Helen Yates: Is there an opportunity to introduce an electronic trading platform in the market? Would this be attractive to potential newcomers?
Fetooh Al Zayani: We are only facilitators but I hope that companies, both local and international, will help us in creating demand and awareness of the use of the internet. I would like to see it going that way, at least to offer a choice. And I think it takes a lot of commitment and investment on behalf of the insurance companies to do that. Again if you consider that about two-thirds of the population is the young generation, and all those people are actually internet savvy (they are much better than me and most of the people around this table!), I believe again the future is very bright. You provide that kind of access or that kind of selling method, and I’m sure many will catch on. If it’s not this year, maybe in another five or ten years it will be a widely used method.
David Anthony: If I can just make a general observation for the region. We’ve noticed in talking to regulators and government officials, there’s either a de facto or an implicit lifeboat for policyholders in the event of the insurance company getting into difficulty. Most of those regulators and government officials have said, “However, if the policyholder is buying cross-border insurance products, even within the GCC, those policyholders will not benefit from support in the event of difficulties”. So it’s an implicit impediment to regional business and using the internet on a regional basis rather than on a fragmented country by country basis, unfortunately.
Graham Morrall: I’d still go back to the fact that the life penetration rates in the region, in any country you go to, are so low that it is back to education, selling, distribution, as opposed to giving people an opportunity to buy something they don’t understand off the internet.
Bruno Bertucci: Yes, the problem is that Qatar is a relatively small area that you may easily cover with a small distribution channel. But if you think about Saudi Arabia or Oman or a larger market, if I understand correctly, it’s hard to find people that are able to distribute these types of products. This is why I was thinking that, perhaps, using the internet you may build up skills locally.
Osama Abdeen: Can I just comment on this? These types of initiatives, like alternative distribution channels, bancassurance, it’s really up to each
company to make its investment, because this is a long-term investment. From AIG’s perspective, we started from scratch and have put our local employees on special programmes, and it was worth the investment. So for such initiatives, it has to be a long-term thing and it will pay off. And I see talent in the region. If we expose them to what we want to do and they follow the initiatives, it will work, that’s the answer. The only thing we should watch is mobility of staff, cooperation of the region as a whole. Because for any international company to consider setting up shop in the Middle East, they don’t look at one country individually. One country individually might be too small population-wise, so it requires facilitating operations across the GCC countries, and perhaps if we can be optimistic, across the whole Arab world. That will attract more foreign investment to make it a viable case for insurers.
Paul Murray: The internet’s been mentioned, but there’s a more general point. In order to succeed in this region, companies that are based here, whether insurance or reinsurance, are going to have to be at least as sophisticated as the other players around the world. We saw today how there’s only two companies in the region with ratings higher than “BBB”. Now, with the best will in the world, people do like doing business with people with better ratings than “BBB”. With all the multinational insurance and reinsurance companies coming into the region, what we’re also going to see is moves by the existing domestic companies to gain a bigger share of the potential that’s out there. And undoubtedly there will be some start-ups within this region. But those companies are not only going to have to be doing things the right way, they’ll have to be seen to be doing things the right way. And I think that’s already happening. At EMB we are currently working in Bahrain with Arig, helping them with things like technical pricing and capital modelling. I think capital modelling in particular is going to be something you see the companies based in this region doing, as is happening in the rest of the world. In the UK they’ve had the ICAS [Individual Capital Adequacy Requirement] regime for a number of years now and in Europe they’re about to have Solvency II come in. It’s going to become the standard to have sophisticated capital models, essentially looking at the risk within the company and trying to analyse how that fits together, so that you really use that within your business processes, understand the risks you’re facing and use it as part of your business model. So I think companies in this region are going to have to take a lot of time to understand exactly what risks they have within each class and how those risks interact. With the ICAS in the UK you have to hold capital so that you have enough to survive all but a 1-in-200-year chance. Now, if you’re talking about very extreme events like that, you can easily think of something like the World Trade Center, where clearly very high aviation losses and very high property losses were incredibly linked. So companies are going to need to be doing world class things, so they can prove to the rating agencies and others that they should be taken seriously, and that’s going to mean understanding all their risks, how they interact, and planning accordingly.
Helen Yates: We’ve all been listening to the speakers at MultaQa over the last couple of days about some of the projects planned both in this country and the wider region. And I think everyone has picked up on the excitement associated with these ambitious plans. What have you found particularly exciting?
John Arpel: What I find so exciting here is that Qatar is totally unique in my experience. They share the largest natural gas reserves in the world and they have the population of a small town. I can’t quite think of anywhere else where an insurer or a reinsurer would be faced with that sort of situation. And I think that we’re going to be faced here with capacity issues on the corporate side that have never been faced before. There will be areas of technology where only a country with the wealth of Qatar will probably be able to test out or pay or use that technology. So I think it’s one of the best places to start with a plain sheet of paper and to look at totally innovative solutions for what is a unique situation. And I think that’s just great.
John Tan: I would like to bring us back to the subject of the life business, which I am probably the least qualified to comment on, but then I can afford to be controversial. If I remember one of my discussions with another authority some time ago, it’s probably about the same thing, where they were exploring the internet business with the individual personalised business from life to health to motor, and the question was, “What is the most conducive environment to get people to use that?” because technology is not a problem, as the younger generation all know how to use it. But I have yet to see a market in Asia whereby claims is a benchmark, whereby a policyholder will buy a policy from anybody on the internet knowing that within 24 hours of a claim they will fill in a form, know what the outcome of the claim is (payable/not payable) and how it will be settled. And that has not been applied anywhere. I think market forces are the greatest if all companies in the market are required, and this is your blank sheet of paper John, to actually have a record of when a claim is notified, how was it settled, within what timeframe. I think those are the best credentials, and consumers will know where to buy their policies from, despite the company’s rating. It moves the heart, the soul, the mind and the body, that you get to make sure that your promises will be delivered.
John Arpel: Again, I think that Qatar offers a very unique situation, because on the one hand competition exists where essentially there is more supply than demand, but when you’re looking to invest somewhere in the region of $130bn, you could be coming up against serious capacity issues unless you can find really innovative solutions. And it is those capacity issues which may dictate pricing, because there comes a point where capacity is as much a price on your return on capital as actually anything to do with risk. So I think you’re facing some very interesting and challenging issues here, given the size of some of the risks that are likely to be coming into the marketplace.
Helen Yates: How can the brokers provide their clients with capacity solutions, particularly for the large construction and energy projects. Could alternative risk transfer be useful in this instance?
Robert Makhoul: I would welcome the thoughts of my colleague, Bruce Garrett [Managing Director, Marine & Energy Division, Marsh], who you heard this morning. Bruce has a great deal of experience handling some of these large risks. Certainly capacity is an important element, especially for some of the jumbo projects. But there are a variety of mechanisms, alternative risk transfer mechanisms that can come into play, which we see as being important additional technologies to be brought into the market. Bruce, do you have any other specific comments that you’d like to add?
Bruce Garrett: On the issue of capacity for some of these mega projects here, one of the aspects that I didn’t go into earlier today is the issue where Qatar has also been very shrewd. That is in going into joint ventures with very large international companies, many of whom have very sophisticated captive and risk retention methods. Although I think there’s a potential for capacity problems as far as the Qatari-owned share of risks is concerned, for many of the multinational companies some of these mega risks don’t actually come into the commercial market. So I think there is a real challenge, dare I say it, for Qatar Petroleum (QAPCO), which, as I think you’ve probably heard, owns somewhere between 60% to 70% of everything that’s happening here. They are, since the creation of Al-Koot Insurance and Reinsurance [QAPCO’s captive], aggressively increasing the amount of risk that they are taking into their own captive vehicle. But then their own captive vehicle does require risk transfer support behind the scenes, so there’s some very interesting dynamics. And just to give you a very quick insight, for the latest Pearl Gas to Liquids project, which is a very large project in terms of the amount of money that is being spent, there was no shortage of capacity to write that project. In fact there was quite aggressive competition to give the project a very competitive rate.
Helen Yates: How important is underwriting discipline going to be in this market, particularly with new competition coming in and the understandable bid to gain market share?
Rupert Boyle: I’d actually like to go back to the previous issue about capacity and how Qatar might actually carve quite a useful niche. At the current
time, when looking for high capacity risks, if, on the rare occasions you do end up in a situation where the global markets can’t put up enough capacity on a risk, there have been a number of entities that have looked at using the capital markets, such as through a cat bond. And the obvious one I suppose was GE Capital who were playing in that market, along with Swiss Re. Then also you’ve got a number of banks that are currently trying to turn themselves into niche players, again by putting reinsurance risk into a bond issue and putting that onto the capital markets. The notable player for this is probably Commerzbank, through its London operation. And one of the issues that does keep coming up is where an insurance broker is trying to put together such a programme and is then knocking on a bank’s door. You get into a regulatory crossroads where you’re leading the fiefdom of insurance and you’re going into the regulatory atmosphere of the capital markets. Possibly one of the best things that the QFC could do is to make sure that the regulatory environment is seamless on that front. This could, indeed, lead to a cutting edge technology that basically creates a new form of capacity for the global markets that is fairly unique.
Robert Wiest: I think coming back to your question on the underwriting discipline, yes, it is absolutely important as it is an intrinsic part of the creation of our business. Underwriting discipline is linked to cost of capital and return on equity, it’s the same part of the equation. That still doesn’t tell you whether you want to be flexible or very rigid on your underwriting discipline, because again, that is part of the decision of where you want to be in the market. That’s totally the kind of situation where you might decide to be a bit more flexible in order to gain market share, which, for someone who is already in the market, is not an option at all. Now, if you are constrained by a certain return on equity which you want to generate, then you are obviously going to be constrained on the underwriting discipline front. So it is absolutely important, but not on a standalone basis, only if it’s part of the entire equation, which includes your financial performance indicators and includes also your marketing approach to specific environments. And in the GCC, it is obviously a region where you see all kinds of different behaviour. Some players are more aggressive in the hope of getting market share, but obviously that will have an impact on their financial performance. And you also have a different kind of animal, where it is actually operating the other way around. And so underwriting discipline is an important point, but it depends how it’s going to be applied, and that differs from company to company.
Sean Rocks: I agree with everything you said. Underwriting discipline is critical, but at the same time you’ve got to recognise that rate adequacy may differ from region to region, as John brought up this morning using the aviation example. What is an adequate rate in this region probably isn’t going to be an adequate rate in London or Europe or wherever else, so you do have to recognise those regional differences.
John Arpel: I think what can be thoroughly annoying is that there are companies that seem to work in our market that are not only very competitive, but also produce a fabulous financial performance. I think we’re all seeing wonderful opportunities in a market such as Qatar, and it’s to the benefit of the consumer to have a transparent, lively and competitive marketplace, provided that the regulatory environment is rigorous and that really all the competitors are playing in the proper field. But after that, it’s good management and good use of capital and underwriting and data.
Helen Yates: How do you think the local companies in the GCC feel about all these newcomers in the market and the fact international insurers and reinsurers are being encouraged to set-up here? Is there any sense that this is unwanted competition?
John Tan: I think it depends on how you view things in different periods of time. Once the feeling was that as an emerging economy you would need a lot of protectionism, because you really didn’t know what other people knew, and you therefore couldn’t take advantage of it. Now I think, as the world is getting more transparent, it gives much more confidence to the emerging economies to actually be more open to embrace competition. To be more open because they know where they can take advantage and learn from their predecessors. I think that’s a good thing. I think the earlier question of whether newcomers could be considered disruptive is interesting, because normally when such issues are discussed it’s usually in the context of the market not being efficient enough and therefore it is always a positive thing to see how we can make the market more efficient.
Sean Rocks: I think it’s a partnership between the local market and the international market. Local markets do provide the local knowledge, the relationships and so on and can certainly take care of the smaller risks themselves. But for the more specialised risks, the larger risks, we bring that expertise and that capacity to the market. And I think that works very well, that relationship. One thing that we’ve got to be cautious of is that cost of having more than one player involved there, and that sometimes can make the difference between whether something’s a profitable risk to us as an insurer, as a facultative reinsurer or insurer, and what isn’t. So that’s something we need to watch all the time.
Fetooh Al Zayani: The local insurance industry here was initially apprehensive about the QFC and what kind of competition it would bring. In fact I was summoned by the chairman of one of the local insurance companies last week and he said, “Fetooh, you know, the QFC is opening the door. How are you going to cope with the competition? And are there going to be checks and balances in place?” I said to him, “Look at the type of companies we have licensed so far: AIG, Axa, you’re talking about world-class companies, we are not opening the door to everybody, there is a rigorous process, there are procedures, there are requirements for entrants.” And so they are starting to understand, although some of them are still apprehensive. And the second thing we tell them is, “Look, there’s either QFC or there’s free trade agreements. Eventually these markets are going to open up, so it’s not a matter of if, it’s when”. And whether it is now or in two to three years’ time, we have to open our door to the outside world, and we need the outside world to come and help us, as I said earlier, to unleash the potential of this region. We also need the international companies to help us create demand and awareness, because the local and regional insurance companies are really limited in their resources and in their capacity to invest in human resources and creation of awareness and advertising. And I think that’s where the role of the international firms is, really to invest, to help us create awareness. Creation of awareness leads to creation of demand, and that’s how we’re going to unleash the potential.
Osama Abdeen: Also, from experience, as long as there is a selective process for the entry of newcomers, I don’t think the local market has anything to fear. AIG doesn’t have the largest share in any market it operates in, we give support in selective areas, provide unconventional coverage, we implement technology. So multinational companies do not have the same strategy as a local company – they’re not out there to capture as much market share as them. In fact it works well. And if there is a good selection process it will even boost support for the local companies.
Graham Morrall: For Zurich International Life in the UAE, effectively we are a local insurer. Just recently there was the announcement of the new regulator for the UAE, and we actually see that as an opportunity. If there are new entrants coming into the market and bringing in new technology, new products, new processes, whatever it might be, then that actually creates opportunity. It also creates competition but it does create opportunity, and you’re not there ten years later doing the same old things, you’ve actually got a market that’s vibrant and happening. We’ve met with some local insurers here, and the ones I have met also consider it in that light. They’ve seen it as a positive and exciting time, as opposed to a negative experience.
Helen Yates: Does it matter which financial centre you set up shop in? Whether it’s the DIFC [Dubai International Financial Centre], QFC, Bahrain or somewhere else, can you still access the regional opportunities? Or does it make sense to operate from more than one financial centre?
Fetooh Al Zayani: I’d also like to express the attitude, or the position, of some of the companies that I have met with, at the DIFC and the QFC. And I’m a Bahraini, so I’ve got my GCC hat on. But from what I notice, it all depends on the business model
of the company and what they want to do. Three years ago there was only the DIFC, now there is the QFC and Bahrain, so there is choice. Perhaps some companies chose to establish their regional headquarters in Dubai because they wanted the lifestyle it offers. But I would say that even if a company is setting up in Dubai, they would still want to set up in Qatar and they would also want to set up in Bahrain. That’s what I’ve seen. If you are entering the market for the first time, it will be a choice between three centres, but once you set up, from all the companies I’ve seen, they’ve started to replicate in each and every centre. Eventually I don’t see the centres competing, but rather complementing each other. I think each will have a share of the business.
Graham Morrall: I would agree with you. We’re licensed in the DIFC and I would agree with everything that Fetooh said. I don’t believe there’s any real competition, it depends what it is you want to do in that market. And certainly if you take the UAE, we’re licensed in Federal Dubai, Sharjah, Abu Dhabi, and also in Bahrain, and the DIFC actually gives us a benefit in terms of our operations, rather than a benefit in terms of outwardly seeking business from the market, so it’s a different setup. Whereas in the QFC, we see it as a potential way, if we were to get licensed, of getting into the retail market.
Osama Abdeen: We are interested in utilising most of the financial centres, we have done it starting in Dubai and Qatar. In Bahrain we have a different set up, so we didn’t have to go through the financial centre. But according to your business model I think you can utilise each one of them.
Helen Yates: Well thank you everyone for your insight on this very exciting market and the business opportunities here in the GCC. If I could now ask you for your final thoughts before we bring this discussion to a close.
Gavin Coull: Going back to what I said at the start, I’ve been overwhelmed by the clear vision and commitment in this region. Going back to John’s point, it is a blank piece of paper, and I would welcome everybody round this table to take advantage of new products and new markets. And obviously legal issues may arise, but I don’t think, apart from the regulatory side, which you’ve talked about, that’s going to be a real driver or a break on development here. So I would just say well done QFC and well done Qatar.
John Arpell: Yes, I think it’s a just a repetition of the fact that there is enormous potential here for innovative and dynamic solutions in what looks like it’s going to be a totally unique situation.
Rupert Boyle: The groundwork for a good regulatory atmosphere is in place. It is now a matter of getting the PR across to the global insurance broking community to make sure the markets that set up here are fed the appropriate business.
Sean Rocks: I echo all of that, and thank you for this seminar as well. Yes, I think the structure is there, it’s going to be fascinating to see how it develops. It’s changed so much in the last five years, let’s see what the next five years hold.
Robert Makhoul: I’d like to congratulate the QFC on creating a platform that allows for the entry of new participants into this marketplace in a fair and transparent fashion. It certainly suited our business model to enter and to get closer to our clients in Qatar.
Bruno Bertucci: I would like to join my colleagues in congratulating Fetooh and her team in the Qatar Financial Centre for their level of organisation skills and effort, not just in the conference but in the whole project, which is definitely a good passport for success. And as John already said, you have in front of you a blank piece of paper, and with such a level of professionalism, enthusiasm and financial support, you will definitely be able to build a very good financial insurance environment, and I think a good future for the country too.
Robert Wiest: Well we have seen over the last two days that the right steps are being taken for the immediate future and we are deeply convinced that this will also be the path into the middle and long-term future. There are very few regions where such clear leadership is visible and tangible.
Fetooh Al Zayani: Our objective really is to raise the profile of the region. Now, if we have succeeded in getting any of our colleagues coming here this week to think about starting in the region, we have done our job. So whether you are in Qatar or Bahrain or coming to Dubai, we don’t mind, we just want you to be in the region. And bringing focus to the region is one of our main objectives. Thank you very much.
Graham Morrall: Certainly from Zurich International Life’s perspective, a regulator that can give protection to both client, distributor and the companies is a regulator that we’d like to do business with. A regulator that gives you clear rules, that gives flexibility, and that constantly talks about a risk-based approach to regulation is also one that we would like to do business with. There was a question earlier about infrastructure, and for those of you that don’t live in the UAE or in the region, there seems to be a feeling that the infrastructure isn’t there, and that’s total rubbish. I spent some time in London recently for about the first time in two years, and if you talk about infrastructure, it’s slightly different when you’re sat in the traffic listening to the cabbie for hours on end, never getting to your destination! But joking aside, the infrastructure is being built at such a rapid rate in all of these countries that it can only be good news for our business going forward.
David Anthony: For me a couple of things. My conclusion, analytically speaking, is it’s a great country in Qatar and it’s a great region, full, absolutely brimming with potential, certainly for the next generation ahead. So it’s not just for the short to medium term, it is for the long term. Finally though to ask a question and one, frankly, which I’d half been hoping someone else would raise, and I’m agnostic on the subject, I have no answer. But on the subject of reinsurance start-ups, it is a general observation that there are relatively few locally or regionally-based reinsurers. And I don’t expect an answer at this late stage, but my question is whether there’s a huge opportunity for start-up reinsurers in the region when the market’s entirely happy to carry on ceding to Paris, Zurich, Trieste or London or wherever?
Stephen Wagstaff: I think as everybody’s aware around the table, Axa is already committed to Qatar, they are already committed to the QFC. We’re going through a recruitment process at the moment and an office fit-out and we can’t wait.
John Tan: I’d like to thank the QFC. I feel very grateful that I have had this opportunity. I think to me, having spent a lot of my time in South East Asia, this authority is one of the most open and one of the most well-prepared. I think that’s the secret to success. If the QFC continues to have open consultation, you will very quickly gain best practice and the best companies in the market, and that to me is encouraging. And to your question about start-ups, all I can say is that, as a start-up, our first few months of experience is that there is a lot of interest in getting another opinion. I think at this stage, being a start-up, we are not in a position to influence the market, but we are prepared to be more transparent, and I think that is important to a lot of cedants. And that is something that we hope to encourage our other partners and players in the market to do.
Paul Murray: Increasingly, the companies and the regulators in the GCC region are trying to do the right thing. The regulators are trying to introduce world-class regulation, the companies that are domesticated here are trying to use sophisticated modelling techniques, and all of these things will help to increase confidence in the region. It’s clearly an area with immense potential and I think it’s clear that now is the time to get involved. The growth and the potential in the GCC means that it’s really no longer the world’s best kept secret.
Osama Abdeen: We thank QFC for providing the platform and we are committed to being part of raising the profile and helping out, and we’re committed to Qatar. One point I wish to raise is that you have to balance your local market need, the size of your market and the number of entries to your market on a value-added basis, otherwise if you go too fast on such initiatives it could really disturb the market. That’s just a recommendation.
Helen Yates: Thank you very much again for your insightful comments today.