This year’s FAIR Reinsurance Forum in Cyprus saw a major breakthrough as the organisation succeeded to facilitate the businesses of its pools and syndicates in China despite the country’s new regulations which put limitations on foreign entities.
The four pools and syndicates of the Federation of Afro-Asian Insurers and Reinsurers (FAIR) had been facing difficulty in continuing their reinsurance business in China because of the China Risk Oriented Solvency System (C-ROSS) which was implemented in full beginning this year, laying down a new capital and risk management regime for insurers and reinsurers in China.
Finally in September, the China Insurance Regulatory Commission (CIRC) and FAIR signed a MoU to allow FAIR’s four pools and syndicates easier access to write reinsurance business in China. Signed in Cyprus on the sidelines of the Forum, the agreement is touted as one of FAIR’s major breakthroughs as it overcomes the rating requirement challenge which pools face when seeking to enter markets, especially important ones like China.
The MoU aims to facilitate the operations of FAIR pools and syndicates in China within the framework of C-ROSS.
Signing this agreement with the CIRC is going to be the most important achievement for the coming years as it allows FAIR pools and syndicate to transact their reinsurance operations in the Chinese market despite the previously set restrictions. “More importantly, the Agreement will open the door for FAIR’s pools to enter other markets which apply the same rules, such as Saudi Arabia. Moreover, it (the agreement) is a strong testimony of the strong financial position of FAIR’s pools.”
Mr Nabil Hajjar, Managing Director of FAIR Oil & Energy Insurance Syndicate, expects the agreement would enable FAIR pools and syndicates to write reinsurance business starting next year. He thanked China Re for its supporting role in helping FAIR to make the breakthrough.
Mr Abdel Raouf Kotb, President of FAIR said the agreement would definitely open broader prospects of cooperation with the Chinese insurance and reinsurance market and is considered a major milestone for the Federation’s efforts in fostering cooperation among Afro-Asian insurance markets.
FAIR established pools and syndicates to encourage cooperation and increase underwriting capacity and retention among its members. The pools include FAIR Non-life Reinsurance Pool, managed by Milli Re of Turkey; FAIR Aviation Pool, managed by SCR of Morocco; FAIR Oil & Energy Insurance Syndicate, managed by Trust Re of Bahrain; and FAIR Nat-Cat, managed by GIC Re of India.
Reinsurers should rise to the challenge
Reinsurers operating in a tough market environment have numerous growth opportunities in the emerging markets, and should take advantage of it, said Mr Kotb.
“Our emerging markets are experiencing higher growth compared to mature markets and the low penetration rates create opportunities and allow for much room for development,” he said.
He added that there is a significant scope for FAIR markets to work together for their mutual benefit. “Even with the new changes in the trading environment, the business emanating from FAIR countries is generally considered profitable and relatively short-tail. Professional reinsurers of the developed countries have been trying to balance their long-term exposures with our short-term business despite its small volume.”
Dr Adel Mounir, Secretary General of FAIR, said there are some challenges ahead for the Afro-Asian insurance industry which reinsurers can help in finding solutions for. “Reinsurers need to respond to these challenges and come up with workable solutions that will lead to the continued growth of the industry.”
Cyprus: Oil and gas premiums witness tight competition
Turning to the weak environment in the oil and gas industry, which affects several FAIR members from oil-producing states, Mr Kamal Tabaja, Group Chief Operating Officer, Trust Re, said that more than 50% of the global oil and gas premiums have eroded.
Demand for oil and gas insurance has been under pressure following the decline in oil prices in 2014, with more insureds opting for lower programme limits and higher self-retentions, noted Mr Tabaja. Though GDP growth is a key driver of the global energy market, yet, as technology and public policy drive efficiency gains, economic growth and energy demand decouple, he said.
He said that insureds would retain less in light of the abundance of capacity in the market, but a lso ruled out that the market would harden especially with the players (clients) in the energy sector increasingly adopting ERM in their operations.
Citing findings from a recent study conducted by Trust Re, Mr Tabaja added that the competitive pressure is most pronounced in upstream markets where there is a lack of new projects and reduced business interruption costs. Nonetheless, he said, it is different in downstream markets as there are higher margins for refiners and electricity generators.
In conclusion, excess capacity is bound to lead to consolidation in the energy industry, hence demand for energy insurance could come under additional pressure. “Insurers need to respond to the requirements of larger and globally operating customers.”
He warned that the immediate priority now is tackling market dislocation after 2014 but without overlooking the massive long-term potential of the growing energy demand. “The market’s potential in combination with more complex client needs is a major opportunity for differentiation for committed energy insurers.” He observed that in the GCC, one of the major oil companies has purchased insurance against cyber threats and this is expected to increase as companies are increasingly becoming remotely and digitally managed.
Organised by Trust Holding and Trust Cyprus, the two-day Forum was held with the theme “Reinsurance in Emerging Markets and Risks: The Road Ahead”. Around 300 delegates from various MENA and international markets attended the event.