There is a rush on. In case anyone failed to notice – reinsurance companies are scrabbling to set up shop in the Middle East. Mairi Mallon reports.

This month hundreds of executives from London, Bermuda, the US, Europe and further a field will be heading to Qatar and Dubai to conferences that will showcase the region as an insurance hub. Many will have made a tour of it and attended the General Arab Insurance Federation conference in Bahrain at the end of February, then travelled to the MultaQa Qatar then on to the World Insurance Forum in Dubai.

The executives and their senior management are keen to get a foot in the door in this wealthy non-cat region with its oil-rich nations and mammoth energy and infrastructure projects (all needing reinsurance). But as a result of so many already setting up shop, there is now overcapacity and already softened prices are being pushed down further.

Slice of the action

The oil rich nations (and non-oil economies such as Dubai) in the region are booming. The Cooperation Council for the Arab States of the Gulf (GCC) have been diversifying into financial services and tourism and spending a small fortune on infrastructure, petrochemicals and refineries, utilities and commercial construction.

Added to this, low tax financial centres in Dubai, Bahrain and Qatar (and one currently being built in Saudi Arabia) have been vying for the attention of local and Western financial services companies. Once the banks and financial services had set up, it was only a matter of time before insurers and reinsurers followed. “Everybody can do reinsurance from where they are,” says Masoud Bader, vice president, Aon Re Global – Middle East. “Everybody, for the fear of missing out, is opening offices here. This is mainly happening in Dubai but there are some in Bahrain. There is a lot of capacity available in the region itself.”

“Within Islam, misfortune is seen to be the will of Allah, so insuring against death or illness is seen as going against this

Prices in property and casualty have fallen by about ten percent due to falling world prices and increasing competition. As in the rest of the world it is just aviation (the region has several airlines) and retrocession where the market is still hard. “The one (line) we are most active in is financial services, construction – because it is pretty obvious there is substantial construction and oil and gas, and also utilities,” says Marsh’s managing director of its risk consulting division, Eddie McLaughlin.

People naturally gravitate towards oil and gas in the GCC, explains managing director of Willis Global Specialities and Middle East, Bob Peilow. “Because of the high prices of those commodities, the oil and gas operators themselves have the ability to start investing in the next piece of the development, which is obviously refinery. There is not much point in having an unrefined product so they have started to build refineries because there is a global demand for refined product.”

Isaac Sahhar, divisional director in the construction and engineering division of UIB says the local and international interest in the Middle East also stemmed from the region’s incredible economic growth. “Increasing population (by 2030 the GCC population is estimated to double) and the growing number of insurable units such as housing, industrial establishments, etc, the shedding of the state’s welfare function to the private sector for medical services and hospitalisation are all factors that are and will continue to sustain the demand for insurance protection.”

Cultural and religious norms

How business is conducted in the region still depends on the kind of business and the size of the project. “The major one, when we are talking about a few billions and above, this is normally broker-control business,” says Bader. “They tender for a broker first, then they allocate markets to the broker, like Munich Re, Swiss Re or Lloyd’s… then there is the quote. Because of the law, which says business has to be written in a local insurance company, we find an insurance company to front it.”

“By 2015 you are looking at the better part of $8bn for the takaful industry

While life products are gaining momentum due to the increase in use of mortgages, which demand cover, there is an innate problem with insurance itself. Within Islam, misfortune is seen to be the will of Allah, so insuring against death or illness is seen as going against this. One solution is takaful insurance and reinsurance, which has been a huge development in the region. This is insurance which conforms with Islamic law and is known as being Shari’ah-compliant. Takaful and retakaful insurers not only have to conform with the local re/insurance regulation, but have Shari’ah boards to make sure they comply with Islamic laws.

Chris Singleton who heads up a Swiss Re’s takaful unit says that there were still concerns about regulation being adequate. “With the newness of takaful, one of the things we want to make sure of is that we don’t have any improprieties,” says Singleton. “We don’t need any scandal – it is an embryonic industry. People tend to have a reluctance to buy insurance anyway – it is never like buying a new car. And with the added complications, particularly in the Gulf, of a religious requirement, the last thing the industry needs is bad news on either regulatory or financial mismanagement front.”

Some companies are being really innovative and producing specific products for their Muslim clientele with state-of-the-art systems, but others are lagging behind. “If you were giving an overall view of the takaful industry at the moment, then I would say it is progressing quite nicely. It has been growing (and the rate changes depending on who you speak to) by about ten percent for the last two or three years. And it will continue to grow. I saw some figures indicating that by 2015 you are looking at the better part of $8bn for the takaful industry.”

Being on the ground

Each of the centres are vying for business and starting to compete with each other to attract both local and western interest. Willis’ Peilow says that Dubai, which is not an oil-based economy, was at the forefront of diversifying the economy of the region. “They have had to come up with something else (rather than oil), so they are very much more into the services industry.” He says they were building facilities for other sectors with everything from metal exchanges to biotech to media. They have attracted big names like Microsoft as well as a new cinema industry and medical services with big clinics and hospitals and healthcare for the region. “They are building it all with a view to capture a client base which historically would have gone to Europe and to the States,” says Peilow. “They are saying why go all the way over there when you can have it all pretty much on your doorstep.”

“You can't have a head of practice sitting in New York or London and say that is the Middle East office

There is definite opportunity for Western re/insurance experts to come and work in the region, especially Bahrain, Dubai and Qatar, explains Sahhar. “That prospect arises from the dearth of sufficient local expertise. This coincides with the skills surplus arising in consequence of merger and acquisition activity in the West.” He warns that companies will not be able to compete if they expect to write business from Europe.

Marsh’s McLaughlin says everyone now needs to have an office in the Middle East if they want to do business in the area. “The pre-requisite is you need a presence in the region. You can’t have a head of practice sitting in New York or London and say that is the Middle East office. What you need is a physical presence.”

Centres are not just looking to the UK to as resource for business, but also to Turkey, India, North Africa, other parts of South Asia, Europe and East Africa. For reinsurance the region can now turn to both the local market and international markets, says McLaughlin, with quite a bit of business still ending up in Lloyd’s. He adds that the insurance market in Dubai while striving hard to reach critical mass and a level of global expertise, has still got some way to go before it gets up to an international market standard.

Mairi Mallon is a freelance journalist.