Having placed more than US$1 billion in premiums last year, the Dubai International Financial Centre (DIFC) is now on track to grow its insurance cluster to 100 firms by the end of 2015. Mr Mark Cooper of the DIFC Authority looks at the milestones achieved and the road ahead.
In 2013, more than US$1 billion in GWP was placed from the DIFC, a first for the Centre. Although relatively small in global terms, this nonetheless represents a significant milestone for us here at the DIFC and indeed, for the region as a whole.
The Centre is nicely balanced between reinsurers, brokers, Lloyd’s coverholders and other Managing General Agents (MGAs), in addition to a growing number of auxiliary providers. Of the 68 insurance-related entities, 52 are authorised by the Dubai Financial Services Authority (DFSA), and a further 16 provide specific insurance-related services, such as actuaries, risk consultants, loss adjusters and forensic accountants.
The DIFC is on target to reach 80 firms by the end of 2014, and our objective is grow the (re)insurance cluster to 100 firms by the end of 2015. This is a portfolio we are extremely proud of. It evidences not only the trust and credibility established with our existing insurance clients, but also the potential for further expansion in the sector moving forward.
A boost to growth
The DIFC’s (re)insurance market grew 20% in 2013 and in 2014, we are forecasting a growth of another 20% or more, driven by macro-economic growth in the region and more specifically in Dubai, the potential around the Expo 2020 win and the recent upgrade by MSCI of the UAE to “emerging market” status.
The DIFC has attracted some of the leading international companies in the industry, including a number of the top 10 global insurance/ reinsurance groups such as AIG, Zurich, Liberty, Generali, Allianz, Munich Re and Swiss Re, as well as leading insurance brokers, including Marsh, Aon, JLT, Guy Carpenter, Lockton and UIB.
Later this year, we will also welcome Lloyd’s to the Centre as they look to work with both the DFSA and the DIFC Authority in building a market platform with a number of existing syndicates planning to relocate to the new platform, as well as attracting a number of syndicates and MGAs to set up in the DIFC for the first time.
This is undoubtedly a huge endorsement of what we are doing at the DIFC, as well as recognising the potential that the Middle East, Africa and South Asia (MEASA) markets can offer companies looking to set up in the Centre.
Within the largest GCC market
The UAE is currently the biggest insurance market in the Gulf, with over 60 carriers offering conventional and Islamic insurance operating in the country. GWP accounted for 44% of the region’s total in 2012, according to Alpen’s report.
Looking ahead, the insurance industry in the Gulf is projected to expand at a compound annual growth of 18.1 % between 2012 and 2017 to reach a size of $37.5 billion. Gross premiums written in the GCC had a compound annual growth of 21% during 2002-12, the same as Brazil and China and more than India and Russia.
Whereas the DIFC does not allow direct insurance, as a wholesale (re)insurance market, it plays a very important role in supporting the development of the local insurance markets.
A developing insurance sector
The growing (re)insurance cluster within the Centre and proximity to clients and customers is one of the top assets of the DIFC. The market is in one place and the ease of doing business is a key factor in its success – a rich and deep market is clearly developing.
The DIFC is a wholesale, (re)insurance market providing a nice and clear model for companies that are looking to set up. Many (re)insurance companies who branch in from recognised jurisdictions are able to get a waiver of risk-based capital and set up as MGAs or Lloyd’s coverholders easily in the Centre. Lloyd’s coverholders are recognised within the DIFC, which is not always the case with other jurisdictions.
It is quite common for many companies to also operate with a small number of staff, which again is a key consideration for many companies looking to take advantages of the region. If companies do not want to be transactional, there is always the option of a representative office where they can base themselves out of the DIFC and assess the market opportunity, promote their business and gather vital market intelligence.
The evolution of the DIFC’s insurance sector lies at the heart of our growth strategy. Over the past decade, the DIFC has made significant progress within the insurance sector, which has put us in a position to compete on a global scale and attract some of the leading international insurers which we continue to do.
Risks that traditionally went into major European markets, such as London and Zurich, are now being written in the Centre. As more capacity is established, underwriting and claims expertise increases, and an in-depth knowledge of buyers and local markets develops, there is an increasing need for more specialised insurance offerings which we are seeking to encourage via a number of initiatives such as putting in place relevant regulations and laws to facilitate ease of business within this sector. The DIFC works closely with the DFSA to ensure that legislation and regulations are updated to support the growth of the (re)insurance sector.
Enhancing the value proposition
Simultaneously, we are exploring new initiatives to enhance the value proposition of other “soft” infrastructure offerings for the market. For instance, the Centre is focussing on technology, and we are currently liaising with insurance software developers to evaluate, alongside the market, whether there are opportunities to increase efficiency and productivity in the insurance space.
We will also be developing an industry association this year as we look to give the (re)insurance market a structured and formal voice; an association that can interface with its counterparts across the world with the ultimate objective of driving the market forward and pushing forward the interests of DIFC-based insurance entities.
We are constantly growing our geographical footprint, writing more and more complex lines of business as well as complementing our traditionally strong non-life portfolio with a growing life portfolio. We are also focussing on other avenues such as the expansion of the Islamic insurance and captive markets. Retakaful is certainly a pipeline that we expect will strengthen further as we see the UAE evolve into an Islamic finance hub, in line with His Highness Sheikh Mohammed’s initiatives.
Ingredients of a hub
Despite the current unrest in the Middle East, the UAE remains one of the most peaceful and economically stable countries in the region – and indeed the world – a primary consideration for companies and their employees when looking to establish themselves here.
The UAE’s growth as a hub for business and its accessibility to emerging markets such as Africa and South Asia are strengths that have helped to establish the DIFC over the last decade. It has the proven connectivity and ingredients for all types of financial businesses to succeed and grow – not just those within the insurance industry.
The DIFC offers one of the best working environments in the world, as evidenced by the talent it has attracted from across the globe, resulting in a combined workforce of approximately 15,600 to date, of which over 890 people work across the (re)insurance market. The number of active registered companies operating within DIFC has risen by 14% y-o-y, bringing the total number to 1,039 firms. Thus, we have critical mass over and above our competitors in the region.
A firm takes many factors into consideration when making a decision to locate to a new jurisdiction – laws, regulations, infrastructure, cosmopolitan environment, schools, and employee lifestyle are all important components in the decision to set up a business in a particular place or region.
For the reasons mentioned, the DIFC has over the past decade established itself as the pre-eminent financial hub and gateway to the MEASA region. Our independent regulation, common law framework, supportive infrastructure and tax-friendly regime of 0% tax rate on income and profits make it the perfect base to serve the region’s rapidly growing demand for insurance services.
The way forward
Looking ahead, the evolution of DIFC’s insurance sector lies at the heart of our strategy. We now look forward to taking this one step further, by enhancing efficiency and providing sustainability to our existing and future clients who want to operate in one of the most vibrant, challenging and dynamic regions in the world.
Mr Mark Cooper is Director of Insurance, Reinsurance and Captives at the DIFC Authority.