, such as increased claims costs due to natural disasters. The improved access to insurance and reduced uncertainty can encourage businesses to invest and grow in the Middle East, contributing to the region's economic development.