Best’s Special Report: Jordan Insurance Ratings: Benchmarking

The Jordan insurance market remains highly competitive, with pressure on technical performance accompanied by economic challenges, according to a new special report by AM Best.

In the Best’s Special Report, titled, “Jordan Insurance Ratings: Benchmarking,” AM Best notes despite the market showing reasonable growth rates in recent years, it is also facing a number of challenges. Pricing pressure on the core business segments and tariffed motor third-party liability business have hindered operating performance. Additionally, rising fiscal deficits have led to cuts in government spending and tax hikes, and the background of social unrest and weakness in commodity prices is a concern. Furthermore, the widespread lack of awareness and understanding of insurance and risk mitigation amongst the population is reflective of the low penetration rate.

Luca Patron, financial analyst, said: “Even though the challenges of the competitive Jordanian insurance market affected the ratings of some companies in the past, the overall operating performance of AM Best-rated companies remains at a good level and above the average market performance, benefitting from economies of scale and brand recognition.”

The report states that on a global scale, AM Best-rated Jordanian insurers are deemed to have a limited business profile. Furthermore, there are limited opportunities for insurers to grow domestically without undercutting competitors.

Mahesh Mistry, senior director, analytics, said: “Most have very little geographical diversification and are predominantly single-market participants. Moreover, while some companies have moderate diversification on a gross basis, net premiums are geared toward motor and medical. The level of product differentiation between participants is limited, with a lack of innovation and product transformation of new ideas to change traditional market concepts.”

AM Best’s analysis has highlighted some common themes as weaknesses, the most important of which is risk governance, with companies adopting basic or minimum requirements to run their businesses. The buffers that most insurers had in their risk-adjusted capitalisation have eroded steadily in recent years. Asset concentrations in high-risk investments remain a concern and add significant volatility to operating performance and capital adequacy, while in some cases, insurers have fallen below local solvency requirements. AM Best believes that the adoption of prudent risk management practices is critical to ensure that companies manage their risks effectively and in a controlled manner.