The untapped potential of MENA


The untapped potential of MENA

The Middle East and North Africa is a region brimming with opportunities as infrastructure and industrial projects proliferate. Here, Argo Re details the opportunities and challenges presented by the region.

What opportunities do you see in this region?

The Middle East and North Africa Region (MENA) is an emerging market with growing insurance awareness and low insurance penetration. We expect to observe many opportunities in the future, particularly in terms of infrastructure and industrial development, with foreign lenders investing in mega-projects and requesting mandatory insurance from rated insurance companies.

In fact, we have identified a number of interesting opportunities on casualty and professional lines to support such developments. While each country within the MENA region is different and challenging in its own way, we have seen strong interest from many of these markets for a specialty insurer focus like ours. We have also begun to see other opportunities on complementary lines of business such as energy, personal accident and property. We will continue to build our local knowledge and know-how in these lines alongside our existing expertise on casualty and professional lines business.

How significant a portion is retakaful and takaful to your business and how do you see it developing?

We expect increasing demand for takaful insurance and we will support these opportunities as part of our strategy. With our strong local underwriting team we have begun to hear from potential partners, and given that takaful mirrors traditional reinsurance placements in many ways, we believe that our on-the-ground underwriting expertise will be able to interact in a meaningful way with takaful clients and insurers.

Which lines offer the greatest potential for growth and return?

Predictions place the level of investment in major infrastructure projects in the MENA region over the next five years at several billion dollars. When we considered the impact of this investment upon the region, we came to the conclusion that building our operation initially around casualty and professional lines would put us in anenviable position to quickly respond to growing demand. The MENA region is maturing quickly and recognition of the importance of risk management practices in the region is beginning to come to the forefront for many organisations. Additionally, with many of the top MENA region corporations now operating on the global stage, they have begun to embrace risk management principles that also include the purchase of liability and professional indemnity insurance. Combine this recognised need with a low level of litigiousness locally, and you have a good balance between reasonable premiums, modest claims and good profitability potential. Argo Re (DIFC) will be present to serve the insurance needs of the investors, owners and operators.

Is there a need to modify reinsurance patterns and appetites in the Middle East?

This is a developing market; international reinsurers provide lessons from more mature markets, but at the same time international players have the opportunity to interact with the diverse experiences of the MENA region.We believe it is more a question of reinsurance adapting to the needs of the region, rather than the region adapting to the desires of the reinsurers. As the market and the complexity of the risks become better known, and the data generated by this experience allow the clients and reinsurers to refine their offerings, we will see changes in reinsurance patterns, an example being that more of the risk premium and claims are likely to remain in the region managed by locally grown underwriters. Understanding the diverse cultures throughout the region will also be key to the success of underwriters successfully adapting to the needs of the MENA region.

What are the major impediments to growth in the region?How are you looking to overcome such issues?

Patience and knowledge-sharing would seem to be impediments to growth in the Middle East. This is not a ‘one size fits all’ region. Every market has its own particular idiosyncrasies and every market requires a slightly different approach for a new market entrant such as Argo.

By drawing upon local talent and wider group knowledge we are confident that we can take the time required to build a sensible and sustainable approach to profitability in the region.

There are several markets within the region that have begun to embrace the notion of a managed approach to risk mitigation and transfer. These concepts take time to embed and become the norm across an economy or an industry. We must help this process by willingly sharing our knowledge in this field with all of our partners, large and small. Over time the balance between risk retention and risk transfer will equalise and generate an economically healthy partnership between insureds and insurers.

What expertise can international reinsurers bring to the Middle Eastern market?

Many local and national insurance companies have been established in the MENA region to capitalise on the investment opportunities. However, many of those companies still lack sufficient capacity, an appropriate financial rating and/or underwriting expertise. This is where international reinsurers can play a real role in strengthening the market. Argo Re, for its part, can provide an important portion of much-needed capacity, backed by an ‘A’ rating from AM Best, as well as experienced underwriters present locally and supported globally.

"The MENA region is maturing quickly and recognition of the importance of risk management practices in the region is beginning to come to the forefront for many organisations."

We see enterprise risk management (ERM) and corporate governance as two other areas where international reinsurers can help augment local expertise. The lessons learned by reinsurers in Bermuda, the US and Europe over the last 10 years and especially during the financial crisis will have considerable application in the Middle East. Each country within the region will have experience to one degree or another with ERM and corporate governance and by combining this growing knowledge with international reinsurers’ experience in more mature markets, we could foresee a further acceleration in the uptake and implementation of ERM and corporate governance. There will also be an opportunity for knowledge-sharing with the insurance regulators and the key ministries in each country.

How are you looking to leverage local expertise to develop your presence in the market?

We are implementing a focused market segmentation strategy in order to establish the foundation of our market presence and visibility. We will strive to offer attractive pricing and differentiated products through our knowledgeable local underwriters armed with a significant level of underwriting authority.

Local talent and an understanding of the myriad of cultures present in the region will be key to our success. Argo Re believes that the sharing of cultural knowledge within and across the group will put us in a unique position to establish our core values in the MENA region. Local underwriters supported by our growing global platform will put us in a position quickly to establish a respected presence in this dynamic and diverse insurance and reinsurance regional market.

Do you see opportunities in acquiring local reinsurers and expertise?

We are always open to opportunities that match our group strategy and underwriting approach. We do not seek to make an acquisition for the sake of premium volume. There must be a tight strategic fit to any transaction we might undertake. It is our duty to our stakeholders to be on the look-out for such opportunities, but it is equally important to us and our stakeholders to be extremely diligent in our approach.

How can you mitigate the unknown unknowns in such markets and how is the industry looking to develop its knowledge base?

We are confident that our entrance to the MENA market was well planned and was carried out after a detailed and careful feasibility study. We will always obtain and analyse market reaction to our evolving strategy. By listening to our clients and looking for the early warning signals of market change, we will work hard to stay ahead of market trends and conditions. It is imperative that we promptly address issues that could delay the execution of our objectives.

As for the ‘unknown unknowns’, we are all exposed. The insurance industry lessons of just the last 10 years have taught us all that we must take a long-term ERM approach to our businesses. We must work daily to imbed better, faster, stronger and more flexible enterprise risk management tools and processes into our operations. We have to look into the areas of shadow and at the margins of our understanding to help our clients and ourselves to mitigate the potential impacts of emerging risks and underestimated interdependencies among the risks we do know.

We talked about knowledge-sharing: this is not limited to knowledge held only within the insurance industry, but knowledge gained from all corners of the industrialised world. Even in some of the emerging markets in the MENA region there are lessons to be learned and new risks developing that will require the industry continually to contemplate current trends and tendencies five, 10 and even 50 years into the future. The unknown unknowns of today will be yesterday’s known knowns, tomorrow.

Tony Cabot is senior executive officer, MENA at Argo Re. He can be contacted at:

MENA, re/insurance, Argo Re, Bermuda

Bermuda Re