News Middle East22 Sep 2022

UAE:Emirati insurance market large enough to have its own major reinsurer

| 22 Sep 2022

The UAE insurance sector, the largest in the Arab world, possesses the necessary elements to establish a major reinsurance company with a subscribed capital of at least AED6bn ($1.63bn), according to Mr Omer Elamin, president of Dubai-headquartered Orient Group.

In an interview with the newspaper Al-Ittihad, Mr Elamin said that such a reinsurance company would transform the UAE into a regional reinsurance centre. It would also contribute to increasing the retention of written premiums in the local market, as well as raising the localisation rate, and providing absorptive capacities for underwriting high-value risks such as towers and buildings, aviation, oil and marine.

Mandatory cessions

Suggesting public-private sector backing for the reinsurer, Mr Elamin said that in order for the reinsurance company to be able to succeed and stand on its own feet, it would be important for local or federal government agencies or sovereign funds to have a stake of between 40% and 50% in the company’s capital. The remaining stake could be held by insurers and investors in the local market.

He stressed the importance of requiring mandatory cessions to the reinsurer of at least 30% of the total insurance premiums in the local market, meaning that each insurance company should set aside 30% of its premiums for the reinsurer.

Mr Elamin also pointed out that the number of insurance companies currently operating in the UAE market, which is the highest regionally, exceeds market needs. The only way to reduce this number is to raise capital requirements, as this move would stimulate mergers and acquisitions and consolidate the market. While the outcome would be fewer insurance companies in the market, those that remain in operations would be stronger in terms of their capability to meet risks.

On the impact of high interest rates and inflation on the investments of insurance companies, Mr Elamin said that insurers that have a high degree of liquidity will certainly benefit from the high interest rates. He said that Orient Insurance Company, which is the biggest insurance company in the UAE in terms of premiums and profits, has cash assets of AED4bn, representing two-thirds of its total investments that exceed AED6bn.

Orient's operations overseas

At present, Orient is present in seven markets, namely, the UAE, Bahrain, Oman, Turkey, Egypt, Sri Lanka, and Syria. The overseas units contribute about AED600m or 12% of the group's total revenue of AED5bn annually.

Mr Elamin pointed out that the contribution of foreign operations would have been greater had it not been for the depreciation in the value of local currencies in most of these markets. 

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