Is the Middle Eastreally a market of the future for the international insurance and reinsurance industry? Or has it been oversold? In an effort to glean some answers, Peter Joy presents some of the results of an extensive research project conducted by Global Reinsurance on behalf of the Qatar Financial Centre Authority.

In September 2006, the Qatar Financial Centre Authority commissioned the Business Intelligence Unit of Global Reinsurance to conduct a primary research project among senior executives in the international insurance and reinsurance industry. This was to gauge their views on the Middle East market’s present realities and future potential; on Qatar’s prospects as a business centre; and on how Qatar could make itself attractive for businesses like theirs.

We put together a comprehensive online questionnaire to be completed by each respondent, plus a list of discussion topics to be covered in the face-to-face and telephone interviews that formed the other half of each response. During October and November, a team of 11 knowledgeable researchers based in London, New York, Frankfurt, Mumbai and Sydney interviewed and gathered online responses from 114 MDs, CEOs, heads of division, partners and other senior executives in insurance and reinsurance companies, in broking firms, and in related support businesses, such as captive management firms, loss adjusters, law firms, ratings agencies and consultancies all around the globe. The resulting wealth of data and insight was distilled into a comprehensive 50-page illustrated report.

Twenty percent of respondents did a significant amount of Middle East business. A further 44% did a marginal amount – so in all, nearly two-thirds had some practical exposure to the region.

Rising stars

The Middle East emerged – in the respondents’ opinion – as the world’s number two region for anticipated primary insurance growth in the coming five years. Sixty-four percent said they expected to see “strong growth” or “very strong growth indeed” there by 2011, with 71% saying the same for the Asia-Pacific region. This compared with 34% for South America and anything from 11% to 23% for mature or stagnant markets such as Europe, the US and Africa. To quote one reinsurance company director: “Europe’s going to trundle along. If you are wondering where you are going to put your money, it is somewhere else.”

India and China were clearly seen as the “rising stars” for business, but many respondents mentioned the practical challenges – particularly ownership restrictions – involved in doing business in those markets. The Middle East, with its soaring oil and gas wealth and rapid economic diversification, emerged as a very close second for anticipated business growth.

Growth lines

When asked to name the key growth lines for the Middle East, respondents put energy and property – already the two biggest lines for international firms in the region – top of the pile; 60% and 48%, forecast “strong growth” or “very strong growth indeed” for these respective lines. But marine, accident and health, casualty and non-marine liability and life were all also seen as having powerful growth potential.

On takaful (Shari’ah compliant) insurance and reinsurance, views varied and not all were familiar with the concept. But those active in this market spoke of 30% year on year growth in the Middle East – and 50% annual growth in Far East markets, such as Indonesia and Malaysia.

To exploit this market one has to be in it. Said the director of a London-based reinsurer: “You can’t support the product development from an ivory tower 5,000 miles away… you need to have multi-ethnic teams experienced in the marketplace. We are writing takaful business in Malaysia because it is a very friendly jurisdiction. But there’s no reason why Qatar couldn’t also offer that.”

Centres of excellence

We asked respondents to give their views on insurance and reinsurance growth prospects over the next five years for 24 established or emerging financial centres. Fifty-nine percent of them forecast “strong growth” or “very strong growth indeed” for Qatar, ranking the Gulf state – which has the world’s highest per capita GDP – as the globe’s fifth-strongest business centre for expected business growth.

Respondents whose firms evaluated or re-evaluated their strategic opportunities in the Middle East in the previous 18 months – 44% – were asked which, business centres, if any, they had investigated. Eighty percent had checked out Dubai – largely, it seems, thanks to the Dubai International Financial Centre’s intensive global marketing efforts (60% of respondents had been contacted by the DIFC in the previous 18 months). Qatar, explored by 43% of such firms, came in a clear second – comfortably ahead of well-established Gulf business centres such as Bahrain (31%), Abu Dhabi (29%) and Riyadh (23%). Beirut, Cairo and the Omani capital Muscat brought up the rear.

What attributes does a successful international financial centre need? Of 13 different political, legal and fiscal factors, respondents prioritised political stability, an internationally recognised legal system, a favourable regulatory environment with competent and responsive regulators and freedom from ownership restrictions. Tax and capital adequacy requirements came bottom of the list.

On infrastructure and resources, executives highlighted first-rate telecommunications and skilled staff. Low business costs and strong international airline connections were also rated as key points. The presence of work-providing institutions and the ability to write or service business regionally, topped the list of business opportunity factors. Lifestyle factors were also important, particularly for those with families and of these, security, a low crime rate and the availability of good schools came top, while the ability to enjoy a “western” lifestyle came seventh and bottom. As one respondent put it: “It’s the Middle East. People want things to be different, not the same as every other city. Develop what is unique about Qatar.”

Gathering the detailed views and insights of 114 senior industry figures from around the world was a rare opportunity. Their overall message: they see the Middle East as close behind the Asia-Pacific region for future market growth; and the Qatar Financial Centre is an increasingly convincing option for locating business operations.

Peter Joy is head of research for Global Reinsurance.