The growth of the Middle East as a global insurance and risk centre will be driven by its three top performers according to ratings for A M Best (Best).

The firm has issued its Middle East regional review and said while the insurance markets of the Middle East are widely considered to offer growth opportunities Best expects three countries, in particular, to stand out in the coming years.

Best tracks 83 life and non-life companies operating in the Middle East and believes the United Arab Emirates (UAE), Saudi Arabia and Qatar are the three largest insurance markets in the Gulf Cooperation Council (GCC), and are also the Middle East’s most dynamic markets, with total gross premiums written (GPW) in 2010 for all three countries combined likely to rise by 15%-20%.

It said there are a range of drivers supporting market expansion. These include higher oil prices and increased government infrastructure spending, which will fuel the need for cover in the non-life insurance sector.

The introduction of Takaful has created an opportunity for protection to be provided to the Muslim population, the report added. Takaful has already enjoyed strong take-up, albeit from a low base, and increased demand, particularly for family Takaful, will continue.

“Notwithstanding the potential for insurers and reinsurers operating in theUAE, Saudi Arabia and Qatar, significant challenges are ahead for market participants. These include greater pressure to focus on achieving technical profits as investment income is expected to continue to remain below pre-crisis earnings levels,” it added.

The report said Best recognises the regional business model of low retentions and significant reinsurance purchases “although it is cautious of companies that are overly reliant on reinsurance, which may foster a lack of underwriting expertise”.

There are a number of key criteria issues Best believes insurers, reinsurersand Takaful operators face in the UAE, Saudi Arabia and Qatar. These include a lack of diversification in investment portfolios and that enterprise risk management (ERM) is not being fully embedded into company structures.

“However, ERM adoption is increasing, particularly in response to the global financial crisis, and companies rated by A.M. Best will be aware of the importance of ERM in the rating process”, added the report.