FareedLutfi, Secretary General of Emirates Insurance Association and GCC Insurance Commission

FareedLutfi, Secretary General of Emirates Insurance Association and GCC Insurance Commission, is one of the most respected and knowledgeable figures in the GCC insurance industry.

He currently serves as President of the Dubai Insurance Group.

His career in international reinsurance and insurance spans 25 years. Before joining the Dubai Group in 1996, FareedLutfi worked at Arab Insurance Group (Arig) for 15 years, and was responsible for setting up and managing the London contact office. He is a board member of Oman National Investment Corporation Holding and chairman of the board of National Life & General Insurance Company, Oman.

Lutfi is also a former Director and CEO of Alliance Insurance, and a former general manager of Dubai Islamic Insurance and Reinsurance Company (Aman).

Policy sat down with him to learn the state of the industry.

Excerpts:

Q: Is the UAE insurance market saturated?

Over-capacity is going to be there because there are more than 60 companies operating and new companies are coming up. The market is saturated. The irony is that there are new companies when a moratorium is on new licensing. The last quarter results showed that most of them are in the red. In the red doesn’t mean that it is bad. Companies do go in the red but are still covering the cost to run the companies any way. The capital is not deteriorated which needs injection. But eventually it will happen if it continues for two-three years in a row. Of course,  the Solvency law, which is in the pipeline, will regulate the market in the years to come.

Q: Do you suggest any more regulatory move?

The way it is coming up, the Solvency Law, if implemented will benefit the market. It is mandatory because it protects the shareholder and the policy holder. It’s definitely going to be risk-based capital. That’s what the industry world-wide does.

Q: The rates are actually coming down jeopardizing the survival of many companies.  In such a scenario how many of the companies will survive?

I don’t think I am in a position to tell who will survive. But survival is going to be for the fittest. If we look at the results of some companies, there are some impairments from the past. Some companies are taking impairments for years rather than in one shot. Maybe that’s what happening on investment. Except for some class of insurance stiff competition is happening. Companies should look at their bottomlines. If you compare companies, some are writing over billions and some others 200-300 million and  up to 600 million. But their profits are more less the same. That’s why I say, they should look at the bottom lines and try to reward their shareholders, and not to be too aggressive on the budgeting, especially the new companies.

Q: In such a scenario, do you see a consolidation taking place?

That’s what we are hoping for. In my opinion, it should happen. The boards of individual companies should be looking at the bottom lines rather than prestige or ownership. There are some examples before us of selling off stakes. If you look at last year’s results as well as the first and second quarters this year, some companies have shown losses. They might be talking about mergers.

Q: How about takaful companies?

The new ones are mainly takaful and I don’t think they are doing well. Some of them have been here for three years and they may break even. For new ones, it will take at least three years to break even, if the market is good; But the market is bad as well.

Q: As per the Shariah law, takaful companies are required to distribute their surplus. Are they doing it?

Unfortunately, I have not seen anybody doing it. In the UAE, I have not seen anybody doing it, but in Jordan they have done it. When you calculate the costs, all the policyholders bear the cost until it is profitable for them and for the shareholders. As the investments are really bad, I doubt if they can distribute surplus even after five to seven years.

Q: What’s your advice to your association members?

Don’t compete on prices, but concentrate on quality. Think of technicalities and look at your bottom lines regardless of market share. Because if you go after market share, you burn yourself.

Q: Which business line will be promising?

The lines of business I have seen, most of them are profitable as a matter of fact and even on the motor side.

Q: Do you see the market hardening?

Till last year reinsurance market was soft. I think it is hardening. We will get an indication at the Monte Carlo Rendezvous.

Q: What’s the market outlook?

It’s gloomy, but I am positive.  The positive is that we learned a lesson.  And my advice is look at the technicalities, look at the bottom line and train more people.

Q: Having said that, is there shortage of talent?

The whole of Middle East countries see shortage, particularly in the GCC. They have to create forces and impart continuing training. The Emirates Insurance Association has been doing it in the past. But we being a non-profit organization we don’t have the means to do it. It needs more resources. Now there are facilities at Tanmia and the Emirates Institute for Banking and Financial Studies (EIBS) in Sharjah. The Insurance Authority has a plan to expand the scope of training.

Q: On the regulatory side, there are some move to regulate the TPAs.

They were in the past licensed by the local authorities. Not it has been brought under the Insurance Authority and the capital requirement is raised to AED 5 million. There are other regulatory steps. Brokers are now required to maintain two separate accounts: one for the premium collected and the other for their commission.

Q: There have been issues with brokers, TPAs, insurers and policyholders. Don’t you think it is time for appointment of an ombudsman?

Well, we don’t have a controller or ombudsman so far. It is high time we had one. The UAE Insurance Authority has a plan to do that. Already, Oman and Bahrain have them.

Tarik Aouad, General Manager, Hannover ReTakaful

TarikAouad, as General Manager at Hannover ReTakaful, has brought rich experience to Bahrain and is playing a pivotal role in the continued business success of the group. Prior to this he was the chief underwriting officer since the company’s establishment five years ago. Before that he was based in Hannover Re’s head office in Hannover, Germany,  where he spent almost a decade in the underwriting field.

He graduated in mathematics from the University of Muenster, Germany, with major in probability and mathematical statistics.

Hannover ReTakaful is a 100 per cent subsidiary of Hannover Re Germany andtherefore an integral part of the Group, one of the leading reinsurancecompanies in the world.

Tarik shared with Policy his views on the industry.

Q: There has been talk that there is not enough capacity in takaful reinsurance. What’s your view?

My opinion is that there is now sufficient retakaful capacity to cover the majority of the business. All one needs to do is to add the offered “acceptable” capacities of the retakaful providers and compare it with the retakaful requirement of the takaful operators. However,  from a risk theoretical perspective there will always be shortage in capacity particularly for high severity low frequency (i.e. aviation, energy,  etc.) lines of business as they are capital intensive. We at Hannover ReTakaful, like to offer in addition to capacity good service and expertise.

Q: Unlike the conventional counterparts, the takaful industry is set to be on track for high growth. Do you agree?

Yes, I agree, this reflects the trend development of the  population in our retakaful markets. Another element that explains this growth is increasing penetration in population segments that were resilient to conventional insurance.

Q: Is there a real competition existing in the market?

Competition is good as long as pricing commensurates with the risk involved. Otherwise,  insolvency scenarios have to be expected. Based on this conviction, we do not support unhealthy competition. The protection of our pools is an overriding  objective of our  underwriting strategy.

Q: The common refrain has been that there are more players in the market than required. What’s your call?

Yes, this is particularly true in most of the countries within the Mena region where there is a need for consolidations to a level that put the (re)takaful markets in a balanced risk-return landscape. In this context many of the determined regulators from the region are contributing, by way of rules and regulations, to a healthy (re)takaful market.

Q: Is it true that most takaful companies are struggling to capture a decent market share? There are also allegations that takaful companies have not been distributing their surpluses among policyholders. What’s your view?

The success of a takaful company in capturing market share is depending on its strategic objective. If a takaful operator is lacking on clear vision on how to penetrate the takafulmarket  then it may become irrelevant for the same company to differentiate itself from the other market players by providing good level of services. It is true that some takaful companies do not distribute surpluses. A closer look at the financials of most of those companies blurt out the truth. The most pervasive reason for the non-distribution of the surpluses is the need for reserving for Incurred but not reported  losses(IBNR),  Catastrophe (NatCat& Man-Made). Another reason might be inadequate underwriting in largely loss-making lines of business like medical  and motor.

Q: Are there enough Shariah-compliant investment avenues available to takaful companies?

Sharia-compliant part of the capital market is still at its infancy compared with the conventional part. There are still limited possibilities to invest in  sharia-compliant instruments. In addition to this, there is a serious challenge when it comes to finding high quality investment products.

Q: What are the challenges for takaful industry other than operational scales and low penetration level?

The takaful operators need to commit themselves to the fundamentals of the sharia-compliant insurance, which will give credibility to the industry. We have already touched upon some of  the challenges in the earlier answers, but we could add among others the need for committed staff,  product  expertise and consistency of takaful regulations and standards.

Q: What’s your suggestion to limit over-reliance on investment income?

The takaful operators must complement the mission and the vision they have set, by realizing the fundamental role of  protection of the underwriting pools and not to generate income from investments.  This is more valid in these times of high uncertainty of the capital markets.

Q: What are the growth areas? Property, motor, energy, health?

Engineering and life are major growth areas. With the major projects underway, engineering is on the rise on both takaful and conventional sides. As to life, this is a matter of awareness and the availability of innovative and competitive solutions. I believe takaful operators are on the right track there.

Q: Do you advocate compulsory medical insurance, which will be a major driver for takaful companies?

Compulsory health will be a driver for growth in the industry.
However,  it is important that the price is commensurate with the risk assumed to ensure long term sustainability. Proper risk management (including the close monitoring of the loss development) is also an important factor in this high frequency low severity line of business.

Q: There are reports that most takaful companies are expected to report losses and only a few will survive. Do you agree?

This statement is in my view inaccurate. First of all what time frame are we talking about? Any company might have to sustain some financial burdens in the beginning. But, once the portfolio has reached certain critical mass to allow for a sufficient diversification, a positive future is likely. Another important factor is the lines of business as some takaful start-up who concentrates on motor and medical, will show losses. In this context we  already  discussed (see above) a possibility of future consolidation. This implies that eventually the number of market players will be fewer.

Q:  What are your suggestions for a healthy growth?

Fundamental for a healthy growth are among others:

Innovative Products; good services; simple,clear and consistent regulations and standards, commitment of management & staff to sharia compliance; technical expertise; and developed sharia compliant investment vehicles

Q: Is it true that GCC region cedes more to reinsurers than others? Then, what’s the remedy?

This is valid for the Menaregion in general and not just the GCC, partly due to the existence of too many players with small capital base benefiting from attractive reinsurance commissions. The remedy is for primary underwriters to have more confidence in their own business. This confidence needs to be high enough for them to retain a well-diversified profitable book. We see this trend with some companies operating in the GCC already. With regards to the reinsurance commissions, reinsurers need to show more discipline.

Q:  What’s your view on rates. Are they hardening?

In most lines of business, they are not. In some property areas like catastrophe covers or SRCC they are or at least will be upon policy renewals.

Q: How did Hannover ReTakaful fare in the first half?

Hannover ReTakaful is on track with the forecasts on both contributions and results, despite some serious losses during the first half of this year that bring challenge to the underwriters in term of controlling both the type as well as the level of exposure. However, they remain within budget.

Q: What is gross written premium?

Our latest published annual report is as of December 31, 2010 reported gross contribution is BHD30.25 million ($80m).

Sanjay Kalia, Managing Director, Arya Insurance Brokerage Company

Sanjay Kalia entered the insurance arena by accident, a quarter of century ago. But acquired enough skill and experience to lead as managing director one of the top insurance brokerage firms in the UAE, Arya Insurance Brokerage Company, to success with ethical practices.

Policy spoke to Sanjay at a time when brokerage segment is in the throes of a much needed consolidation.

Excerpts:

Q: How is the industry faring. It is bad time as most say?

I think it is getting slightly better and improving. I am not comparing it with three or four years back what it used to be. I am seeing the reality. It is now coming to the real business.  Yes, the number of players is more and there is unhealthy competition. But the real business is coming, enquiries are coming. There is no floating around.  I am positive.

Q: How are the corporate results?

We have not seen premiums falling down.  The premiums are more than what they had last year.

Q: It’s the usual question. There is rampant undercutting, unhealthy competition. Do you see a consolidation as a result?

Well, ultimately, yes, I do see it will happen. The reason being there are tough regulations coming by. What you need here is a healthy competition. We have a number of new players coming up with a small portfolio, not even calculating the risks and what expenses are going to be there.  I do see a consolidation coming shortly, not very long.  Consolidation can also mean there will be acquisitions.

Q: Does the unhealthy competition arise because there are unprofessional players in the market? Do you prescribe a minimum qualification?

A broker has to be qualified professionally.  So far it has not been there.  The broker concept is comparatively new, or young in this part of the world as compared to Europe or other parts of the world. Broker used to be acting more as a marketing person than of a proper insurance manager.  My interpretation is broker is supposed to be an insurance manager. If you need to be a manager for your client, you need to be qualified;  you need to understand the risk. He is an adviser to the client, he has to see that client’s interests are taken care of, for which you need professional qualification and experience.

Q: Do you see dearth of talent?

No, I see lots of professionals are passing out. There are so many young people taking insurance as their career. So, there will not be a shortage.

Q: Which line of business will hold more promise now?

Insurance is a service industry and it follows the main line.  There was a time textile traders moving to real estate.  People always move when they see business opportunities. And insurance moves in tandem.  The enquiries we see now are medical, employee benefit, group life. From the premium point view, these two lines are promising.

Q: There have been reports of misrepresentation by brokers to get more business?

Yes, of course, there have been many cases of misrepresentation. But that is again because of lack of knowledge.  That’s the reason why professional qualification is needed. Some times some do misrepresentation, but that’s not on purpose, but of lack of knowledge.  Most of times, I have seen, the agent doesn’t discuss the complete details of the policy. Not even the deductible of a policy. The client is not aware of these things.  The fine prints are not discussed. That’s also part of the rate war.

Q: In your opinion, what should the regulator do now?

The regulator is doing perfect. There is already many regulation to monitor and regulate the market. As the industry evolve, more will come.

Q: There have been issues such as brokers, after collecting premium from clients, not paying the insurance companies. This has led to the authorities insisting on having to maintain separate accounts: one for the premium collected and the other for commission. What’s your view?

There was a circular issued by the ministry and I think all brokers have complied with it. We welcome it as we have been against the practice right from the beginning. It’s wrong and unethical. “It’s not my money.  My money is only the commission part. I am not supposed to use the premium collected from client for my own purpose. It is public money, which has to go to the insurance company.”

Q: What’s Araya’s mainstay?

In this industry what we are mainly doing is marine cargo insurance and the second is employee benefit, which is medical and group benefit.

Q: What are your growth plans?

We are very conservative in a way that we don’t want to show unrealistic figures. Our philosophy is different. One the one hand, we don’t want to have any kind of liabilities. We are selective about our clients who pay on time so that we pay the insurance companies on time. We are looking at achieving 25 to 30 per cent growth rate.

Q: What are your expansion plans?

Well, we are looking at expansion. We have had discussions in some neighbouring countries.

Ralph J Kabban, Managing Director, United Insurance Brokers

United Insurance Brokers (UIB), an independent, international insurance and reinsurance Lloyd’s of London broker with headquarters in London, is on a relaunch mode in the UAE and the one who is chosen to lead the mission is Ralph J. Kabban as Managing Director. A new strategy is in place and Ralph wants to look at areas of business, which have not been traditionally explored by the group. He wants to raise the bar, in service quality and product innovation, for others to follow.

Policy spoke to Ralph for his strong views on the insurance market in general and the UAE market in particular.

Excerpts:

Q: What is the present state of the insurance market?

There is reduction in the number of brokers in the UAE. From around 200, they have come down to 170. Also there is a slowdown in the number of new licences being offered to insurance companies. We have enough insurance companies for the size of the UAE market and the premium volume. The competition is very fierce between the insurance companies and the brokers. I think the market may even soften further although there are signs of some stabalisation. I think there are too many players in the market. It continues to be a soft market in spite of the fact that a couple of prominent reinsurers have put the brakes on working with certain insurers that underwrite for market share rather than for technical profits.  In spite of that, where reinsurers have pulled out, there are other reinsurers coming in and taking that position.  There is no real reduction in capacity. Hence prices continue to drop.

Q: You agree that the market is really overcrowded. What the regulators should have done?

I think there should have been greater capital requirements for entry. Of course, they have increased it now. I also feel that capital adequacy ought not to have been the only prime entry qualification but to allow those players with the business plan to address the low market penetration through improved and/or original products and innovative marketing channels.

However, as one would say “Rome was not built in a day” and so the regulator does require some time to set the correct framework in place and I believe we are now beginning to be on the right track.

Q: Which are those areas?

A lot of personal lines business are under-developed and have low penetration. And that’s not just in the UAE alone, but all over the Middle East. The insurance penetration is very low as compared to other more developed markets.  Prospective new entrants ought to demonstrate their ability, if at all, to differentiate themselves from the exisiting players that are operating in an overcrowded and fragmented market

Q: Should more be done regarding capital requirements aside from the points you raised earlier?

I believe there ought to be greater risk retention by the local market and for this there obviously has to be greater capital requirements.  Premiums that remain in the regional insurance and reinsurance markets can only benefit the UAE and MENA markets and their development.  This will cultivate a greater sense of self reliance in the market that most will agree is positive force to have for the companies and individual insurance practitioners both senior and junior level.

Q: Do you see a consolidation taking place?

If no more market forces are at play, then I would say yes. But there are interesting andunique factors at play in this region. Many of insurance companies are either part of a conglomerate or family business.  And for family businesses, insurance is just one of their group companies. Often they are willing to suffer through an insurance company breaking even, or making a small loss and even be willing to put that extra capital required just because they want to keep the insurance company within their group that often the rest of the group are subsidizing  .  If that insurance company is a stand aloneinsurerand finds itself in an unsustainable then it would strongly consider the option of merging.  For a an insurer that is part of a group, it would largly depend on the key indivduals recognizing that there may bevalue  inmerging with other insurers.  I think if they understand that,  then you could see more mergers happening.  I think there has to be synergies there as well rather than just the need to survive.  We are beginning to see more international players choosing to enter the market by purchasing local insurers in order to gain a foothold in a market were there has been a considerable slow down of new licenses being offered, and in my view, rightly so.

Q:  There is the issue of mis-selling products by brokers. What’s your view?

It is quite rampant.  Often insurance companies and brokers remunerate their staff on a commission basis for each account that comes in. There has to be greater control by the manager to make sure that the staff are not misrepresenting the company or mis-selling any product. There has to be regulation and proper enforcement in place to check that there are sufficient internal structures to avoid mis-selling.

Q: What is the outlook for the industry?

It is going to continue to have some growing pains which is to be expected given the rapid growth in the market witnessed before and during the economic boom. There is no doubt that we are beginning to see more and more involvement of the regulator and that is a welcomed development as long as it contiues to take the right form and seeks the input of the market it wishes to regulate. I think the right steps are being taken and the regulator is on track. We are going to see more international players coming in. It is already started and they are going to raise the bar that others have to match. That will bring its own challenges but a challenge can also be an opportunity and those that can raise their levels of professionalism will always do well in the long-term.

The current trend in softeningrates that we continue to witness is not sustainable as infinitum, and if it continues we will witness further takeovers by international palyers and more mergers. Thus market forces will eventually be too strong to overlook and ought to set things right. But you can’t just leave it to market forces. We need a strong regulator with an enforcement regime behind it to make sure that those rules that they implement get carried out.  We have seen some brokers having some difficulties recently and now we realise that there is real value in having a robust but fair regulatory framework in place.

Q: What is the impact of the recent political unrest in the region. Have rates start getting harder?

Well, we were expecting that there will be some impact on pricing. But generally it has not happened in the UAE, because it has been an island of calm in an ocean of chaos around it here in the Middle East. From a risk profile, the UAE still is a very good risk proposition for (re)insurers to underwrite risk from the UAE.  Either way, most of the troubles witness were of a nature akin to “Political Violence” which largely remains uninsured in the region.  As such, it didn’t have any major impact on the reinsurance market. The tsunami in Japan has had an impact to certain extent on the reinsurance market, but not to the level we thought it might.

Q: In this market, which line holds promise?

Construction had a big hit.  Personal lines business has tremendous potential because it is an area where there is very low penetration. I think most businesses will insure their assets.  The greatest growth is in the individual lines where penetration levels remain very low despite the relative increased wealth in the UAE and the GCC.

Q: What are UIB’s plans?

We are the eighth largest reinsurance broker in terms of revenue globally. Though originally from Lebanon, we are based in the UK.  We achieved really what we wanted to do by making it in to the top ten through “organic growth” rather than through mergers and aquisitions.  We are an emerging market specialist that has a presence in 26 cities world-wide.

We have achieved what we set out to do on the reinsurance side.  We now want to concentrate more on insurance and we see that there is lot of room to do that.

We think this market place has lot of potential. I think it is a very important region which has often been overlooked by others. We want to aggressivly re-launch our operations in the UAE by utilising the vast technical and international resources of our group to the ultimate benefit of our clients here in the UAE.

Maroun Mourad,

CEO, Zurich Middle East, General Insurance

Maroun Mourad was appointed CEO of the General Insurance business for Zurich in the Middle East in January this year.  He is leading the launch of key growth initiatives for Zurich in the retail Commercial and Personal segments and will be working closely with the Global Corporate team to further widen the footprint of the General Insurance business in the region.

Maroun is also leading the integration of the recently acquired Compagnie Libanaise d’Assurances S.A.L (also known as Lebanese Insurance Company), a privately owned Lebanese insurer with branch operations in the UAE, Kuwait and Oman.

Policy spoke to Maroun to learn about the integration process at a time when the region is expected to witness more acquisitions, his views on the industry.

Excerpts

Q: What’s the progress of the integration?

The acquisition of Lebanese Insurance Company was concluded in December 2010 and so far it has gone according to plan.  As with every acquisition and subsequent integration, the road can be a little bumpy, but we are looking forward to completing the integration phase which is likely to extend into the third or fourth quarter this year at which point we will start seeing the benefits of the team’s efforts in integrating the acquired entity. The company in Lebanon is now officially known as Zurich Insurance Middle East S.A.L. We are still awaiting regulatory approval in Oman, Kuwait and the UAE and that should be granted by the middle of the summer.

Q: What are the key growth initiatives you are planning?

Our business in the Middle East consists of two business models. We have the facultative reinsurance piece, which is conducted here out of the DIFC and we have the retail piece, which covers the middle market, small business and personal sectors and we conduct business in this segment using the direct licences that we have acquired.   For the reinsurance business, which is known as Global Corporate, we are on target with our plans for growth. We are fortunate enough to be able to attract good talent, which as you know in our industry, is one of the more difficult challenges for us because of our focus on technical expertise and keeping our customers at the forefront of our thought process.  The talen pool we have assembled is a a perfect marriage of multinational expertise and regional knowhow.

In terms of the direct licences that cover commercial and personal lines across the three segments – middle market, small business and personal — we remain in the integration process. We have made some improvements in terms of the operating platform and IT systems. I am confident that soon we will also make headway in distribution, working closely with our partners and improving channel connectivity which is important for us in the retail segment.

Q: On one side we see that this region is ripe for more consolidation. Will there be more mergers in this region?

If we look at the past couple of years there has certainly been some M&A activity in the region. The interest in the region seems to come more from the non-Middle East or non-Gulf based companies who are realising  that this is a fast growing market where you can achieve some scale and secure some healthy margins. It is truly an emerging market where double digit growth is entirely possible compared to the low single digit growth that is more typical  mature markets.

The regional market has its own peculiarities and challenges though; a lot of the entities remain controlled by families and this can make the M&A decision-making process difficult. In spite of this, the Middle East remains a very attractive place, especially the insurance sector.

Q: Why have M&As not picked up as previously anticipated?

There are many reasons for this. As previously alluded to, family businesses make up a large part of the regional economy and a lot of family businesses by nature have a sentimental attachment to their businesses which they have built over the years and are not willing to relinquish easily, which is understandable.

Q: Are most insurance companies essentially investment companies?  Will things change if the Solvency II norms compliance made mandatory?

I can’t comment on the investment point as it pertains to Zurich’s competitors but I do welcome the capital requirement rules. All the serious insurance industry players, whether multinational companies or local regional companies, welcome the solvency and minimum capital requirements in the interest of preserving their balance sheets and ultimately protecting the policyholders and shareholders.

The overarching principle for an insurance company’s investment strategy should be capital preservation. Firms should be investing in AA or AAA rated securities, government bonds in the most part so that the investments are safe and provide a risk-free return. The upside of this is that it forces us as a community to focus on technical profitability. Any step or regulatory move towards a disciplined investment strategy is a welcome move.

Q: Competition in the insurance industry is heating up and premium rates are coming down. There is a perception that the market is overcrowding. Where is the industry headed?

There is quite a bit of competition in most sectors, especially when you look at the motor and medical insurance sectors. We try to position ourselves in niche segments within the product areas and we strive to compete on quality and service across the entire insurance proposition as opposed to merely competing on price. This might position us at the higher end of the market in terms of pricing and this is probably the only way we could achieve a healthy result.

There is an abundance of capacity when it comes to the facultative reinsurance arena. However there is definitely still a gap in the market when it comes to insurance for high value assets or complex risks. This business still ends up at the desks of underwriters of the multinational companies or goes to the international markets. This is a clear example of how quality of service can give you pricing power.

Q: Where are reinsurance rates headed, especially after the catastrophes in Japan, New Zealand and Australia?

We are seeing today tangible evidence of hardening on price and terms and conditions in certain difficult and international markets-driven placements such as Energy and Financial Lines.  I cannot make the same comment with respect to other sectors and segment where the downward pressure on pricing has yet to ease up.

Q: What is the impact of the recent political strife in the region on the insurance sector?

The overall effect has been mixed. While some projects have been delayed in countries where there has been unrest, many believe, probably accurately so, that over the longer term there will be an increase in premium growth rates. Whilst there were some significant projects coming in the pipeline from the North African countries which have now been halted or delayed the GCC has shown resilience to this trend and we continue to see increased amount of investments in infrastructure, healthcare,  and oil and gas projects..

Q: Which line of business holds promise; Energy, health or construction?

Of course construction forms a major part of the regional economy, but despite Saudi Arabia remaining quite busy, the rest of the region has witnessed a slow down in this area. Activity in Bahrain and Oman could pick up in the future and as construction projects increase again we will see growth in demand for operational property insurance, especially in the high value assets arena and very large complex property risks.

Oil and gas clearly is the backbone of the Gulf economies and continuous investments are taking place here so we see energy as a growing line. One area we want to push into is financial lines, including professional liability, on both an annual and single projects basis, casualty lines of business, third-party liability, and products liability.

Q: There is a school of thought which says that rather than minimum capital requirements, there should be risk-based capital requirements. What’s your view?

We cannot set minimum capital requirements in the absolute. Certain line of business like construction or offshore energy platforms, require a higher capital charge to support the volatility that is inherent in these types of risks versus a middle market portfolio of motor business where your results are relatively more predictable assuming, you have the right control in place. .

Q: What regulatory changes do you foresee which will help insurance growth in the region?

The industry is becoming more sophisticated and regulated and this is driving demand for more insurance products. We will continue to see change in the regulatory regimes over the next few years in the form of more robust controls, higher capitalisation requirements and compulsory insurance.

Michael Gertsch, CEO, Gulf Re

Michael Gertsch, who took over as Chief Executive Officer from Gail Norstrom, has been a core component of Gulf Re, equally owned by Gulf Investment Corporation (GIC) and Arch Capital Group.

The Dubai International Financial Centre (DIFC)-based reinsurance specialist looks to continue its development from a fresh start up and further build on the strong initial performance it has recorded since launch.

Michael’s is a voice heard in the industry for his forthright views based on his long years of experience in the insurance arena.

Policy spoke to him share his views on the present state of affairs in region’s insurance industry, the challenges and opportunities.

Excerpts

Q: People have been talking about over capacity. What’s your call?

There is over capacity here in the market. Normally this would not be an issue but in this region the only thing that counts is growth.  It’s top line and not necessarily profit.  Pricing is deteriorating, underlying deductibles are reducing and loss ratios are going up.  If pricing is going down and loss ratios are going up we will get to a point where it is not economical any more.  This is what a lot of people don’t actually realize right now.  The insurance companies can still do this because the reinsurance companies allow it but if you look at the actual margin that a reinsurer has on any treaty in this region particularly in the UAE, it is so tiny that if you add the management expenses that a reinsurance company has on top of that its not profitable anymore.  Insurers and reinsurers need to work together because losses will come in the future.

Q: So, what should the model be?

Unfortunately, I think that nothing will change until some companies are badly hurt.  Currently some companies are releasing reserves to pay dividends.  This can’t go on as the shareholders will at some point ask what is happening to the capital that they are investing.  Our industry will only change when there is a major crisis.  We are in a crisis but it’s not life threatening right now.  In the next 12 to 24 months, we will see reinsurers pulling out because the margin is not there anymore and then it will be really difficult for local insurance companies to continue focusing on growth targets.

Q: How different are you?

The difference between us and other companies is that we are not working anywhere else in the world.  Gulf Re only focuses on the six GGC states, half of our shareholders are the 6 six GCC states.  We focus on this region so for us continuity is very, very important.  We are growing slower than the market and we do this deliberately because we see the environment that we are in we don’t think it’s the right time to grow aggressively. The only reason we can do this is because our shareholders are completely on board, they are not looking for a massive growth right now.  It’s also the way we have staffed the company, we have brought specialists in from large international reinsurance companies from all over the world. They have the international mind set which is also why we are still declining the vast majority of the business as we believe it will save us a lot of money in the long run.

Q: There have been reports that capacity is set to increase in the next 12 to 24 months.  How is that?

What everyone is trying is to do is write more business or bigger lines in order to keep the volume up. But if prices are coming down by 10 – 15 per cent and you want to keep the volume you have to write a lot more business.  If you take medical out of the equation, the market is growing by under 10 per cent per year.  If you look at the projections individual companies have, everyone projects to grow more than 10 per cent or 15 per cent so you have a disconnect between what the companies want to do and what the market really gives. In a situation like this you have to steal someone else’s business.  To do this you have to reduce rates and it becomes a vicious cycle.

Q: Will exposures rise?

Yes, I think that exposure will rise and not necessarily CAT exposure alone.  There is CAT exposure but everyone ignores it.  We have had two major cyclones in Oman within the last two and a half years and every year one to two severe floods in Saudi Arabia and there is also some earthquake exposure in the UAE.  There is a new study by Munich Re which states that the exposure in the UAE is bigger than what we thought it to be so far.  The underlying exposures within the treaties are increasing because the price is going down and the values that the insurers and reinsurers are covering are increasing so the balance is not there anymore.

Q: What is the impact of political instability?

For an insurance company, a crisis in always an opportunity.  At the moment it is mainly North Africa and in the Middle East outside the GCC that has been affected.  People should differentiate more between the GCC and the broader Middle East and North Africa, politically there are totally different issues.  For local insurance companies this could create an opportunity as so far political violence is not a product that has been sold in this region and on a worldwide basis it didn’t really sell over last couple of years.  Most international companies will not give SRCC(Strike, Riot and Civil Commotion) coverage but I think one should differentiate.  I wouldn’t agree on giving SRCC cover in city centres that are exposed in countries with certain issues like Bahrain for example, but I would look at a power plant that is 30km outside of Manama that is very well protected has good security.  I think those companies should be able to get coverage they need. So we will differentiate whereas some international companies are saying ‘no more’.  Again as I said for local companies I think it is an opportunity.

Q: Which line holds more promise? Energy?

Going forward, I think energy holds a lot of promise simply due to the fact that there is such a high demand for water and power, not just in the GCC but the Middle East and North Africa.  If there is no water and power all of the plans for the future will not materialize.  Energy is very important but you have to differentiate between power (producing electricity and de-salinating water) and oil and gas products.  I think the oil and gas side will continue to increase but there is also a move to alternative energy right now as these natural resources will be used up at some point.

Q: Looking at the bottom line of most companies, it is found that investment income has come down substantially.  Will there be any change?

Right now, looking at what is going on in the market today, I don’t see it happening.  Prices are still reducing.  You have two segments in this region.  You have the mega accounts that need international capacity and a certain security rating so you have all the large leading insurers and reinsurers in the world participating on that.  In this segment there is no further reduction and in some cases there are some increases.  We have seen some cases where insurers have tried to offer further reductions and the policies couldn’t be reinsured because the reinsurers would simply not follow.  Then you have the regional market and the local market where the threshold is somewhere around $750milion sum insured.  Below $750milion sum insured is what you see at the moment.  There are is still reductions of 10 – 15 per cent of the deductibles and increases of loss ratios.  The way things are going, it is very clear that at some point we will see either mergers or acquisitions or we see companies defaulting and having to stop operations.  Economically what the insurance and reinsurance companies are doing in this region doesn’t make sense.

Q: The market is talking about consolidation. What’s your reading?

I think we are getting to a point where shareholders will lose patience.  As long as you get a 25 per cent return on the capital that you have invested, you don’t want to merge with or buy anyone.  If suddenly you have negative returns so actual capital is being destroyed, shareholders will say ‘this doesn’t make sense anymore we are either buying somebody else or we are selling our assets.’  There is a younger generation coming up that has been educated abroad. They are economically very savvy and they analyze the returns that are being made on capital very much the same as it is being done in Europe, the USA and Asia and on that basis change will come.  Large reinsurance companies will try to go for acquisitions going forward.  It’s a new thing for the region but it will happen.

Q: What do you think regulators should be doing now?

If I use the UAE as an example, you have two different environments.  One is the Dubai International Financial Centre (DIFC) that is regulated by the DFSA which has very strong requirements for companies and the other, which is everything else outside the DIFC.  The regulator outside the DIFC has not been very active so far.   I think that regulators should look at the minimum capital that a company needs to hold versus exposures.  Going forward, companies will need to take a closer look at the actual capital that they are allocating to certain exposures and the return they are making on that capital.  I think the regulator should introduce certain minimum risk based capital requirements.  The minimum requirement at the moment is very low.  We have $ 200m in capital paid in and a further $ 200m authorized, which makes us one of the best capitalized companies in the region.  I think in an ideal world a company would realize that they need a certain level of capital, it shouldn’t be the regulator that enforces it, it should be management and shareholders who realize that the capital they have is not sufficient and that they are putting the company at risk. But I don’t see this happening yet.

Q: So, should it be risk-based capital?

We are running our company like that. If you compare us to the other players in the region one would think we are totally over capitalized, and maybe we are. But no matter what happens, we are in a very volatile environment and we have enough capital to pay all the liabilities that might arise.  At some point –  and I hope it’s not getting to that level — some companies might find that once they have major losses the reinsurers may not be able to actually pay or come up with their obligations because the capital hasn’t been allocated properly and there is just not enough there.

Q: With the soft market, price undercutting, fierce competition, how many of them will survive?

I think we will see a transition in the market. It has to happen.  There is over capacity and there are new entrants coming in.  The cake is not getting any bigger but everybody wants to have a bigger slice and there are more people at the table.  I think it’s going to be more of a gradual transition not from one day to another like after September 11 when suddenly, you had a market where you could get three times the prices than you could the day before.  Many companies still apply cash-flow-underwriting and are trying to live off the investment return. This worked so far but in the long run that model will not be sustainable anymore.

Q: What’s your advice to your peers to stay afloat?

Companies have to realize that the current demand for continued growth is unhealthy.  I think the market it going to get to a point where if reinsurers and insurers want to get international reinsurance coverage they are going to have to have higher retentions than what they do right now. Some of the companies are going in that direction already.  If they are in control of their underwriting they can retain a bigger portion net and actually make technical a profit.

Dr Michael Bitzer, CEO Daman

As founding chief executive officer of National Health Insurance Company (Daman), Dr Michael Bitzer nurtured the Abu Dhabi government-owned company as the largest health insurance provider in the region.

Since implementation of compulsory health insurance in Abu Dhabi, patients have affordable access to their healthcare needs and the customer base rose to more than 2.1 million. Daman is now looking at expansion opportunities outside the UAE.

Dr Bitzer spoke to Policy on the health insurance sector, rising medical inflation and the increased incidence of fraud.

Excerpts.

Q: How healthy is the health insurance sector with the rising medical inflation and competition?

One of the main causes of an increase in healthcare providers’ (hospitals, clinics & pharmacies) fees is medical inflation. That, in turn, is reflected through a rise of premium of members’ health insurance policies. This is a natural effect across the entire health insurance sector.

Medical inflation can happen for a variety of reasons like healthcare providers acquiring new and higher quality advanced healthcare technologies & facilities (i.e PET Scan, MRI, new innovative drugs…etc), higher demand by educated patients, provider driven demand, higher incidence of some diseases i.e chronic diseases like diabetes, and many other factors.

Q: There exist unrealistic prices due to irrational pricing. How are they impacting Daman?

Despite the fact that the cost per member is continuously on the rise due to both medical inflation as well as the enhanced quality of benefits and services, Daman takes all necessary measures to ensure that this increase is limited to the least possible while maintaining high quality healthcare standards.

In terms of medical inflation, Daman continues to negotiate healthcare provider fees as well as reduce unnecessary costs through different measures that include reviewing submitted claims’, conducting medical audits, developing the rule engine, an electronic system that aims to decrease costs through conducting automated simple checks required for claims’ settlement and authorization, etc.

We and other technical oriented insurers suffer due to the sometimes irrational price competition. However, such irrational players will not survive long term.

Q: There are increased incidences of fraud involving doctors, clinics and pharmacies. How to check it? How can insurance companies guard against medical frauds and malpractices? What’s your prescription?

I am sure there is quite a bit of misuse; however, the claims we received from health facilities, from both governmental and private sectors, are subject to an auditing process to detect any irregularities. Each claim is subject to thousands of electronic processes to verify the accuracy of the data and the absence of any fraud or irregularities or any errors.

Fraud is something which happens in every market, but there are relatively few cases here in the region. As I mentioned, our market is still maturing – and we believe that through better education and raising awareness of the serious nature and consequences of fraud, as well as the damage it causes to law-abiding policyholders, this can be counteracted. Fraud results in unfairly increased premiums for customers, and we are doing as much as we can to prevent it.

At Daman, we have trained professionals working in our Medical Audit Department who work hard to identify and prevent fraud from taking place. In rare cases where fraud is detected, Daman adheres to strict regulations and guidelines to deal with all instances of insurance abuse to protect our members from consequent increases in their insurance premiums.

There are several measures to guard against medical frauds, but I think technology plays a key role. For example our integration with the Emirates ID program has played a significant role in counteracting instances of fraudulent activity.

Q:  Do you think there are cases of over-medication to hoodwink insurance companies?

It is a phenomenon that has been noticed. We have been working on guidelines for healthcare providers to limit this.

Q: Given the high ratio of claims, how can health insurance companies be made profitable and healthy?

We are a specialized health insurance company and our rates are calculated through technical underwriting whereby certain factors such as medical history, age, gender, weight, height, etc. as well as the medical claims’ history is taken into consideration to minimize losses.   We do not discount our rates in a non-technical manner only to gain market share.

Q: You have established offices in Dubai and the Western Region as part of your comprehensive expansion. What about outside the UAE?

We are currently looking at expansion opportunities outside the UAE.

Q: When do you expect compulsory health insurance coming to Dubai and other emirates?

The Big Bang was Abu Dhabi introducing compulsory health insurance in 2006, and it was a pioneering effort for the whole region. All other GCC markets were closely monitoring what was happening here. It’s a real success story.

Healthcare for expatriates was required from mid-2006 onwards in government departments and large companies, and from the beginning of 2007 it was made necessary for all expatriates.

Everyone is now waiting for the other emirates, especially what Dubai is going to do. It’s difficult to predict when exactly will compulsory health insurance be coming to Dubai and the other emirates. We expect an announcement in 2011, though not the actual implementation.

Q: What is your investment strategy?

Our conservative asset allocation is derived from the ALM (Asset-Liability-Management) requirement that we have.

Being a health insurance company, relatively high liquidity of our assets becomes essential. Therefore at least 80 per cent of our investments are in fixed deposits with local banks.

Q: The UAE Insurance Authority has proposed certain limit on investment by insurance companies. How far will they affect your investment plans?

We welcome the regulation, as it will make the companies focus on insurance management rather than on investment management.

Daman welcomes any regulation from the Insurance Authority, whether it is related to Solvency, Technical Reserves or Investment. This should result in a sound insurance market, where the focus should be on risk adequate premium calculation rather than on investment income.

Q: Insurers in the UAE would be required to hold at least 80 per cent of their investments in the UAE. Do you think this will limit your investment options?

The UAE is our home market and we are confident that investments in the UAE can support our objectives. Nevertheless, a slightly higher international portion could further support diversification which is an important element of risk management.

Q: The draft regulations state that all investments held to support technical provisions must be invested within the UAE.  What’s your call?

It is also a question of the time horizon of the technical reserve. The short-term portion has to be liquid and therefore the investment within the UAE should not be a restriction. Any portion of long-term technical reserves should be flexible. That is why the 80 per cent investment portfolio limit is too restrictive.

Q: Do you suggest more regulatory initiatives?

We are always in discussion with our regulators for new initiatives, suggestions, etc.

Q: What’s Daman’s growth strategy? And what are the new products you plan to launch?

We continuously challenge ourselves to better serve our members. Effective in early 2011, under our enhanced plans, all newborn babies are now included under their mother’s policy free of charge.

To better serve the needs of our current and future subscribers, we will be opening a new Daman branch in Musaffah.

We are also very happy with the success of our Disease Management Program (DMP), which offers additional support for Daman subscribers who have been diagnosed with acute asthma, cancer, obesity and diabetes. The program is unique to Daman, and provides subscribers with the additional support they need to manage their own respective illnesses.

Q: Daman had some two million members as of September 2010. How much has it grown now?

Today, we exceed 2.1 million members. We strive to better understand our customers and further enhance and develop new services to further meet and exceed the expectations of our existing database.

Q: Daman has been in the lead in accomplishing corporate social responsibility. What’s in store next?

Daman plays an important role in corporate social responsibility by raising awareness to the public in regards to health related issues.We recently wrapped up a blood drive across Abu Dhabi, Dubai and Al Ain. Some of the CSR initiatives to be held in 2011 will include a Walkathon, a Health Awareness campaign, a Breast Cancer campaign, a Prostate Cancer campaign and a Diabetes Awareness campaign.

We are also working closely with special needs children in Abu Dhabi and Dubai by contributing to their personal and academic development. We are extremely excited about this initiative, and we look forward to sharing more details within the next few months.

Q: How can insurance companies contribute to the development of the healthcare sector in the region?

The health insurance sector has a direct impact on the healthcare sector. The healthcare sector has evolved and developed significantly since the implementation of compulsory health insurance. Patients now have affordable access to their healthcare needs, which has led to higher demand for healthcare. This, in turn, has led to an increase in healthcare facilities and services, directly developing the healthcare sector.

As Senior Managing Director of Orient (formerly Arab Orient Insurance Company), Elamin has taken his organization to new heights. That is evident from the fact that Orient accounted for 20 per cent of the total profits of the local insurance companies last year.

Policy spoke to Elamin to get an inside view of the insurance industry in the UAE.

Q: Is it time for consolidtion?

There is hope for consolidation. I don’t think we have the will nor do we have the desire. I have been in this market for almost 30 years and my dream is to see this consolidation takes place. That is definitely in the best interest of the industry. It will create smaller number of companies, which is relative also to retain bigger premium. Unfortunately this is not happening.

Q: There are two more companies coming to the market.

I don’t think having new insurance companies in the industry can be beneficial because many of the companies that have been established in the past three-four years are struggling now. They have not been able to generate premium and profit. Some of the companies, especially the new ones, are working with equities less than their capital. That is a clear indication that things are not going in the right direction.

Q: In such a scenario, what kind of regulation do you expect?

The regulator is on the right direction. The Insurance Authority has issued three draft regulations.  One of them is for the reserving policy which is aimed at ensuring that the companies are properly reserved.  The second one is regarding investment policy. The good thing is that it is not going to leave the investors’ money and the shareholders’ money as well as the policy holders’ money at the mercy of certain individual decisions.  I think it is important as we have seen several companies were heavily involved in the stock market and real estate market for many years till 2008.  And most of them are suffering on account of the crash in the markets. From 2005 and till today, you will find that most of the companies have lost substantial portion of their equity. Some have lost as high as 60 per cent of their equity.  Some of them need recapitalization, if the regulator insists on it.  It is a fact that half of the equity of theaccummulated profits of the previous years evaporated.

Q: Then where are the profits made for 2006 till 2010?

I think that is the risk of leaving the policyholders’ money as well as the shareholders’ equity in the hands of a few individuals.  So, the new move to restrict investments is a wise one. It is also in line with international standards that regulators intervene.  The market will be more organized on the investment front.

The third draft is on solvency margin. This is to ensure that the companies are financially sound so that tomorrow they won’t face any difficulty and the policyholders will not have any problem in getting their claims paid.

Q: A rate war is on.  Do you think it is going to intensify?

We have this saying: “What’s the harm to the goat if you skin it after slaughtering?” Now the goat is dead already.  I think the market has reached a stage if the rates go down another 10 per cent or 20 per cent, it will not make much of a difference.  What is happening now is that most of the companies are buying business at a loss.  It is not going to do well for the whole market.  If you look at the financial statements of the companies for 2010 you will find that many have seen a substantial drop in their technical profit. This is just a beginning.  If you have difficulties with technical profit, you are having problem with investments because options for investment channels are limited.

Q: Can they generate income?

You have got problems with the stock markets and real estate markets.  Interest rates are very low at the moment.  So you cannot generate handsome income.  If you are taking those premiums that are inadequate and if you areundercuttingrates working with a loss ratio of 130 or 140 per cent, but you make 200 per cent on investments, that is fine. But that is not happening.  So you are making technical losses.  You are not generating any investment income.  And this is why I have a feeling that some of the companies are going to face difficulties in the market and this will be reflected in their ability to meet their commitments under the terms and conditions of their insurance contracts.

Q: There is the question of liquidity crunch in the market.

That’s another issue. It is difficult to collect premiums from clients. We are facing problems in collecting premium from the brokers.  Some brokers have already collected the premiums and some have used them in their own investments or invested in property, or invested abroad and their investments did not do well. This not acceptable. How can they collect the insurance companies’ premiums and spend the money as their own and gamble and invest?

Q: What’s your call on implementation of Solvency II provisions?

It is hoped that it will be in force from 2013. I think we will still be behind Solvency II which will be implemented in Europe.  But I think many of those issues that are included in Solvency II willbe taken care of.

Policy spoke to Albert to elicit his view on the industry.

Q: There is over-crowding of insurers and brokers in the UAE market. How does it relate to the premium rates?

It does relate. Every insurer coming into the market obviously wants to secure a market share. And he reduces or works on low margin. So there is no margin at all to keep the market share. Brokers by themselves are not contributing to the insurance shares. Some of the businesses handled by the insurers are going to the brokers. And then goes back to same insurer or somebody else. But the high number of brokers dilutes some sort of professionalism. More number of brokers means the dilution of professionalism.  You find any Tom, Dick and Harry coming into the market and they are able to do whatever they want. There are a lot of brokers whodo unethical business practices.

Q: That means there is a need for minimum qualification prescribed. Still,any Tom, Dick and Harry can come in to the market and do business.

How is it?

There are insurance brokerages whoare coming in to the market without qualification. There are regulations. A manager has to be a qualified insurance man.  What happens is, he opens a brokerage and he wants to survive. He succumbs to market pressure although he may be a professional from the eligibility point of view.

Q: So, a few years down the line will see some brokers going out of business?

Yes. There has to be marketconsolidation.There is no other way out. Market will not grow indefinitely and the market remains the same. If there are too many players coming to the market, then it becomes dilution.

Q: Consolidation means there will be mergers and acquisitions?

That’s the main thing I see happening. That is the only way it will evolve into a stronger insurance industry. Mergers will have to be there between insurers as well as between brokers. There has to be consolidation.

Q: How much has recession hit the industry?

Recession definitely hit certain segments. Not across the board. Construction industry was hit. There has been a lot of writing down of values.

What happens is, with recession there was pressure on insurance premium. When premiums are under pressure insurance companies are forced to retain or make a reasonable profit. It is like a cycle. It goes down and reaches to a level that it cannot sustain any more. Then insurers will have to harden the terms. It comes back to the level. It’s like in a clock. The 12 O’clock is there and 6 O’clock is there. We see it is still reaching to the 6’O clock level. It cannot go down any further. Then slowly it has to recover.

Q: Is it hardening?

I don’t see any hardening of the market. The only way the market will harden is when the reinsurers become harder. But reinsurercontinue to be soft. So the retail insurers here will be soft.

Q: So, what will be the trigger for hardening?

It is the cycle of the books basically. When the reinsurers get to know that they are making losses they start hardening. When the treaties come up for renewal they may increase the rates. Then the retail insurers will have to follow.

Q: Do you feel the professional indemnity coverbe raised?

At the moment it is AED1.5m. Certainly there is room for that to be raised to AED5m.  This will be a deterrent for a new broker to come in. Then there is the guarantees and paid-up capital required. Currently the paid-up capital required is AED1m. It should be raised to a minimum of AED3m. This will raise the entry barrier.

Q: Which line holds promise?

I think, from the broking side, any new product will be holding steady. Health insurance is holding steady because there is a lot of uninsured population out there, more so with the mandatory health insurance cover in Abu Dhabi. Dubai will definitely make it mandatory. If that happens, it is like a new market opening up. There is scope for growth.

Again, what’s happening is in the health insurance there are too many suppliers, too many unprofessional way of handling. The plans which are floating around are too many and they are not sustainable. Again what happens is that insurers will get caught into this. Just for the sake of doing business they will do it at any rate.

Another area which may do well is life insurance because I still see a large population is not covered. People do have disposable income here,  which has to be deployed in investments.

Q: Who should be blamed for mis-selling policies?

Broker is selling because insurer is supplying. Broker cannot produce a scheme.

Q: What is the benchmark to find a good broker?

There is no such benchmark. Basically one has to shop around for the right broker before he trust him. Customer has to choose the right consultant.

Q: What are your corporate plans?

We are doing well here. We are well received by the insurance industry as well as the customers. Our growth has been steady. We try to cater to broad-based products and broad-based customers. So we try to be as broad as possible so that we take one step at a time.

Abdul Muttalib Al Jaidi is the most respected name in the UAE insurance sector and his views are that of the industry having nurtured Oman Insurance Company to the largest in the UAE spending 35 years of his life. OIC became a name to reckon within the industry. Policy spoke to the CEO after the company’s results for 2010 were published.

How is the insurance market in the UAE faring?

The starting point in 2011 is indicating another challenge for insurance companies. Competition is getting tougher and tougher, cutting rates. The number of companies operating in the market is again increasing. Despite it being excessive, another two-three companies have been licensed.

Is competition hotting up?

Of course. The premium is not going to be down or less. The margins the insurance companies are gaining is going to be not less than what was in 2009, which means the profit will be less and the possibility of having larger or bigger losses are very much there.

Do you feel it is time for consolidation?

We wish to see a sort of consolidation. Someone has to leave his ego aside and try to think drastically on the necessity of consolidation. The problem here is nobody is prepared to consolidate with another company. Nobody is prepared to sacrifice.  So, there is no serious sign for any mergers or acquisitions.

The market is over-crowded

It is time to reduce the number of operators to make the market healthy.

You had to take major hit on your investment income?

The major drag was on the investment income. We were very active in investment. The total invested amount was very huge. The market volatility was sharp  and we were hit hard. The market had not given any alert. We could not reduce our exposure to the equity market and property. In the local market we do not have any other avenues other than property and equities for investing. In fact we were doing well. At one time we were doing Dh750 million in 2005 when the market was booming.

So, is there a change?

We recently started diversifying and were able to bring down the equity exposure from 87 per cent to less than 45 per cent. We want to bring them in line with what the Insurance Authority is deciding.

If  Solvency II is implemented, what will be the impact on insurance companies here?

I am not anticipating any worse scenario.  I hope there will be sufficient grace period for implementing them.  I feel that there should be a scenario when they are self-regulating themselves in order to protect the shareholders’ funds, the policy holders’ funds and ensure financial strength for the company.

You had indicated that you would launch a takaful company. Is it time for entering the takaful sector, especially when they say that most companies report losses?

If we are able to do it rightly, yes, there is a possibility. The problem is most of the takaful companies in operation here are not operating in the real takaful way. So, if we come across an opportunity where we are able to play as per rules, we may go for it.

So, where will growth come from?

As I said already, any crash brings more opportunities.  More opportunities from both sides: from the customer and from the insurance companies. Customers should realise the importance of protecting themselves and planning for the future.  Insurance policy is one of the tools which they can use  to properly plan their life, whether through personal savings, planned savings and they can protect their lives, protect  their income. Life insurance policy can bring in the balancing in their lives as far are financial position is concerned.  That’s why we want to concentrate on personal lines.

What will be your mainstay this year. Marine or Life?

Both. If you look at the insurance penetration in this market it is low compared to the advanced countries. We want to increase it.

How do you increase it?

We will use all tools to increase awareness. Campaign is one thing, education is the second and the third is by meeting with people and giving proper advice. For example, so many properties are uninsured now. So, awareness has to be increased. And it should be done collectively, by the insurance companies, the regulators, insurance associations and insurance authority. They can achieve it.  In the past, religious reasons was one of the objections for insurance, specially life. That reason is gradually being ignored now.

Are you planning to launch more products?

Bancassurance is a successful product. Of course, there is competition. One has to compete in value rather than rates. One has to bring proper products for the people, which are affordable and beneficial.

What is your strategy and advice to face the challenges?

My advice is to go back to the technicalities. First of all,  we are not investment companies, we are insurance companies. We have to be creative and innovative to face the challenges.

Health is another growing market. The government is pushing for privatization. But still, the logistics requirements to do this business successfully, I think it needs to be improved for most of the companies.

Which line of business is promising?

Health, life, bancassurance and motor. Here the role of a prudent management comes in, not only to write volume, but to manage that volume profitably.