With a renewed focus on the Gulf, Arig is now better placed to take on the rest of the world. Mairi Mallon meets CEO Yassir Al Baharna at the World Insurance Forum in Dubai.

Arab Insurance Group (Arig) is on a mission to grow. Sitting on surplus capital, the company, which posted net profits of $23.7m for 2007, is looking for new regions and exploring new lines of business to expand into. “We have sufficient capital and our shareholders want us to provide them proper return on their capital and use it effectively,” says Yassir Al Baharna, chief executive officer of the Bahrain-based company.

The company is currently focused on markets and the lines of business that are not capital intensive by design, which now leaves them plenty of capital to play with.

“We are not into volatile or highly volatile business like offshore energy or aviation which consumes a lot of capital,” he says of the company. “Part of the mandate that the board has given us is to come up with a proposal where we can deploy this either as a product line (and we expand our range of products on offer in the reinsurance market) or geographically. We are ready to do both.”

A brief history

Arig was set up back in 1980 by the governments of Kuwait, Libya and the United Arab Emirates, with a mission to become a global reinsurance player. After some not-so successful attempts to go head-to-head with established reinsurers and write business in the West, the company has re-focused its mission on providing reinsurance to Arab companies. Al Baharna adds: “What value can we add (if we do business) from a country like Sweden or Norway or the UK or the USA? We cannot. So this is why we will have to focus on our region.”

“After some not-so successful attempts to go head-to-head with established reinsurers, the company has re-focused its mission on providing reinsurance to Arab companies

Under his guidance Arig is now one of the leading Arab reinsurers with a sound reputation as a dependable partner for the insurance industry in the region. Ranked among the top 100 global reinsurers with a “BBB” long-term counterparty credit and insurer financial strength rating by Standard & Poor’s, it also has several very successful subsidiaries including Takaful Re, set up in 2006 as one of the first retakaful providers. Other subsidiaries include an automobile warranty business and an insurance IT company. It has also expanded into life reinsurance after buying Scottish Re’s regional portfolio.

“There are some milestones in the Arig story, and I have been here for the second stage of Arig’s development,” says Al Baharna, who has been with the company since he started as a graduate trainee in his early 20s and worked his way through and up the company. “I was not there when the company was set up, but our founding members had great aspirations to turn this company into a global international reinsurance company.”

Stick to your knitting

Arig was set up on the back of the region’s second oil shock when “all these governments had a lot of money and they didn’t know what to do with these petro-dollars”. During the 1980s the market in the Middle East and North Africa (MENA) was very small and there was the pressure from the stakeholders for Arig to grow outside of the region. “The international business was not as profitable as it seemed,” explains Al Baharna. “This taught us a lesson which now we are learning. We are implementing a strategy to concentrate solely on areas where we can add value and where we have the expertise instead of following the crowd and doing it just for the sake of doing it.”

The second goal for the company is to find areas of affinity, where Arig can build a proper fit for its profile. Geographically these include areas of Asia where there is a large Muslim population, such as Malaysia and Indonesia. Arig has also identified areas of potential future growth in parts of the former Soviet Union, such as Azerbaijan or Kazakhstan where it has found a similar client base and is currently sowing seeds for future growth.

“Our shareholders are very clear about it, they want bottom line profitability and they are not looking for the top line

The new Arig has a different and more technical approach to writing business, improving their methodology for pricing risks and assessing their overall portfolio. The company is writing business that will show a good net profit, rather than going for market share. “We are no longer writing business for the sake of the premium,” says Al Baharna.

“Our shareholders are very clear about it. They want bottom line profitability and they are not looking for the top line. That I think has been a major change in the culture of the underwriters who do the business and obviously for the managers of the business.”

Among its clients, Arig counts insurance companies in the Arab Middle East, Turkey, Iran, Africa, Indian subcontinent and other Asian countries. These markets show varying stages of maturity that span from developing markets to sophisticated environments. Some of the clients operate in highly fragmented and competitive markets while others work in monopolistic structures. Some of these markets and clients are well regulated and supervised, while others provide a wider scope of entrepreneurial latitude and challenges that Western companies often shy away from.

Turf wars begin

European and Bermudian businesses have shown a willingness to set up shop and compete for a slice of this developing market, forging partnerships, setting up new ventures and opening regional branches. But the Americans have taken fright. There had always been a strong US reinsurance presence in the Arab world, but worried about conflict in neighbouring countries, they have now all but shipped out. “I think you do not find American companies who are very comfortable over here,” says Al Baharna. “They have elected to view the political risk as a high risk. They have decided to retract.”

“There had always been a strong US reinsurance presence, but now they have all but shipped out of the Muslim world

Arig has been adversely affected by the flurry of interest from Europe and Bermuda, as increase in competition inevitably means that already softening pricing and slackening of terms and conditions are pushed further downwards. “In a market like this where we see a lot of building competition, naturally there is a lot of pressure on price.” Al Baharna says that premiums have slipped on average 10% in the last year and margins have been squeezed.

Looking to the future, growth and expansion – in both lines and in geography – are the key factors for Arig. “Just last year we bought the reinsurance portfolio of Scottish Re, which had been writing life business in the Middle East. We have purchased their full portfolio and this is why life is now an important class of business in our composition. The alternative would have been to develop life reinsurance from scratch and acquire the necessary skills and products etc. Now we have the full range and that is good,” says Al Baharna. “We continue to search for new opportunities to grow, but there are not very many reinsurance companies (for us to buy).”

Of those opportunities that do exist in the region, so far they have not been the right fit. Obstacles included lack of synergy or privately-owned or government-owned businesses. While the company has set up Takaful Re in the Dubai International Financial Centre, an IT company called ARIMA Information Systems (set up in 2002) in Bahrain plus a motor warranty business in Dubai, it is still looking for more opportunities.

Al Baharna is interested in forming partnerships with companies in the West or setting up new ventures or buying up businesses in the Gulf. With its grand ambitions this reinsurer will look at anything, as long as it will add value. “If there is the opportunity that we can accelerate the growth of Arig by looking at further mergers and acquisitions, then we are already looking,” he said. “We have some projects in the pipeline.” The message from Arig is loud and clear – watch this space – you won’t have to wait long.

Mairi Mallon is a freelance journalist.

Yassir Al Baharna, CEO of Arig

Yassir Al Baharna joined Arig in May 1987 and has held various positions within reinsurance division.
He has been part of the general management team since November 2003. Al Baharna currently serves as chairman of Arima Insurance Software, chairman of Arig Insurance Company, UK, board member of Takaful Re & Arab Lebanese Insurance Group. He is also board member of the Bahrain Insurance Association (BIA).