Fikret Utku Özdemir

* How do you evaluate the state of the reinsurance sector during the year 2023, globally, regionally and locally?

Due to the decrease in financial income and increase in frequency and severity of the nat cats, we have been observing reduction in profit margins of the reinsurers. Additionally, with the impact of the insured loss emanating from Hurricane Ian, a serious hardening period has started. In addition to the global developments, the 6th February 2023 Kahramanmaraş Earthquake, has reinforced the negative environment in our local market.

For the upcoming renewals, we have been seeing significant increases for deductibles and rates as well regarding excess of loss programs. Capacity is a problem at the moment, however, with the right prices we believe that reinsurers will be keen on allocating capacity.

Referring to proportional treaties, for the 1.1 renewals, we have been observing capacity shrinking. despite crucial improvements have been made about the treaties in addition to the double digit increases in primary rates, we have been seeing less appetite coming from the reinsurers.

For the last couple of years, our market has experienced placement difficulties to a certain extent. But due to abovementioned earthquake, our local market has been facing bigger placement difficulties. We are getting close to the end of the renewals and it seems the discussions will continue till the last day of the year and we will be able to see a clear picture in the first days of the new year.

The reinsurance industry in the MENA region has witnessed growth at a noticeable rate for the last few years, despite the impact of numerous factors. Many countries in the region are now reviewing or have previously reviewed their insurance laws with the aim of improving the licensing procedure and its contribution to the GDP of the country. The region is not uniform; countries are dealing with new and different issues, such as supply chain disruptions, inflationary pressures, and increased political, financial, and economic volatility in certain markets. Although the landscape in the region remains a highly complex one that demands significant underwriting focus, the majority of the region continues to offer significant potential for market development and growth where price adequacy is sought to be achieved.

Local insurance companies are more dependent on the reinsurance market, due to the limited local capacity, and as a result, larger insurance companies in the region have been affected by changes to the international reinsurance market which is transitioning and experiencing significant rate increases. Rising claims inflation, competition, reinsurance capacity, pricing, underwriting discipline, and elevated frequency of larges losses and weather-related events, all play major roles in the hardening of the reinsurance market in the region. There is still an abundance of reinsurance capacity available in the region, sourced from global reinsurers, regionally based reinsurers, and carriers domiciled in Africa and Asia. Operating challenges and deteriorating risk landscape, especially for non-oil producing countries, will keep the disparity between the players in the region, in addition to the risk management will which become even more crucial, as many local companies look to restructure their insurance programs or to retain more in some cases.

* Do you think that non-traditional insurance, global warming, natural disasters, cyber insurance… have become part of general insurance in the Arab region? What role does your company play in this field?

Throughout the past few years, the majority of the insurance companies in the region have proven to be remarkably adaptable and resilient in the face of a variety of challenges, especially the impact of the pandemic, the natural disasters and the economic fallout from the political volatilities. Systems and capabilities of the companies were improved, while agile talent and technology strategies which has been focusing on in recent years paid off. However, the companies cannot afford to be satisfied with the adaptations they have had to make and there is much to be done as they should be ready for emerging challenges heading into 2024 and beyond. Cyber insurance is already playing an increasingly an important role in risk management strategy in the region’s organizations, influencing the adoption of best practices and controls. Emerging as a top priority across all sectors, environmental, social, and governance (ESG) considerations require more than meeting minimum disclosure requirements, thus, insurers should work more on ESG strategies to embed into every facet of their organization. Moreover the industry requires the development of innovative products and services to help individuals, companies and governments dealing with the impact of climate change and reduce their carbon footprint. As one of the oldest reinsurance company in the region, we have been supporting the region’s markets for a very long time and we do believe that reinsurance companies have a critical role in supporting the insurance companies and organizations and trying to be well-placed by helping the insurance companies navigate and manage these new and emerging risks.

* It is noticeable that new players in the field of reinsurance are entering the region. What are the reasons? And the results?

The outlook for reinsurers is promising, and a modest growth is expected in the next 3 years compared to the period between 2020 and 2022. Reinsurance capital, following a decrease in the previous year, has rebounded in 2023. Although the most substantial future growth is predicted for the Asia-Pacific and Latin America regions, with the hardening of reinsurance markets which is expected to continue due to increased pricing momentum as well as better underwriting terms and conditions, we also see growing appetite for reinsurers to step into the Region. The bounce back of oil price is also important in the economic recovery which helps for more activities in the Region and increases the reinsurance demand accordingly. Additionally, the interest of investment banks and M&A firms to the Region has increased in the recent years resulting in new opportunities to the reinsurance companies especially in the warranty and indemnity insurance. We predict cyber and liability insurances to grow even further in the coming years meaning that there will be more reinsurance demand for these lines of business. Finally, we see more capacity coming to the Region especially from the Central Asia.

The Region can be characterized by oversupply which fosteres price competition and it would not be wrong to argue that Region’s insurance markets have been very soft and the high level of price competition in the front end led to reduction in rates and have had consequently a negative impact on technical results for many years. Although it would not be wrong to say that this is changing now, the global hardening of reinsurance conditions and prices has not fully reached the region yet. However, since most of the world’s major reinsurers are present and active in the Middle East alongside regional players, global market trends have a significant influence over the local reinsurance environment.Therefore, if the pricing discipline is maintained, with more risk retained on their own balance sheets, insurers will have to strive to improve their portfolios which will result in better margins for the reinsurers.

* What role do resinsurance companies play in pricing, competition, and conditions?

– What are the general trends in this field for the year 2024?

Increase in the frequency of natural catastrophe occurrences, in addition to the burden instigated by the reduction in financial income, caused reinsurers to loss significant profit margins. That affected their appetite and accordingly resulted with capacity constraints. In order to overcome this issue, reinsurance companies started to take precautionary measures to protect their capital and profitability. In this respect, leading reinsurers play an important role on the improvement of terms and conditions of reinsurance agreements which allowed following reinsurers to deploy their capacity to mutually more beneficial acceptances.

* What about your company’s achievements for the year 2023? What are your aspirations for the year 2024?

Milli Re performed successfully in 2023. Corporate competencies and experience, a healthy balance sheet, and robust liquidity and equity resources made it possible for us to perform successfully in 2023 despite the year’s quite extraordinary conditions.

As of 09.30.2023 Milli Re’s paid-up capital was TL 660 million while assets reached TL 19,645 million, shareholders’ equity amounted to TL 9,368 million and premium volume was TL 6,729 million.

Fulfilling its mission as it has always done and conducting its operations backed by nine decades of experience, Milli Re will continue to make an increasingly greater effort to provide insurers with sufficient reinsurance capacity no matter what market conditions may be.

Our primary concern will be to ensure our company’s sustainable growth by putting its solid position in the country’s domestic insurance market and its profit-focused, prudent risk-vs-return business approach to work in international markets as well. Milli Re has all of the corporate competencies and financial resources to accomplish this goal.