The roundtable hosted by Middle East Insurance Review to mark the launch of the Dubai Rendezvous this month captured the strong sense of camaraderie among the players in the market amid the difficult issues they face. The perennial challenges of overcapacity and a persistent soft market arose but this time, there seemed a determination to make a difference rather than to accept the status quo. We bring you highlights of the conversation.
Roundtable participants:
• Mr Michael Jensen, Managing Director MENA, AIG
• Mr Brian Reilly, CEO Middle East, Zurich
• Mr Mark Cooper, General Representative Middle East, Lloyd’s of London
• Mr Elie Bouchaaya, Senior Vice President and Regional Manager, MENA, Liberty Mutual Insurance Europe
• Mr Willem van Wyk, CEO – MENA, Allianz Global Corporate & Specialty
• Mr Roland Zaatar, Senior Executive Officer, RSA Insurance Middle East
• Mr Rainer Lehner, Senior Executive Officer, Dubai Branch Office, Asia Capital Reinsurance Group
• Mr Leroy Almeida, Senior Executive Officer, Senior Underwriter and Head of Trade Credit, Middle East,
Markel
• Mr Karim Jabri, Chief Operating Officer, UIB (DIFC) Ltd
Where does the DIFC reinsurance market stand now?
The DIFC has come a long way and the challenges it faces are probably no different than what other reinsurance hubs are facing. However, overcapacity is a pressing concern that needs to be tackled through greater innovation and development of certain niches.
Mark: Very few financial markets in the world have had the same sort of success the DIFC has had. Has the DIFC changed the reinsurance market? Definitely. One of the challenges now is capacity, but the same debate is happening everywhere else – in Singapore, in Bermuda, in Zurich and so on.
The real challenge, I think, is finding areas where we can add value and improve the efficiency of the market through innovation and market modernisation, and the DIFC is no different in having to face that challenge.
Michael: Unless there is innovation, pure capacity players may not be around for much longer as local players are very strong.
Karim: What differentiates the DIFC is professionalism, quality and a sound legal basis, which give credibility. Otherwise, it would just be pure capacity. And if we lose credibility, we lose market strength and relevance.
Roland: There are basically two kinds of business: the capacity-driven kind which is day-to-day business, and the more complicated risks which require added value. But there are fewer such businesses of the second kind.
Michael: The DIFC has to be different and look at how it can pull in capacity from the domestic insurance market, from the likes of Oman Insurance and Abu Dhabi National Insurance – because the reinsurance market is more than just DIFC.
Roland: Lloyd’s isn’t capacity driven. In fact, it has added new lines of business and new approaches.
Michael: Lloyd’s has brought some disturbance but that’s natural for a big player. I would rather have Lloyd’s than other markets which don’t add anything else besides capacity.
Expectations of the regulator
While some participants felt that there should be more restrictions on potential entrants to the DIFC, others believed that this would be at odds with what the Centre is trying to achieve.
Elie: Insurance needs to be treated differently from the banking sector. The regulator is trying, but more needs to be done in this area.
Karim: The regulator could at least implement certain criteria to make sure that future entrants are of a certain calibre. Now, the bar seems to have been lowered, and commercialism seems to have outweighed professionalism. The DIFC should at least maintain the level of professionalism for entry. Regulation can be difficult sometimes. However we’re all from regulated companies and therefore should welcome it.
Roland: This is understandable because the DIFC wants to be a regional hub. Now that it has enough companies and capacity, it may need to review its approach to newcomers.
Karim: Now that the DIFC has established itself, it may need to bring up the bar.
Leroy: Perhaps the DIFC should review new entrants in terms of the value they can add – say in terms of providing specialty insurance lines that are real needs for the market, rather than the new entrants adding more capacity alone, since the current DIFC-based reinsurers are facing severe overcapacity issues in the more general classes.
Elie: But why would it do that? In the beginning, the DIFC positioned itself as a GCC hub, then it became a MENA hub. And now, it is looking at Africa and elsewhere. It’s not enough, it wants more. The DIFC becomes the centre for a wider region every few years.
The need to raise up the next generation of leaders is a real issue, even though some are witnessing new blood coming into the market.
Willem: One consequence of new capacity entering the DIFC is the pressure on talent. To be ahead of the competition it’s about offering the complete package. We strongly believe that career development plans and training are more critical than ever. These help empower the underwriters to get out there and be more dynamic in their approach, and to have a long-term approach to their careers.
Michael: We need to build the next generation of leaders to take over once all of us retire.
Karim: I’ve noticed some new blood in the last two years – the second generation of potential leaders. They tend to be the sons of established members of the insurance community, but they’re still new blood.
Elie: There has been some development. Ten years ago there were very few skilled professionals, but there has since been a great improvement.
However, there’s still a shortage of professional insurance training programmes in this region, compared to Europe, for example.
Karim: We need to be quicker than London and Singapore in developing these areas. We’ve lagged behind and we need to have an accelerated development to catch up and be on their level.
Mark: It’s also a golden opportunity for the new DIFC Insurance Association to drive such development.
Who’s missing in the DIFC? Who can add more weight?
There were calls for market leaders, more medical and life players, and more treaty capacity.
Rainer: There are still only a few active treaty leaders in the DIFC, mostly branch operations. Among them, the stronger ones may still find some good niche areas to focus on.
Roland: There are not that many medical or life players. Most insurance providers are facultative players, direct non-life players or managing general agents.
Karim: I’d like to see more treaty, rather than facultative, capacity.
Michael: The South African players are missing, especially if the DIFC is looking to Africa.
What I would like to see is more aviation business placed in the Middle East. Now, most of the business goes to London. Lloyd’s could help pull in some of this.
Mark: The service companies and coverholders that we have in the DIFC are looking to develop their product lines, and aviation will play a part in that progression. However, as we know, the expertise is in London and I don’t see that changing in the near future. That said, we are competing and will continue to develop specifically in general aviation, as more and more local fleets and private jets are being written in the region.
What does the future hold?
A positive outlook despite the obstacles.
Rainer: There is a lot of capacity which obviously affects pricing. On the other hand, Middle Eastern rates compare quite well with those in other markets like Singapore.
Elie: This is still one of the fastest-growing markets, and it’s going to continue growing. We’re positive about the future and this is why Liberty is here. On the dark side, there is excess capacity and a soft market, which hopefully will pass.
If you compare the DIFC now with what it was 10 years ago, you can only imagine what it will be 10 years on. So we’re still positive about the future.
Michael: We have a positive outlook, but I don’t think the soft market is just passing through. It’s probably here to stay. The only time I recall a hardening was just after 9/11 – after one renewal cycle, the soft market was back again.
Willem: Global issues can alter the perception of the region overnight. They can create threats in certain geographies but also provide new opportunities as in the case of Iran, something that must be monitored and realised when appropriate.
Leroy: It’s hard to predict the future as far the region is concerned as the geopolitical situation can change very quickly – political unrest, falling oil prices, the war in Yemen and so on affect economic activity in the region. But once these things stabilise, risk appetite and capacity will improve, leading to better growth and opportunities for us.
Elie: Longer term, countries will need to be reconstructed – Syria, Yemen, Iraq…imagine the opportunities.
Roland: Yes, but we need more discipline in the market from everyone. It’s not just about pricing.
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What is each player doing that is different?
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Michael: AIG is both offshore and onshore in the DIFC, so we’re a bit different from the rest, but still facing the same challenges as everyone else. What we’re doing is bringing education and engineering services, not just insurance, to the market. We have 400 engineers in India doing CAT modelling and in the UAE, we have about 10 field engineers. We’re also adding engineers to Egypt, Pakistan and South Africa.
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Elie: Liberty is trying to sell our human expertise through conferences where we invite cedants and brokers to train them on products we’re selling. We’re also working with the new insurance association to come up with new ideas to take the market forward.
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Willem: We’re trying to adapt to the changing insurance environment which is getting increasingly competitive. We’re empowering underwriters to make decisions locally and build their skills to connect with the market. Allianz Global Corporate & Specialty is continually looking at the right opportunities to expand and enhancing our product range, such as reputational risk, cyber and crisis management.
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Roland: It’s a very competitive market but RSA is trying as much as possible not to follow the trends. So we’re targeting niches where there are needs for certain technical expertise which we can provide.
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Leroy: As a new player on the block, Markel’s current focus is mainly on developing its trade credit insurance business in the GCC; opportunities in other lines are being considered. We offer bespoke solutions in trade credit, focusing on financial institutions and corporates, not just in the UAE but in the wider GCC markets. The challenge is the new environment of rising insolvencies and more defaults seen locally and globally that reduces confidence and risk appetite, but this also means more natural awareness created and greater need felt for our products.
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Karim: It’s critical for UIB to continue being a professional broker – not to be the biggest, but to be the best. However we’re suffering for what we stand for, but we need to stick to our principles.
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Rainer: ACR is still fairly new in the market and mostly a follower on the facultative side. Our main focus under the current market circumstances is more on offering treaty solutions that are of value to our business partners. It’s still a tough sell but we do see some good opportunities. Our operations in the region also give us an advantage in terms of proximity to clients and familiarity with the local market environment.
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Brian: Zurich gives the same level of authority to our underwriters here as we do in Zurich and London, so that they can quote any risk on a whole account basis. We’re keeping the bar high in this way.
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Mark: Lloyd’s will continue to add to the market by adding specialty lines and providing full underwriting authority. In addition, we are also supporting the local broking and regulatory communities by sending representatives to London to attend the Global Development Centre and the Regulator’s Programme, respectively, so that they can get a first-hand experience of how the Lloyd’s market works and what value we can bring to the Middle East markets.
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