The complex geopolitical situation in the Middle East presents high risks for businesses operating in the region. Messrs Jason Herriot and Vipul Gupta of MS Amlin explain how the company delivers the right insurance cover at the right price.
MS Amlin’s War, Terrorism and Political Risks unit works to provide the confidence and peace of mind necessary for businesses to survive and thrive through difficult times.
The company is a leading insurer and reinsurer, and part of the global top 10 insurance group MS&AD. With a 300-year record and more than 2,000 people in 24 locations worldwide, MS Amlin works to deliver continuity for businesses facing the most complex and demanding risks. In turn, this promotes continuity and prosperity around the world.
Q. What is the focus of your business in the Middle East?
Vipul Gupta (VG): A lot of our business in the Middle East is facultative reinsurance business so our clients are brokers and domestic insurers. They write the business directly with the insureds and they have the relationship with the insureds but they don’t offer all types of coverage or they don’t have the expertise in these specialist areas to offer cover – hence why they come to MS Amlin. We set the terms and conditions that then get offered back to the client.
Jason Herriot (JH): We are keen to further increase our profile in the local markets, to be seen as a regional lead market for our products and to ensure we are firmly on the map. We have been writing this product for a very long time and have the experience to do it well.
What is the level of expertise at MS Amlin?
JH: The biggest part of our portfolio is property terrorism – that’s a generic term because it covers all political violence. The products we offer extend from terrorism and sabotage to strikes, riots and civil commotion, and then to war and land. War and land comprises insurrection, rebellion, revolution, mutiny, coup, war and civil war – the type of perils that are excluded from most policies.
After the World Trade Center attack in 2001 terrorism became an exclusion in most policies, but often the property carriers will continue to cover strikes, riots and civil commotion. We find these days our clients either want to buy a terrorism/sabotage product or the comprehensive Political Violence all-in reinsurance product.
And then there are political risks – confiscation or expropriation by a foreign government, where there’s a cross-border risk. For example, we have an insured who is taking a land rig from one country to another; they are prospecting for oil, the rig gets confiscated by the government of the foreign country and we cover against that.
The other side of political risk is non-payment and non-delivery, pre- and post-shipment. For example, if one country wants to buy petroleum and jet fuel, they will approach a trader to go and source the goods. The trader delivers but there are payment terms – it may be 30 days, 45 days. If the government entity responsible for importing does not pay – it is a governmental credit risk.
What are some common threats and country-specific risks in the region?
VG: The MENA region is no different from the rest of the world in respect to the global fight against terrorism. It has suffered more than its fair share of events over the past decade. The Arab Spring, Syria, Yemen – these events have a habit of drawing neighbouring countries into the fray. Saudi has suffered countless missile attacks originating from within Yemen, aimed at Riyadh International airport and various southern towns. In terms of marine risks, Houthi rebels have attacked shipping, both commercial and naval craft in the southern Red Sea area – a busy maritime route attracting 19,000 vessel transits per annum.
Dubai, not unlike many MENA cities, has a certain Western-style glamour that could make it a target for terrorism. There is a risk and that means they do purchase insurance quite heavily. Bahrain on the other hand has traditionally been more exposed to violent demonstrations akin to riots.
Any examples on how MS Amlin leads the market with innovative solutions?
JH: There is a case that relates to our marine hull war product. For many years, the problem was with the Somali pirates. To me at the time it seemed that the London market was just content in pumping vessels through the Gulf of Aden and charging a premium. I feel that is not really insurance; it’s just running the gauntlet, rolling the dice.
At the outset of the problems MS Amlin led off a facility being the first to arm vessels going through the Gulf of Aden. That divided market opinion over a number of issues, but we felt that matters would not just sort themselves out. The Coalition Navies could not protect all these vessels and effectively recommended deploying private security as the solution. This ratified our position, which then became common practice in the market.
It is a good example of looking at the risk and leading the market. We always try to look at a way of providing a service in an acceptable way at an acceptable premium.
How do you price the risks?
JH: Insurance pricing is a multi-faceted science with a fair degree of expert interpretation thrown in. There is quite a bit of difficulty in this. It is important to go into detail and understand not just the risks but the relationships between all the parties involved.
VG: We have historical rating that has built up from over 30 years of underwriting and we adjust our rates for the geopolitical situation, the security situation, the clients’ experience – basically everything that will affect the particular risk. We also look at things like the security of supply. Where are the supplies coming from? Is there likely to be a trade embargo or a quota? How long is the policy period? If it is three to five years it could span two governments so what does that look like? There are so many things to think about. All this is ascertained and we come up with a rate.
If we are comfortable with the risk and we have quoted the right price for the client, we are happy with taking that risk on. If the rest of the market is only prepared to do it at 20% higher and we are convinced of our price, we would still bind.
JH: Ultimately, we are here to write risk. We are risk-takers and constructively look for innovative ways to deliver our products to our clients. We structure a policy at the right price that is both acceptable for the underwriter and equitable for the insured. M
Mr Jason Herriot is global product group lead of war, terrorism and political risks unit. Mr Vipul Gupta is senior underwriter of war, terrorism and political risks for the MENA region. Both are from MS Amlin.