The opportunities in the Gulf are compelling, but you’ve got to be there if you want a slice of the action. Two groundbreaking conferences in the region looked at the opportunities and challenges. Helen Yates reports.

One week in March, two insurance conferences in two separate cities in the Gulf and one shared driving force. MultaQa Qatar in Doha and the World Insurance Forum (WIF) in Dubai reinforced what those in the industry have long suspected: That the Gulf is positively brimming with insurance potential. How to realise that potential was the topic for much discussion.

Boom time

If anyone needed convincing of the opportunities in the Middle East insurance sector, the news that a $400m regional reinsurer had been set up quashed all doubts. Gulf Re, launched by Arch Capital and the Gulf Investment Corporation, is the latest start-up reinsurer dedicated to serving the Middle East. That its launch was announced at the WIF, held in Dubai for the first time having traditionally been held in Bermuda, added to the significance. “In the next five to 15 years, the Eastern economies could be buying as much insurance as the West,” predicted Catlin CEO and deputy chairman Stephen Catlin, speaking at a panel discussion in Dubai.

Other major players are in agreement. In the past 12 months, Marsh, AIG, Lloyd’s, Scor, GIC, Flagstone, Lancashire, Liberty, Allianz Re, Axis, JLT, Lockton, Ace, Asia Capital Re and Hannover Re among others have set up branches or expanded an existing presence in the region. As a start-up, Flagstone Re will only enter the markets it expects to gain short-term return from (three to five years), explained chairman Mark Byrne. The firm is not establishing a presence in China because it does not expect to see the market realise its potential in that time, but it is licensed to write business out of the Dubai International Financial Centre (DIFC). An unprecedented move for a Bermuda start-up in its second year of operation.

Insurance penetration in the Gulf Cooperation Council (GCC) is still low, even relative to Central and Eastern Europe, but it is expected to increase dramatically in the near term. Growing wealth is leading to a significant increase in insurable assets and activities in the region, according to a report by Standard & Poor’s. That, along with the region’s improving regulatory frameworks, the introduction of compulsory insurance and the potential of Shari’ah compliant (Takaful) products, provides a compelling business case.

“There has been a fundamental change in the global economy,” explained Axis Capital CEO John Charman, speaking in Dubai. “There has been a fundamental change in wealth and business distribution. The wealth creation seen in Dubai and the region is going to continue.” Charman’s assessment is evident everywhere you look in Doha and Dubai. Both cities are undergoing growth on a massive scale. Skyscrapers dominate and billboards everywhere proclaim new billion-dollar energy, infrastructure and construction projects. The financial centres of both Dubai Inc and Qatar Inc are literally throwing money at marketing exercises that by far eclipse anything seen in the rest of the world.

Tangible insurance need

“Insurance assets are set to grow,” promised Osama Abdeen, executive vice president of the Arabian region for AIG, speaking at MultaQa Qatar. “Huge cities are being built from the ground up and they have to be insured.” Qatar has vast hydrocarbon reserves and this is creating specific insurance needs. Delegates in Qatar, including representatives from the oil and gas industry, said the days of cheap oil were well and truly over. Prices have doubled in the last two years and “this has created a budget surplus,” explained Abdeen. “High net worth individuals are being encouraged to bring their money back from the European and US markets.”

In Qatar and the GCC, huge projects are essential as the region tries to reduce its dependency on hydrocarbons. Abdeen pointed to these projects, a growing expat population and the introduction of compulsory insurance, particularly for motor and medical, as the key drivers for the region’s 20% annual growth rate of insurance premium.

By 2010, the population in the Middle East and North Africa (MENA) region will reach 330,000,000. While insurance growth rates in developed markets have stagnated at little more than 2%-3% per year, the Gulf region is significantly more dynamic. Growth rates in 2005 ranged from a relatively low 5% per year in Bahrain, to 17% in Qatar, and well over 30% per year in the United Arab Emirates according to S&P.

&#8220Dubai Inc and Qatar Inc are literally throwing money at marketing exercises that by far eclipse anything seen in the rest of the world


“There can be no doubt that this is just the beginning,” said Qatar’s Minister of Finance, Yousef Hussain Kamal, in his keynote address in Doha. “All the evidence suggests that the insurance sector is set for a golden era over the next decade.” Commenting on the growing number of new insurance entrants, Stuart Pearce, chief executive and director general of the Qatar Financial Centre Authority, said the newcomers would not be stealing business from existing regional insurers. “We’re not slicing the pie thinner. The pie is getting much bigger.”

“You only have to travel around the Gulf to see the evidence that billions of dollars are being invested in local projects,” added Kamal. “More than $1.1trn is being invested in high value projects, with Qatar alone investing $145bn.” Lloyd’s chairman Lord Levene joked that he had hardly recognised the Doha skyline with its soaring skyscrapers when his plane was landing. It had been just 12 months since his last visit. “I wondered if I was on the right plane,” he said.

Dermot Dick, international underwriting executive and vice president at Qatar Insurance Company, said: “The real question is, how do we turn this enormous economic activity in the region into insurance booked premium?” While motor insurance remains the dominant non-life products, other casualty and specialty lines are tipped for growth.

The potential for life insurance, which currently has a very low take-up, is considerable given the GCC’s wealthy population (Qatar has the highest GDP per capita in the world) and growing acceptance of Takaful products. According to Moody’s, Takaful premiums were $2bn in 2005 and will reach $7.4bn by 2015. Demand for specialist reinsurance and even captive insurance will continue to grow as mega-projects get underway.

Changing the mindset

“The mindset is that insurance is unacceptable in the region, but there is nothing in Islam that actually inhibits insurance,” explained Ajmal Bhatty, chief executive Takaful & chief operating officer of Tokio Marine Middle East, speaking in Dubai. He believes the perception of insurance will change as the economies develop. There is still a long way to go said Ali Al-Subaihin, chief executive of Saudi insurer Tawuniya. Although Saudi Arabia has a well-developed banking industry, the insurance sector is practically non-existent.

One of the key challenges for the region is the development of its homegrown insurance market. Speakers at both conferences were less than complimentary about the local GCC insurers. “They are well capitalised for what they’re doing. Of course they’re not doing very much,” said Clive Thursby, manager of emerging and alternative markets at AM Best. A few speakers described the local insurers as being “risk traders” rather than “risk takers” due to their very high cession rates.

AIG’s Abdeen said one challenge was that 80% of GCC businesses are family-owned. Those insurers dominated by one individual tend to have succession issues, he said. Consolidation and attention to enterprise risk management and risk-based capital are required in order for the market to develop, said Wasef Jabsheh, vice chairman and CEO of International General Insurance Company, speaking at the WIF. Companies need to retain more risk, as they won’t succeed “without putting their money on the line as an underwriter,” he added.

Despite some speakers expressing their wish to see a two-way traffic of insurers into and out of the region, local insurers are not yet ready to operate on an international stage, was Jabsheh’s verdict. “Compulsory cessions and protectionist policies at home have given an advantage,” he explained. “These companies have no experience of the international market. Some of them tried it and they pulled out. In my opinion they are not ready for global business right now.” Qatar Insurance Company is one of the region’s few insurers with an “A” financial strength rating. Dermot Dick said it was important for local insurers to reduce their reliance on the international market. “Consolidation is required. It’s difficult for companies to get market share.”

Emerging risks

&#8220These companies have no experience of the international market. Some of them tried it and they pulled out. In my opinion they are not ready for global business right now


Despite the Gulf commonly being considered a low catastrophe region, Lord Levene drew attention to last year’s Cyclone Gonu in Oman – the strongest storm to hit the Arab world since records began in 1945 – and recent snowfalls in Saudi Arabia, which led to ten deaths. “The experience is very similar to patterns elsewhere in the world. Unpredictable and intense impacts at a local level” will become more commonplace as climate change becomes an increasing reality, he said.

Levene also mentioned the risk of flooding and the fact that few businesses in the Gulf have flood insurance in place. Terrorism and political risk are also giving rise to concern. Terrorists have made it clear they will strike economic targets and iconic buildings. “Coming to a place like Dubai, the growth in insurance values in the emerging world is staggering,” commented XL Capital acting chairman, president and chief executive Brian O’Hara. Dubai is prone to moderate ground shaking from earthquakes – a significant risk for a city built on sand.

All insurers and reinsurers – whether regional or international – will need to model for these risks in the years to come. This will require significant improvements in risk modelling and management. Educating local businesses will help, explained Benfield chief executive Grahame Chilton. “It’s very difficult to sell specialist technical products where there’s no understanding.” Aon chief executive Greg Case agreed. He said brokers in the region would play a central role in providing risk advice. “Insurers have the experience and risk appetite to take on increased exposures, but they want to work with companies that adopt a strong risk management culture,” said Lord Levene.

A risk-based regulatory approach will aid the development of the GCC insurance market, argued speakers in Dubai and Doha. “However attractive a market may be, international insurance companies will not have the confidence to establish a presence in any emerging region and be prepared to place risk locally unless they can operate under practical laws and regulations they can understand and trust,” said Qatar finance minister Kamal. “Across the region today the regulatory oversight in the insurance sector is much better than at the start of the century.”

In some centres regulation has drastically improved. The DIFC and QFC Authority provide insurers with a world-class regulation and laws based on international norms and the UK legal system. This is not consistent across the region however. QIC’s Dermot Dick said a harmonisation of regulation and oversight was essential across the GCC. Thursby questioned the long-term sustainability of three regional hubs – Dubai, Qatar and Bahrain – within one hour’s flight of each other. “It’s hard to believe they can all be winners.”

Tomorrow’s talent

An insurance conference in any part of the world isn’t complete without a discussion about the difficulties in bringing talent into the industry. The Middle East is no different. “How do we bring intellectual capacity, best practice and skill sets to this region and Asia?” John Charman asked a panel of speakers in Dubai. Flagstone’s Mark Byrne commented that there was a direct correlation between those insurance centres where local people have skill sets and those that are truly successful in the long run. Investment in training and education was the only way forward, speakers agreed, as were appropriate salaries. “You pay peanuts you get monkeys,” quipped Jabsheh.

“You can teach reinsurance brokerage much quicker than you can teach cultural differences,” said Grahame Chilton. “It’s not about having an expat come in and tell local people how they should do business.” Tomorrow’s Gulf insurance market very much belongs to the people of the GCC region, agreed Charman. “The old Anglo Saxon right of sitting in some fortress back in the Western World is changing. Distribution channels have certainly begun to change.”

Helen Yates is editor of Global Reinsurance.