Interviews

Talking shop

Policy spoke to Yassir Albaharna, CEO of the Arab Insurance Group (Arig); The Arab insurance champion.

Please provide an update on recent and forthcoming developments from Arig.
Arig has changed its DNA significantly over recent years. It has expanded its geographical scope, diversified its product range, refined its underwriting practices and introduced corporate governance and risk management practices of international standards. Together these have resulted in a much stronger business and offering to its clients.

Our new office in Mauritius is performing well, generating income in line with our original plan in its first full year of operation. This initiative has eased access and improved the service we can offer to our clients in the Sub Sahara African markets. In 2010 we intend to open a North African office to better service our growing client base there.

Our strategy to diversify into life and personal lines reinsurances also continues to be successful. The reduced exposure to non-life cycles for our overall portfolio provides strong benefits both today and for the future.

Breaking the mould of a regional operator and combining our expertise and access to regional clients with London market expertise were the key drivers for setting up our latest joint venture initiative Hardy Arig Insurance Management (HAIM) in Bahrain targeting complex and high value risks.

What do you see as Arig’s greatest successes over the past five years?
Arig has been very effective at repositioning and refining its business and practices over recent years. The company has expanded its business geographically, targeted profitable markets and diversified its classes. At the same time it has controlled its costs, focused on technical discipline and introduced international standards of risk management, ERM and transparency. Each has led to the stability of our business seen during the recent financial crisis.

Worthy of specific note would be the opening of our office in Singapore and Mauritius which we opened in 2005 and 2008 respectively. This is driving our growing presence in the Far East and the Sub Saharan regions. The purchase of the Scottish Re life portfolio in 2007 resulted in a strong product diversification for Arig and a major strengthening of our technical expertise in this specialised field. Our portfolio has doubled since that purchase and we are now recognised as one of the leading players in the life reinsurance markets in the region.

Finally I will mention our ERM and corporate governance strategies. These have enabled us to focus our management efforts in the areas which protect both our shareholders and business partners. We apply international standards which have been recognized with two consecutive awards as the most transparent company in any business among the 607 companies listed in the Gulf region (via the awards of Behavioural Assessment Score for Investors and Corporations ‘BASIC’).

In a buyers’ market environment, it is vital for our company’s commercial success that underwriters are selective. They need the right skills and tools allowing them to recognise when their business is adding value to the company or when it is not. This has been a key focus in Arig’s recent development and we are pleased to report that we are seeing the fruits of our efforts expressed in a substantially improved technical result.

Tell us more about Arig’s approach to training, both internally and externally. What makes Arig different?
Arig values local talent. This can only be achieved by developing local staff, starting from their very beginnings in our industry.

At Arig we have initiatives with many local universities and educational institutes to raise awareness of the insurance and reinsurance industries to create a demand from students to join it. We also work closely with the Bahrain Insurance Association (BIA), where I am a board member, the Specific Council for Vocational Training – Banking Sector and the Human Resources Development Fund – Banking & Financial Sector in Bahrain. I have also been elected, since September 2008, as a board member of the International Insurance Society (IIS). This is a reflection of respect shown to Arig as a reinsurance organisation that has worked hard to raise the bar of professionalism here in the Arab region since its foundation.

For Arig itself we operate a number of staff development programmes in addition to the common training initiatives required for staff. Each year we receive a number of graduates into an accelerated graduate trainee programme. Graduates from this programme should become our managers of the future – indeed I am one such graduate. We also offer a management development programme for the cream of our existing staff, again with the aim to accelerate staff development for the benefit of the company.

With our clients, the more experts they have in their ranks, the easier our job is as a reinsurer: they understand the principles already. We therefore offer a number of reinsurance workshops aims at various levels of expertise at our cedants. In 2010, we offer four such programmes – Arig Annual Forum (Ex Arig Annual Seminar for Executives), our Reinsurance Workshop for Beginners, the Life Reinsurance Workshop and for the first time a Medical Reinsurance Workshop. A number of these have been running for more than 10 years and have become highly respected events in the region. Of course, we also provide client -specific training on an ad-hoc basis.

What really makes Arig different when it comes to training is that we are prepared to invest in training for the benefit, not just of Arig, but for our industry and the market as a whole, now and in the future.

Please tell us more about the thinking behind the Hardy and Arig joint venture and aspirations for the future.
HAIM, the joint venture between Hardy and Arig, focuses on a business segment that is not part of the often ruinous competition between local and regional markets. Using Lloyd’s paper, HAIM is predominantly writing large engineering and construction risks, as well as onshore energy and property accounts that require global support. As you may be aware, a good number of our larger facultative accounts from the region are no longer written on technically viable terms. The general struggle for market share has insurers scrambling for premium almost at any rate. Writing premium today at the expense of future losses is not a sustainable business model to us, which is why HAIM looks to replace accounts we need to stay away from with business rated and retained by the more credible players in our industry. HAIM is backed by A+ (S&P) security and offers significant capacity supported by Hardy and Arig. We see this venture as part of Arig’s cycle management and as a strategic field for development but will always have it operate based on sound economics.

Can you tell us more about the split/balance of Arig’s business by geography and by lines of business?
Arig operates throughout most Asian and African markets. We have branches in Singapore and Mauritius serving the Far East and sub Sahara African markets locally. We plan a further office in Libya during 2010 to service the growing importance to us of the North African markets. With few notable exceptions there is reduced catastrophe exposure in our key territories.

The majority of Arig’s portfolio is written as a pro rata share of our clients’ accounts, reflecting original market terms and conditions. At the same time Arig continues to develop alternative income streams that allow the company to become more opportunistic, benefiting from market segments not as commonly supported by our competition. Bearing in mind our prudent underwriting strategy, such developments are not anticipated to grow strongly in 2010 considering where we are in the market cycle.

Owing to the effects of the economic slowdown and selective underwriting in the face of softening markets, 2009 premium development shows a mixed picture across the business lines. However, our selective underwriting strategy has enabled a significant growth in our underlying technical results at the same time.

Apart from the changes in life and medical, our overall portfolio composition remained largely in line with the previous year. Life markets were fiercely competitive in 2009 on both terms and rates, although we expect a correction to some extent in 2010. Medical premium was up sharply, reflecting the effects of the government mandated scheme in Saudi Arabia. This market also remains highly competitive and we are looking at development of further niche market offerings in medical in 2010 in order to grow profitability of this book. A new special risks category was added capturing one major account, where Arig participated in a well-priced and highly diversified US property book at Lloyd’s.

How different are market conditions in 2010 so far compared to 2009 for Arig and for the Middle East insurance industry as a whole?
Economic forecasts for 2010 remain subdued. Performance of the economies in the current year will largely depend on how much and for how long governments are able to increase their spending in an effort to jump-start their lagging economies.

Fortunately Arig’s prime areas of business remain in the MENA region which has fared better than many other parts of the world. Mid- and long-term demand for oil and gas in particular is expected to continue to exceed supplies. Infrastructure projects and other investments into the future remain high on the regional agenda and are a key reason why Hardy and Arig decided to gear up and compete for the allocation of such risks through the new joint venture HAIM. Personal lines and regional diversification will continue to provide alternative revenue streams, although there is little doubt that 2010 will not be a year of strong expansion for the sector.

While 2009 has allowed companies to regroup financially and show positive results across the sector, we believe that 2010 will be testing as the industry is struggling to match its income targets with a softening market for insurers and reinsurers alike, market fragmentation and reducing returns from investments. Good ERM remains the order of the day. As we continue to operate in a volatile environment, we must all remain focused on building and expanding a business model that is both solid and sustainable.

What fundamental changes/trends do you expect to see in the Middle East insurance industry over the next five years?
The Middle East insurance market still remains highly fragmented and retention levels remain very low. I would hope that improving regulatory requirements will result in some consolidation in our markets over the next five years. I also expect to see a general increase in cedant retention levels as greater capitalisation means that larger proportions of risks can be retained by the insurer. This should result in a general improving of underwriting discipline too.

I would also like to see improved regulation for selling. This should be accompanied by a raising of minimum standards of training and education in the industry. This will benefit the industry’s reputation long-term and help to address the still very low penetration in our markets. In five years’ time we will see the start of this process, not its end – regrettably change generally comes very slowly in our region.

What do you enjoy most about your role as CEO of Arig?
Leading the major regional Arab reinsurance company is a great honour for me. In my time as CEO I have taken specific interest in seeing the changes at Arig being reflected in many of our clients both in terms of professionalism and growth.

What is your advice for the next generation of Arab insurance managers?
My advice to insurance leaders is to remain true to your technical roots and be patient as, unlike banks, the learning curve in insurance is rather steep. This is the key to long-term success in the insurance industry anywhere and more so in our market where skilled technicians remain scarce. The ability to inspire the local people to have a desire to join our industry and help it grow is also key to our region if it is to succeed in a global environment in the future.