Dubai is positioning itself as an international insurance hub in the Middle East.

Dubai is well-positioned to provide a unique gateway for global insurers and reinsurers. Recognising this opportunity, the Dubai International Financial Centre (DIFC) has committed to create an international insurance hub in Dubai and is now considering applications to operate within the centre. Among the features Dubai offers participants are:

- 100% ownership;

- zero tax;

- the highest regulatory standards, in accordance with best global practice;

- full freedom to repatriate capital and profits;

- ease of communication with regional and international markets; and

- political and economic stability.

As well as the regulatory and commercial infrastructure, the DIFC is constructing the physical environment in the form of an ultra-modern, purpose-built, secure financial district.

According to a study carried out by consultant Booz Allen Hamilton, funds under management outside the region originating from the Middle East currently amount to $1.4trn. The development of the financial system in the Middle East will aid the return of part of this sum to the region, offering great potential to the reinsurance and other financial services sectors.

Middle Eastern prospects

Re/insurance in the Middle East stands on the verge of a major step forward.

The rapidly growing population in the region requires huge investments in new infrastructure for energy, water, transportation and chemicals, not least in the rebuilding of Iraq. At the same time, other factors are also driving growth in demand for both insurance and reinsurance. These include the growing demand for aviation and other forms of commercial insurance, in line with the rapid development of trade in the region.

In addition, the privatisation of state assets is resulting in previously uninsured risks requiring insurance cover for the first time. At the same time, the introduction of compulsory health insurance, notably in Saudi Arabia and the other Gulf countries, is fuelling the demand.

Bahrain first introduced obligatory health insurance for foreign workers in 2001. In 2002, the Saudi government stipulated that all four million of its foreign workers had to purchase health insurance from June that year and the UAE is to follow suit from the beginning of this year.

Trends in 2002 showed that the growth potential for insurance and reinsurance in the Middle East was beginning to be realised. According to Swiss Re, personal lines business is the growth engine of the insurance business in the wealthy Arab states. Premium income from motor business in Saudi Arabia in 2002 was up 31% over the previous year. At the same time, non-life premium rates increased by at least 10% in all Middle Eastern countries.

The DIFC is committed to developing the significant potential to become a leading insurance and reinsurance centre for the Middle Eastern market.

Out of the $2.3trn global insurance market, the Middle East currently accounts for less than $10bn in annual premiums, but demand for insurance services is expected to grow at 10-20% over the next ten years.

International interest

This potential growth means major global reinsurers are showing increased interest in the DIFC, and many are already looking closely at the possibility of transferring part of their operations to Dubai. In November 2003, German insurer Allianz decided to conduct both facultative and treaty underwriting in the Middle East from Dubai; previously treaty underwriting had been handled from the Munich head office. In 2002, the Dubai office had overseen $23m in facultative reinsurance, and treaty reinsurance from Munich had amounted to $45m. Allianz has now decided to make reinsurance its priority in the Middle East and has also increased its capacities in the engineering and property lines. Other international reinsurers have adopted different strategies; for example, Swiss Re provides reinsurance for the life division of National General Insurance, one of Dubai's largest operators.

Other insurance-related businesses sharing a new commitment to Dubai include US-headquartered broker Aon, which in September 2003 issued a letter of intent regarding its application for an operating licence in Dubai. Aon has expressed its interest in working with the DIFC in areas such as captive insurance and risk management, but also has a long-established involvement with energy insurance, which continues to be a profitable sector for underwriters. It currently operates nine offices employing about 100 people in the Middle East, including offices in the UAE, Saudi Arabia, Oman and Iran. In an important restructuring effort in the region, Aon plans to unite these nine separate offices under one management.

As well as the general trends affecting the whole region, a diversity of markets continues to exist. Within the UAE, major oil and gas projects dominate the market in Abu Dhabi, and the sheer size of these projects means that the insurance risks are spread into the international markets, bringing exposure to the European and London insurance markets. International reinsurers entering the Dubai market recognise that the structure of the insurance sector is broker-driven, accounting for over 50% of the commercial general insurance business.

The growth of the reinsurance sector will also benefit from the rapid growth of the Islamic Takaful insurance market, which is expected to grow at nearly 20% per annum, reaching $7.4bn in global insurance premiums by 2018 (Institute of Islamic Banking and Insurance, Takaful Conference, Malaysia September 2002).

Within the Islamic financial sector, Takaful re/insurance is potentially the largest growth area. According to the Institute of Islamic Banking and Insurance, Islamic insurance operations have now been created in the UAE, Bahrain, Tunisia, Egypt, Jordan, Malaysia, Indonesia, Brunei, Sri Lanka and Bangladesh.

Reinsurance on Islamic principles is known as Retakaful. In the absence of Retakaful companies in the market, Takaful companies have faced the dilemma of having to reinsure on a conventional basis, contrary to the customer's preference of seeking cover on Islamic principles. Sharia scholars have allowed a dispensation to Takaful operators to reinsure on a conventional basis as long as there has been no Retakaful alternative available, but there is still a lack of capacity within the Takaful industry worldwide.

In the Middle East, up to 80% of risk is reinsured on conventional basis with international reinsurance companies, according to the Institute of Islamic Banking and Insurance.


The potential for creating new reinsurance markets has been demonstrated by Bermuda. The DIFC believes it is well-positioned to learn from the experience of Bermuda, Guernsey and other international centres as well as having the extra advantage of being located near risks that will require significant reinsurance. Ultimately, the creation of a reinsurance centre will lead to new flows of capital into international markets and play an important role in building global capacity.