With healthy profits coming from its established Middle East operations and significant new growth from the Far East, Arig has never had it so good

Arig’s recent announcement of a net profit of $18.6m for the half year 2007 caps off a lucrative couple of years for the reinsurance giant, seeing it expand its dominating footprint in the Middle Eastern market whilst discovering new treasures in the Far East.

For the half year 2007, Arig’s profits grew by 115% compared to the same period for 2006, with strong underwriting and investment performance contributing to the result. A 23% rise in gross premiums written and shareholder’s equity at period end of $288.7m completed the success story.

Viewed in the longer term, this rounds off a great couple of years for the Bahraini shareholding company, now the largest reinsurance company in the Middle East.

On 29 June Arig acquired Scottish Re’s Middle East life portfolio, estimated at around $22m annual premiums.

“This transaction underscores our strength and capabilities to become a leading life reinsurance provider in the MENA region,” said Yassir Albaharna, chief executive officer of Arig.

The acquisition both confirmed and strengthened the company’s strong presence in the Middle East – a presence which has arguably played a significant part in the rapid emergence of this market.

But the region also provided fertile conditions for such growth. Middle East economies enjoy healthy oil revenues, contributing to high levels of liquidity and increased investment in infrastructure. Rapid economic growth, banking sector modernisation and insurance market liberalisation have also made the Middle East an attractive option for insurers and reinsurers.

“The maturity of the markets and the influence of politics, culture and religion have seen insurance develop in various ways. Takaful is now widely accepted in Kuwait, the United Arab Emirates and Bahrain,” said Salah El-Kadiri, managing director, Middle East and North Africa at Guy Carpenter.

The focus on the Middle East allowed Arig to both capitalise on a newly emerging market and to concentrate on reinsurance as its main platform.

And this two-pronged strategy came to fruition in September 2005 with the establishment of Takaful Re in September 2005, in conjunction with several financial institutions including the Islamic Development Bank, Dubai Investments and the Qatar Islamic Insurance Company. Given the previous shortage of Retakaful capacity, Takaful Re filled a gap in the market and takaful is set to be big business - with a Moody’s report last October predicting a 300% growth in the market from 2005 to 2015.

And Arig’s venture seems to have cleared the path for others to follow. “Arig pioneered the first takaful reinsurance operation in Dubai, Takaful Re, and many other projects for takaful and retakaful companies are in the pipeline,” sadi El-Kadiri.

The takaful move paid off, with Arig reporting a net profit of $30.4m for the 2006 financial year.

Alongside success in the Middle East, Arig has also been expanding its presence in the Far East. It launched a branch office in Singapore in 2005. Licensed by the Monetary Authority of Singapore, this was set up to concentrate activities on insurance markets in nations including Singapore, Malaysia, Indonesia and Thailand. This has gone from strength to strength, with the company reporting in February that the branch managed to expand premium income from Far East markets by 54.7% year-on-year.

But the fact that Arig's fortunes are closely tied to that of the sometimes volatile Middle East stock market sounds a cautionary note.

“While stock markets in the region have experienced volatility, returns on investment were high during 2006, which allowed for continued fierce competition. But the trend carries potential for the demise of several companies should stocks crash,” said El-Kadiri.

“All of these factors make it hard to determine whether the region’s insurance industry boom is real.”

But if the company concentrates on its core principles of global expansion and maintaining strict underwriting performance then the future seems bright.