9 July 2014News

MENA: lands of opportunity

It is unsurprising that there are many countries in the Middle East with an abundance of petrodollars behind them: Saudi Arabia, Qatar and the UAE among them. Yet Nigel Mortimer, chief underwriting officer of casualty and professional lines at Argo Re, tells Bermuda:Re that in the current climate, “there is a lot of diversification away from the petrochemical industry and into the infrastructure of these countries,” a factor that has been driving growth from a geographic viewpoint.

Complementary to this outlook, Ahmed Rajab, CEO of Aon Benfield’s Middle East and North Africa (MENA) division, insists the growth potential is in Turkey, where the re/insurance markets continue to develop due to real depth of investment.

From a product perspective, energy remains a huge segment of the industry, creating an abundance of opportunity for energy underwriters in the region, as Mortimer explains. “Personal lines have certainly been growing significantly and there’s been more and more regulatory control around minimum requirements for medical malpractice and motor coverage lines,” he says.

He also sees a lot of opportunity to insure expat coverages due to the sheer number of non-natives in the region, and for professional indemnity coverages for architectural engineers due to its fast-evolving infrastructure. Rajab affirms the belief that construction and engineering are the major lines of potential growth for the coming years, and estimates that beyond this, it is the property market that is likely to prosper.

Mortimer also points out that property rates in places such as Qatar, Dubai and the Kingdom of Saudi Arabia are extremely soft, and suggests that this has been largely responsible for suppressing market growth. “Underlying risks keep growing but rates are coming down faster than the growth,” he says.

It is evident that Bermudan reinsurers are much more involved in the region than their insurance counterparts. Big underwriters such as ACE are consistently active but, Mortimer says, beyond that there is little involvement from the Bermuda insurance market. Furthermore, he claims that the operators who have shown interest in the reinsurance sector are primarily London-based, perhaps suggesting a latent trend with regard to importing expertise.

Arch Re, for example, started its operation six years ago with local partner Gulf Re, and has been very successful. On the other hand, new entrant XL has settled in Dubai and has not sought any local partnerships, but has been equally successful. “It’s really about what best suits the international player,” says Rajab.


Establishing a successful operation in this up and coming market does not come without its complications, however. Mortimer explains that in recent years the only way to be a direct player in the market has been to buy a local company, because new licences to foreign firms were closed off some years ago, “in order to try and encourage consolidation and improve balance sheets of the local insurance companies”.

This has effectively created a large facultative market in the Middle East, meaning a lot of big insurance players from London and Bermuda are acting as facultative reinsurers behind the local cedants in the region. As a consequence, local companies are increasingly willing to retain more of their risk, with the aid of expanded treaties. Mortimer suggests that this facultative market may not be growing as rapidly as it once was, and says that it tends to be the more sophisticated, or more difficult to place risks that go through the facultative market and the more benign business that goes into the treaties.

He goes on to explain that for Bermuda-based firms, there is greater opportunity from a reinsurance perspective, “giving treaties to the local firms rather than being an insurance company focusing on an expanding facultative market”.

One of these many opportunities lies within re/takaful products, an insurance concept which observes the rules and regulations of Islamic law and is offered by a number of re/insurers in the region. The product is fashionable at present, yet its value is subject to the same variables as standard insurance offerings, as Rajab explains. “The portfolios are growing but growing steadily—the main differentiator that we have seen is the quality of the resources that are available within re/insurance companies.”

He believes that those who are well equipped are benefiting from re/takaful, yet a lack of the right resources is causing some to struggle in terms of growth. “It all depends on the team and people driving it, rather than the branding of the re/takaful offering itself,” he says.

On the other hand, Mortimer asserts the opinion that re/takaful offerings are an infrastructure expense, and although they remain an exciting investment opportunity for the future, “it’s a question of where do you gamble in terms of potential growth markets”.


In order to take advantage of these opportunities, larger firms such as ACE and XL need to source local talent in order to become fully aware of the region’s culture. Mortimer says that gaining access to local relationships is essential, “because it’s not purely just about identifying and understanding the risks of the client but also, when a claim occurs, making sure that the appropriate controls are in place to ensure that you don’t overpay on the claim”. 

Yet, the majority of qualified experts currently in the region owe their roots to the London Market, where a lot of the older generation of brokers were trained and have spent a significant portion of their careers. This high level of expertise is then exported to the region through these individuals, often Jordanian or Lebanese in background, and combined with strong local connections and local knowledge. Mortimer explains that most of the underwriters in the region were probably trained by AIG or ACE between 10 and 15 years ago, and so most of their knowledge lies within the property space.

The problem then, Rajab explains, is obtaining enough of this experience and resources in order to fuel the sheer capacity of business cropping up in the region. Within the Dubai International Financial Centre (DIFC) alone, there are 61 registered re/insurance companies or brokers and at least another three or four entities applying for licences which are likely to be approved within the next 12 to 18 months.

“The number of players keeps growing, there are resources and experts on the ground, but we just don’t have enough of them,” he says. While he believes that importing resources from abroad could be a long-term solution, Rajab remains cautious, claiming that it can become difficult for new businesses that lack a ‘true footprint’.

Although expat talent from London and the US remains a significant part of the marketplace, Mortimer says that we will see these numbers decline over time as expats from India, Lebanon and Jordan transfer their skills to the region, particularly the UAE.

A regional hub

In past years, there has been increased competition between Dubai, Bahrain and the Qatari city of Doha to draw as much of the financial services and insurance markets to their regions as possible. Mortimer believes that Dubai is leading this race by a fair margin, and it is unlikely that others will catch up. He describes the DIFC as a great creation that has attracted a lot of talent, recently signing a deal with Lloyd’s and cementing itself as a regional hub. “There is some permanence to their leadership in bringing insurance talent together in one place and creating a marketplace for the whole region.”

Rajab agrees, adding that international players such as Munich Re and Swiss Re have already set up operations on the ground in Dubai and are using it as a platform to expand their geographical scope further in the Middle East. He explains that each one of the local hubs provides different kinds of services as well as different levels of compliance and taxation, “so it’s really a matter of which hub is going to be more attractive to the international player in terms of satisfying their business plans”.

It is evident that local markets in the Middle East are growing very fast. As Mortimer says, “Strong economic growth puts the wind behind the insurance market like nothing else.” These markets are crucial as they are among the very few that keep growing organically in the current climate; the more infrastructure in the region, the greater the opportunities for insurers to diversify the risks of their investors and to transfer those risks on to different balance sheets.

Mortimer adds that these economic growth rates are proportionately higher than those of the Western world, and believes that the underlying issue is really about putting GDP to one side and concentrating on insurance penetration rates which are growing by 9 percent a year or more for non-life premiums in the Gulf States. This type of growth is extremely beneficial when coupled with GDP growth, as it goes a long way in creating some stability and offsetting the huge amounts of capacity coming into the market.

Rajab says that a lot of the European players are investing heavily in these ‘strategic’ markets in terms of resources, recruiting and technology, and are therefore likely to operate there for the long term. He concludes by suggesting that if Bermudan re/insurers wish to get involved in the region, they need to bring more than just capacity, and instead should look to bring innovative new products to the marketplace in order to extend their business into the Middle East effectively. n