MultaQa 2011 opened with an invitation to firms to list their business wishes, but what prospects are there for creating a market in Qatar that can fulfil them?
In the opening address at the MultaQa Qatar 2011 event, His Excellency Yousef Hussain Kamal, minister of finance and economy for the state of Qatar, set the scene by urging firms wanting to do business in the state to send wish lists.
“We will study them,” he told delegates. “We hope to create a great atmosphere for you here in Qatar.”
His comments reflect the aims of the wider Gulf Cooperation Council (GCC) region, as it hopes to forge an attractive operating environment for local and international (re)insurers alike and become a hub for the business, much as Bermuda and London are today.
The challenge of creating a vibrant (re)insurance market in the GCC region was revisited in the final panel session of the MultaQa Qatar event, chaired by Bahraini (re)insurer Arig’s chief executive Yassir Albaharna.
Overcoming the obstacles
One challenge the GCC region faces in creating a dynamic marketplace to rival other jurisdictions is that it lacks some of the drivers that stimulated development in other (re)insurance centres.
Bermuda’s enviable position, for example, was born out of necessity. The island started life as a captive centre. It then became a primary casualty insurance centre as a shortage of coverage in the USA – driven by heavy asbestos and environmental liability losses – spurred the growth of carriers such as XL and Ace. Later, a shortage of US property-catastrophe capacity after Hurricane Andrew in 1992 led to firms such as PartnerRe, RenaissanceRe, and IPC Re (now part of Validus) taking off.
“At the moment I do not see a similarity of need in the GCC region for the reasons that developed the Bermuda market to what it is today,” (re)insurance broker RFIB Middle East director Mark Randall said during the debate.
While the region has low insurance penetration numbers compared with the rest of the globe, making it appear ripe for further expansion, the numbers may not tell the whole story. “There is low penetration because there are high GDPs and very few people, so the figures are distorted,” said Bahrain-based Islamic reinsurer ACR ReTakaful chief operating officer Peter Koerner.
Furthermore, retention levels among local insurers are low, meaning that a great deal of risk gets passed outside the market to international reinsurers.
However, no on was in doubt that the GCC has many ingredients for a lively (re)insurance marketplace, despite some hurdles, Equally, some perceived drawbacks are starting to fall away.
Tackling the point about low retention levels, Aspen Re head of international property facultative business Heather Goodhew said: “External drivers could come from the reinsurance market itself, such as a hardening in capacity, pricing or commission levels, which would force companies to rethink the retention level,” she said.
Internal impetus for change, argued Goodhew, could come from firms improving risk management capabilities, although she added that this would need sophisticated pricing models and extra actuarial and underwriting staff. “There are signs of change,” she said. “We do see some companies restructuring what they do. I think it will be a slow path but the signs are potentially there.”
Economic factors could also play in the region’s favour. Commodities are said to be enjoying a ‘super-cycle’ – a period of extended growth. As a region rich in natural resources, such as oil and gas, the GCC could benefit from this, which will in turn spur more demand for insurance and reinsurance products.
“Higher commodity prices will result in higher cargo values and so insurance will increase,” said ACR ReTakaful’s Koerner. “Trade will increase. Expanded travel capacities mean more planes will come, and that will be beneficial for aviation insurance.”
Building a strong future
The many infrastructure projects under way in the Gulf region should also present international and local (re)insurers with ample opportunities.
Speaking earlier on the second day of the conference, Qatar Chamber of Commerce & Industry honorary treasurer Ali Bin Abdulatif Al Misnad outlined projects in Qatar alone, estimated to be worth $100bn. These include stadium development for the country’s hosting of the 2022 FIFA World Cup.
“On the commercial side I can almost say that, without our own doing, there will be tremendous growth we can look forward to,” Koerner said.
A further positive for the region is the rise of financial centres. Three jurisdictions in the GCC – Dubai, Qatar and Bahrain – have developed such centres to attract a broad range of firms. While there is debate about whether the region needs three financial centres, they are clearly welcome.
“They are an opportunity,” said Aspen Re’s Goodhew. “By being explicitly committed to developing insurance markets, they raise the profile and interest. They are doing positive work.”
As the development of the financial centres highlights, there is fragmentation in the region as individual countries carve their own path. However, there is talk about greater co-operation between the GCC members, which could one day turn into action and boost growth in the region’s (re)insurance market.
“Harmonisation or a common market throughout the GCC is a laudable dream and a goal that hopefully all regulators have in mind,” said law firm Clyde & Co partner Wayne Jones. He acknowledges that such an achievement may be a long time coming, particularly as regulators are minded to tackle challenges in their home markets before thinking about collaborating with others.
However, he adds: “Initiatives by organisations like the IAIS [International Association of Insurance Supervisors] and the buy-in of some local regulators into that are going to be absolutely key in moving that forward. If you sign up to the IAIS’s principles, you are all moving towards a similar goal. It becomes that much easier to speak to each other and work things out.” GR