A.M. Best Special Report: Understanding the Realities for Insurers Operating in Oil-Rich Emerging Markets

In early 2014, crude oil traded at a high of USD 110 per barrel, and it would have been hard to comprehend that two years later oil prices would fall to almost a quarter of this value, reaching the lowest price since 2003. Despite a recent resurgence, the price of this commodity is set to remain under pressure for an extended period of time, and further weakness would have severe repercussions on the global economy, and in particular, on the oil-dependent emerging markets.

In its new report, "Understanding the Realities for Insurers Operating in Oil-Rich Emerging Markets," A.M. Best notes that while insurers in oil-rich emerging countries have seen notable growth in gross premium revenues over the last few decades, there is concern that in the face of plummeting oil prices, public and private sector spending will slow down considerably, and as a result, domestic risk carriers may no longer be able to achieve growth at levels previously experienced.

A.M. Best believes that of those markets in which it rates domestic insurers, companies in Russia and Nigeria could be the first to experience deterioration in their operating fundamentals. This is particularly reflected in the current negative outlooks on Russia’s (re)insurance companies. Nevertheless, A.M. Best maintains that the extent to which the profile, performance and balance sheet strengths of insurers operating in oil-rich emerging markets will be impacted over the medium to long term will be more nuanced, and inevitably, there will be variations between countries, and also between companies.

Deniese Imoukhuede, associate director, analytics, and one of the authors of the report, said: "Markets with more diversified economies will be more resilient from the impact of low oil prices, while insurers with stringent underwriting frameworks, sufficient reserves and investments in foreign currencies should also be buffered. Many insurers in oil-rich emerging markets that are rated by A.M. Best have successfully navigated these issues to date."

The report adds that the impact of these market conditions is unlikely to result in a sudden deterioration in market performance, and therefore, insurers will be able to adapt their strategies as necessary.

To access a complimentary copy of this report, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=247629.

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