On 27 March, Global Reinsurance hosted a roundtable discussion on the opportunities in the Middle East. The discussion was held in the Sharq Village & Spa in Doha, Qatar, following the MultaQa Qatar conference, which the Qatar Financial Centre Authority hosted in association with Global Reinsurance. For this reason, there is an obvious bias towards Qatar in some of the comments. Nevertheless, many of the observations equally apply to the wider Gulf Cooperation Council region.
The GCC is a rapidly developing market for insurance and reinsurance. One of the wealthiest regions in the world, the potential for business lines such as energy, property, life insurance, and reinsurance and specialist products is huge. The region also provides a natural bridge between Europe and Asia and modern financial centres have been set up in Qatar, Dubai and Bahrain with the primary objective of easing set-up and providing internationally-recognised regulatory and legal frameworks. With some of the world’s largest energy and construction projects planned or underway, the growth of Shari’ah compliant insurance products and an increasingly wealthy population, we wanted to find out if the insurance and reinsurance industry had woken up to the region’s true potential.
Helen Yates: Good afternoon and welcome to the Global Reinsurance Middle East roundtable at the Sharq Village & Spa in Doha, Qatar. As we’ve all heard over the past couple of days at the MultaQa Qatar conference, there is great potential in this region for the insurance and reinsurance community. Could I start by asking for your thoughts on the specific business opportunities you envisage?
Osama Abdeen: We see the Middle East market as part of our emerging markets, with great opportunities on different levels and fronts. Particularly in energy and property, to state the obvious, with all these infrastructure projects underway. Certain countries in the Middle East are also attracting foreign investment and, with it, a new unconventional coverage is being demanded in the marketplace, like D&O [directors & officers] and PI [professional indemnity]. We also see this as an opportunity for growth. And the mere fact we believe in consumer products and look at the expenditure of individuals in our region, the Middle East compared to Europe and US, and we find it to represent less than 10% of the average. That for us is a great growth opportunity, whether on the life side of accident and health, or even home contents, basic cover. So we see this as an emerging market, we are building our structure here, expanding within the region, and our vision is to operate on a direct and fac basis in most of the countries within the Middle East.
Paul Murray: I certainly think that the GCC [Gulf Cooperation Council] region has tremendous potential. It’s obvious from some of the things we’ve been hearing over the last two days: the number of huge companies that are investing in massive projects, the amount of money that’s being invested. You look at somewhere like Qatar, we’re talking $130bn that’s being invested, and it’s clearly a lot of money to be throwing at an opportunity. But they’re not just throwing around the money, how they’re spending it seems to be very well planned. You’ve got projects like the education that they’re trying to put behind everything. It’s all about reputation and confidence. Now, clearly, with fledgling markets that’s always going to be a problem: how do you get that confidence? But what Qatar seems to be doing, which is a clever way around it, is to try and have a proxy for their reputation, so they’ve brought in the Qatar Financial Centre [QFC] and the regulatory authority, and they seem to be setting up so that everyone can see that the rules and regulations are of world-class standards. So by proxy, by using the sort of regulation that some of the best financial centres are using, they can sort of piggy-back on the confidence that some other markets have gained. Although the QFC hasn’t yet had the time to build up as a financial centre, when you see the sort of people involved, it starts to give you the confidence almost before it’s been earned. So I think that’s been a very clever way of dealing with things in Qatar. As for the rest of the region, I think there are also very good prospects. Places like Bahrain and Dubai may not be doing things the same way as Qatar, but they’re also doing very exciting things, and I think there’s clearly potential for everybody in this region.
John Tan: Yes, I share the views that the region actually offers a lot of opportunities, because it’s undergoing a lot of changes, and they have the benefit to learn from the lessons of the past. But they can actually shortcut a lot of that by doing the right things. And from Asia Capital Re’s point of view, the region is part of Asia, which is within our focus, and it is our commitment to bring whatever capacity and expertise we have to the region, to see whether we can contribute in creating more value.
Stephen Wagstaff: I think just generally there’s a lot of liquidity in the region. There’s a heavy concentration, certainly around the big four – oil, gas, power and water – but also the ancillary supports around these four areas will create the overall economy and further create the demand for insurance products. That’s what we hope to tap into.
David Anthony: Speaking as a rating agency, I started doing insurance ratings in the early Nineties and people were saying to me then, “Why do we need a rating? We are Generali, we are Axa, everybody knows”. But I think 15 years down the road people do recognise the advantages that ratings can bring, a sort of independent assessment. And, frankly, I would have thought in a region like this, where the reality is probably rather better than the international perception, that the fact of bringing in an outsider, such as a rating agency, to communicate that reality to help improve the international perceptions can be a good thing. And we can certainly see the growth going on in this region. It’s not just insurance ratings, it’s not just reinsurance ratings, but it’s bank ratings, it’s corporate ratings, infrastructure ratings, sovereign ratings. It’s fantastic growth, it’s fantastic risk awareness as well, and
increasingly it’s fantastic perceptions in the international community.
Graham MorrAll: We’ve been in the UAE [United Arab Emirates] for around 20 years and as a result of that we’ve built up a life business, which makes up about a third of our business worldwide. We are in a position now where we see great opportunity in the Gulf, not just in Qatar, but in other countries, as there seems to be an awakening in terms of the life markets. Just in Qatar alone, the life market in 2005 was worth around $52m, which doesn’t sound very large if you compare that to the UAE, which was just short of $300m, you would say, “Well why would you go into Qatar?” Well to us it’s more than just the size of the market right now; it’s what the size of the market will be. And just sat in the room with Fetooh [Al Zayani] and others at the conference, you feel this sense of huge growth and huge potential growth, and nobody’s saying anything different. But we see the markets in all of the various GCC countries for life, especially retail operations, being “creating” markets. So we’re not going in trying to take a part of that $52m, because, quite frankly, I’d be sacked, but to go and create something. To provide sophisticated products in countries that don’t really have that, and to find and develop and nurture distribution. And we think the opportunity is immense. One area that was mentioned over the last couple of days was takaful, and it’s a similar sort of thing. People are talking about whether takaful is a buzzword, the latest flavour of the month. The market is potentially huge, and the difficulty seems to be not in relation to the availability of product, but being in relation to access to the end customer.
Fetooh Al Zayani: I guess I will leave the debate to everybody else, but just one observation. In almost 50 years I’ve never seen or come across a period where there is so much energy, so many positive signs, and I consider this period of the Gulf to be a golden era. In the first oil boom, most of the money went outside the region, to Europe and the US. This time around everything is being invested in the region. The confidence in this region has never been higher and I believe in the next three to five years we will see even more of this. Three years ago I used to say the region was on the verge of a major step forward and I believe that step has been taken now. They are not running, but they are walking. So I feel very positive and I guess this excitement and enthusiasm is shared by anybody who comes here and feels the energy and feels the enthusiasm of the people, of the government, of the private industry. I have no doubt that anybody coming here could do business. This country and this region needs companies like yours. We need to unleash the potential and we cannot do it single-handedly. We need companies with best practice, with a huge range of products, we need companies that are willing to invest in creating demand. The potential is unlimited.
Robert Wiest: There’s one point which I deem very important. You mentioned timing Fetooh. I think we’re seeing a phase in the development of this area which is a good combination of hard work and lucky timing. There are people in the [GCC] countries who know what to do with the money, and that’s what we see, it’s not wasted money, it’s sustainably invested. And obviously it is fuelled by the natural resources and the advancement of technology, which enables the whole region to build a platform for the future, so in this sense it’s a lucky package. Now, a lot of people are focusing on the immediate potential, which is fuelled by petroleum, energy and infrastructure works. But there is more to this story, which actually goes right back to the structure of the population. You talked about the life business Graham, so I will give you some support there. Don’t forget that, contrary to the Western world, two-thirds of the population [in the Middle East] are below 22 years of age, so there is a huge demand coming up when you talk about personal lines. That won’t take place today, tomorrow, but it will be the day after. So it’s a very interesting region with a long-term perspective, nicely aligned to different sectors of our activity.
Bruno Bertucci: We are looking at this region with great interest, not only at the large risks. But the comments made by my colleagues previously on personal lines are of even greater interest. It was very interesting listening to the presentation at the MultaQa Qatar conference regarding education, the fact that investments being made today are also focusing on the growth of the population, on how to build the future workforce and infrastructure and so on. From an insurance perspective that’s very interesting, because at that point we switch the focus from the large risks into what is the daily life of people and the insurance protection needs of the individual. I am happy to hear from Zurich that have had a good response so far on the life side, which is of great interest to us.
Robert Makhoul: Marsh has been in the Middle East for over 30 years, serving our clients here, multinational clients as well as local clients. I have personally been involved in the region on and off for about 27 years. I don’t think I can remember a time when I’ve been more enthusiastic and excited about the opportunities in our sector than I am right now. The GCC offers tremendous growth opportunities for us as a firm. We have a well-established business presence in a number of countries in the GCC and we are actively expanding into other countries, such as our recent announcement to apply for a licence in the QFC. What we’re seeing now is an emergence of clients, of companies that are becoming world class, and they’re expanding on a global basis. They’re buying assets around the world, they are competing in the world market and they are now faced with risks and challenges that they haven’t seen before. Whether it’s corporate governance, whether it’s enterprise risk issues, all of these areas create opportunities for us as advisers to expand our business base here, and also to transfer technology to our clients in this important sector.
Sean Rocks: Liberty Mutual is new to this region. We’ve only been here for about four or five months and started looking at the region 18 months ago in preparation for setting up, and clearly we’re here because we see the potential. Whilst all the plaudits or all the media attention has been on the economic growth in India and China, this region’s almost done it by stealth, it’s under the radar screen and yet the rate of growth is as much, if not more, than China and India. Clearly, a lot of that has come on the back of the oil and gas industry, and reinvesting that in the economy. So clearly we see the potential here and in the energy and construction industry. But I think it goes a lot further than that, because in comparison, say, to India and China, which are more labour-based economies, it seems that the investment here and the foresight of a lot of the leaders within the GCC region makes it more of a skills-based economy. So I think there’s going to be a lot more potential in the professional lines businesses, going beyond those initial lines of construction, energy, the obvious ones, into the more specialised lines as well. So we’re really fascinated by this region, we see lots of potential. If London was the defining city of the 19th century, and the defining city of the 20th century was New York, I think there’s a real potential for the defining city of the 21st century to come from this region.
Rupert Boyle: I suppose the first thing to note is this is a place where one can do business. That’s the most notable change. I am here to protect investments against political and credit-related risk. Whereas in previous years I would be looking to protect companies entering the region against the actions of governments here, I am now looking to protect local entities here investing beyond the region. And I think that probably says it all in terms of the changing confidence and mentality of the region. This is a place that is going to proactively do business around the world rather than waiting for people to come and do business with it.
John Arpel: I see this as a very unique value proposition. You have very few countries in the world that can offer a rating that is equivalent to an attractive country such as Japan at “AA-” [S&P have since upgraded Japan to “AA”], that is investing $130bn in the economy and is actually inviting people to come and join the market. In a number of countries around the world today it’s not that easy to actually set up, or there is a lot of competition already existing. And equally, when they say here [in Qatar] they’re going to invest $130bn, you have actually seen a lot of the evidence on the ground to prove that investment will actually take place. And with our skillsets I
hope we can contribute to that proposition going forward.
Gavin Coull: Being a lawyer and not a market man, I came to Qatar purely to form a view as to what it is, what it does. Obviously I can only fully echo the comments from the market practitioners here as to the business coming out. I think what struck me, as someone who spends half my time dealing with problems after they’ve happened, is the clear vision and the clear confidence of QFC and the market practitioners here. I think for me the benchmark is if a client came to me and said, “I’ve written business in Qatar, is that a problem?”, I think my answer, from what I’ve seen, would be, “No, it’s a very wise thing to do”.
Helen Yates: What are the key things this region needs to provide if it is to attract long-term business from the international insurance and reinsurance industry? Perhaps we could start by looking at the legal, regulatory and infrastructure requirements?
Gavin Coull: I think there’s effectively three benchmarks they need to have. The first is confidence in the regulatory system. The second is something I know John Tan touched on today, which is certainty of contract. People need to know that if they’re investing through reinsurance or insurance that they are getting what they paid for. It’s as simple as that. They need to know there’s no complex wiggles in it, they need to know they’ve got a wording which works, they need to know that the terms and conditions are correct. I think it’s something which obviously in London we’ve been dealing with after the event for the past three or four years. Then the third is obviously, “What happens if it does go wrong?” We all hope it won’t go wrong, but inevitably it does. I’m not sure how strong a card it is saying, “We’ve got the QFC civil court”. Again, I spoke to John and asked him whether in Singapore, dispute resolution was a big selling point, because we hear about it in the press. And I think John’s answer was, “Well no, that’s not a big selling point”. I think it will be for GCC countries, I think they have the confidence that you will have your dispute heard here, but I think at this stage my gut feeling is it may well be analogous to Bermuda where you have a Bermuda form, New York law, English arbitration jurisdiction, and not many disputes being resolved in Bermuda.
Robert Wiest: Well I can only but echo what John also mentioned in his presentation [during the conference]. It’s not only the legal framework which goes into contract certainty and into the dispute, but it’s also the regulatory framework which simply governs the way we are conducting business. Apart from the pure legal part, I am referring to capital efficiency, sovereigncy-related issues, so that we are able to build up a trustworthy environment for our clients too. Our business is conducted at the end of the day on the basis of trust, and therefore you have to make sure that this is going to build up. Part of that is the legal framework, part of that is contract certainty, but in the normal course of operations that’s also the regulatory framework, which simply prescribes and, to a certain extent also levels, the playing field for all insurance and reinsurance partners in the conduct of business. And in very simple terms that’s expressed in the solvency margins, capital efficiency margins and capital requirements in particular.
Fetooh Al Zayani: From the feedback we got from research and from talking and looking at other franchise centres, I would say that having the regulatory regime in place and having a trusted, world class, judicial systems in place was our key aim. But the second most important factor is the availability of talent. Having access to the right talent pool is the second most important ingredient. I guess there is a global shortage of talent and this region is no different. Part of our role at QFC is to build a financial knowledge centre, to create a cadre of insurance professionals, bankers etc. It’s not just about licensing and bringing companies, we need to provide them with the right talent, and that’s where we are coming from. Our main objective as far as professional education is concerned is to spearhead the creation of this financial knowledge centre, bring top professional education providers into Qatar and make sure that they deliver what we expect them to deliver and hopefully help us to have a sufficient pool within the next five to ten years. And it will take time, but at least we are on the right path.
Sean Rocks: I will echo what Fetooh says. I think the biggest difficulty is the skills. You need to bring in international people who’ve got that experience, especially in the product lines that we’re looking at, which are corporate specialty lines. So you need to
bring in that expertise from abroad, but then you also need the local knowledge. So it’s got to be a combination of both. But perhaps jumping the gun a little bit and looking forward, what I would like to see the region look at in time is some sort of cross-border freedom of services passporting regulation, I think that would really add to the region and the ability to trade here.
Osama Abdeen: The near future, bancassurance, alternative distribution channels, is going to be something most companies will be interested to move forward with. That’s the way you build a portfolio, a more balanced portfolio, and there are great opportunities coming from that.
Rupert Boyle: I certainly see it as a place where there are new buyers for the products that I deal in, supporting cross-border trade and investment, where the investments, or the investment funds are originating from here and being invested into other parts of the world and countries. Let’s say, take East Africa, where there’s quite a lot of Islamic investment going on at the moment. And also intra-regional trade. Over the last two days, one of the main presentations was dealing with credit management and the application of credit insurance for the QAPCO [Qatar Petroleum Company], which is of course a world class company. As a result of that, my own feelings in terms of promoting what I do were absolutely confirmed, that this is a place where the economy has matured to a point where it actually needs these products for trade and investment going out of the region, as opposed to foreign entities coming into the region.
Bruno Bertucci: I would like to follow up what Osama just said about the distribution channel and personal lines and bancassurance, which is a point of great interest, to build a broader balanced portfolio. I would like to put a question to Fetooh. We have been hearing about a lack of local skills, the fact there is a need to import and to attract international people due to this lack. So, if you are looking to build a personal lines portfolio is there any possibility of training local people to build a proper distribution channel?
Fetooh Al Zayani: If you look across the region, the talent pool and the availability differs from one country to another. Let’s take insurance, for example. If you go to Bahrain, 70% of the professionals in the insurance industry are Bahrainis, so there is no problem, people are trained and qualified and are there to fill these positions. If you move to Saudi and the UAE, you struggle to find more than 5% to 6% of local nationals employed in the insurance industry. The awareness is still not there and the attractiveness of the insurance industry is also not there yet. If you come to Qatar, I would say it is similar to the UAE and Saudi, the country is just starting to tackle insurance as a profession. So far we only have five [insurance] companies and three agencies, and now we are opening the door to international companies to come in. But it’s not going to happen overnight. For the time being, we expect those [new international] companies to bring in their own talent, their professionals and their experts from the region or home countries. Meanwhile, we will be working with the local population to prepare. It is a responsibility of the government, of bodies such as ourselves and also of those international companies coming in to help us to train the local population. But the intention is there and with the training centre that is going to be established, with companies moving in, I think the attractiveness of insurance as a profession will be enhanced. Again, it is about the image that insurance has in this region. Despite the fact that it is one of the main engines of the economy, there are still not many people who want to be in insurance. So we have to change that picture, and I think by bringing in international companies it will encourage more locals and nationals to join.
Bruno Bertucci: How do you see the internet as a tool to support a personal lines insurance operation? For example, in Europe it’s quite normal to sell and to distribute products in the market through the internet, which also helps reduce the costs of running this type of operation. Do you think that within the GCC, which is probably the most advanced when it comes to insurance [in the Middle East], there will be a positive response to an internet-based tool like this? Or is it too premature?
Fetooh Al Zayani: I think the Gulf in general and the GCC nationals are very internet-savvy, there is very high use of the internet, but in terms of using financial services over the internet it’s still very much in the beginning stages. I don’t think people now are buying [insurance products] over the internet like they do in the UK, but the time will come. You’re talking about personal lines?
Bruno Bertucci: Yes.
Fetooh Al Zayani: The internet is not really there yet as a tool for distribution. It will happen eventually and we hope that will be encouraged by foreign entrants to the market and their investment in such methods of distribution.
Bruno Bertucci: It will increase competition in the sense that people will be able to browse around and find different alternatives for what they are looking for.
Fetooh Al Zayani: Graham, you sell life policies, you sell savings policies, you’ve got thousands of field people out there selling. Have you considered using the internet as a method for selling in this region?
Graham Morrall: Yes, we use the internet and we have done so for some years. We sell across borders through a number of markets, and so our customers generally would buy a product, let’s say, in Dubai and then they might end up in Sydney, Australia, with a different currency, in a different environment. So we’re working very hard to open up their policies to them online as a starting point. In terms of actually selling off the internet, the very old adage that life insurance is sold and not bought, apart from the very commodity style life business, still stands.