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July/August l 2011

A MediaquestCorp Publication

| Issue 04

Volume 08 Issue 04 - July/August 2011

The Voice of Middle East Insurance

Registered in Dubai Media City



Major players and analysts feel a crisis is looming large over the UAE insurance industry

16 21 36

TAKAFUL On track for growth

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Contents 04 Editor’s Note It may sound alarming. There is a crisis looming large over the UAE insurance industry. But not everything is lost. There is still hope

06 Global Eye Insurance prices were mostly unmoved by a spate of costly natural disasters and intense competition continues to weigh on most segments

10 Regional News The Insurance Authority of the UAE has entered into a memorandum of understanding with the DFSA for cooperation and exchange of regulatory information

14 Appointments Zurich has appointed Samer Abou-Jaode as chief administrative officer for its general insurance business. Nexus has appointed Ian Walton as its sales director for general insurance

16 Takaful Operators can now seize the opportunities that would lead to expansion of takaful market share and increased penetration

18 Cover Story Not so rosy outlook: Is there a crisis looming large over the UAE insurance industry? A cross section of leading industry players and analysts believe so. The next 12 to 24 months will see reinsurers pulling out.

21 The CEO Forum Michael Gertsch, CEO of Gulf Re: We are in a crisis, but it’s not life threatening. Maroun Mourad, CEO of Zurich Middle East, General Insurance: Doubledigit growth possible. Dr Michael Bitzer, CEO of

Daman: Irrational players won’t survive for long

caused insurers to check their standard terms

30 Aqaba Report

46 London Eye

Aqaba Conference has called upon Arab countries to ratify the Rotterdam Rules to overhaul the existing international maritime liability conventions

Lloyd’s of London may face claims worth £2.4bn. Claims from the Japanese earthquake are estimated at £1.22bn, while the New Zealand earthquake and flooding in Australia are put at £750m and £406m respectively

34 Motor Insurance Reduced casualties and fatalities in the UAE have resulted in insurance companies saving at least $160m. They can expect to see additional gains over the next few years

36 Iraq Market Report Insurance Evolution: After many years in the wilderness, Iraq’s insurance industry will gain more exposure to the international market

40 Broker’s Counter United Insurance Brokers managing director Ralph J Kabban says more international players will choose to enter the UAE market by purchasing local insurers in order to gain a foothold in the market

Michael Gertsch Column: Light at the end of the tunnel? James Portelli Column: The Broker’s four I’s

50 Bancassurance Most banks are already in the bancassurance business and it’s drawing more attention, and products and premiums through this channel are growing

52 Industry Directory Your guide to the region’s brokers, insurers and service providers, including TPAs and IT support

43 Standard Terms

58 Bogus

The extensive damage and disruption caused by the recent unrest in the Mena region will have

Fraud, commercial claims, random statistics and the lighter side of the news from the world of insurance

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48 Comment

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welcome editor’s letter

IT MAY SOUND ALARMING. There is a crisis looming large over the UAE insurance industry. That’s what we deduce from the views expressed by a cross section of leading insurers and industry trackers. As we observed right from the beginning of the year, a price war was ongoing in a market with over-capacity. Pricing is deteriorating, underlying deductibles are reducing and loss ratios are going up. In such a situation the industry will get to a point where it is not economical any more. Surprisingly, individual companies have been projecting impressive growth rates. Whether it is real or not, as Gulf Re CEO Michael Gertsch observed, there is a mismatch. The market may be growing at less than 10 per cent per year and if everyone projects a growth of 15 per cent, you have to steal someone else’s business. To do this one has to reduce rates and it becomes a vicious cycle. All agree that the current trend of softening rates is not sustainable and if it continues the market may have to witness takeovers by international players and some mergers. The conclusion is that 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 companies to continue focusing on growth targets. There is still hope. For the long run, the non-life insurance sector will report growth across all segments and will grow at 12 per cent during 2011 to 2014. The industry has shown noteworthy growth in the past few years. High growth in the non-life insurance sector is propelling growth in the overall insurance industry. The much-talked-about, and the ‘needed’, consolidation is unlikely to take place in the foreseeable future. However, there are a number of acquisitions going on. At least one deal involves a foreign investment bank, which is in the process of acquiring an insurance company. (Pg 27). In the case of takaful, the industry is set to be back on track for high growth in the next phase of development. Operators can now seize the opportunities that would lead to expansion of takaful market share and increased penetration. (Page 16). Let us hope that member countries in the Arab world will heed to the call given at the Aqaba conference to ratify the Rotterdam rules to overhaul the existing international maritime liability conventions. Cargo insurers should be happy that trade values are up and premium volume will soon be back where it was during the boom years. (Page 30). On the regulatory front, the industry is set to see a set of new regulations which, if implemented effectively, will take the sector to the next level of development. The TPAs (third party administrators) will now be licensed and the minimum capital requirement has been raised to AED5 million from AED300,000. The health insurance market will now see a fizzle out as far as the health insurance claims management is concerned.

Bhaskar Raj, Managing Editor

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Editorial Managing Editor Bhaskar Raj Senior Sub Editor Elizabeth McGlynn Studio Creative Director Aziz Kamel Art Director Janett Kheil Designer Samer Hamadeh Advertising Business Development Manager Pamela Bayram Tel: +971 4 446 1658 Business Developer Nasir Bazaz Tel: +971 4 3644643 Distribution, Circulation and Subscriptions Distribution and Subscription Director KR Harish MEDIAQUEST CORPORATION CO-CEO Alexandre Hawari CO-CEO Julien Hawari CFO Abdul Rahman Siddiqui Managing Director Ayman Haydar General Manager Simon O’Herlihy Printed by Rashid Printers & Stationers LLC, Ajman, UAE Published by Medialeader FZ / MediaquestCorp FZ Dubai Media City, Al Thuraya Tower 2, 24th Floor, UAE. Tel: +971 4 391 0760 Fax: +971 4 390 8737 Europe: 18 rue de Varize, 75016 Paris, France Tel: (33) 01 47 66 46 00 Fax: (33) 01 43 80 73 62 CO-CEO Alexandre Hawari, CO-CEO Julien Hawari, CFO Abdul Rahman Siddiqui, Managing Director Ayman Haydar, General Manager Simon O’Herlihy, Creative Director Aziz Kamel, Distribution & Subscription Director JP Nair,, Marketing Manager Maya Kerbage,, KSA GM Walid Ramadan,, Tel: +966 1 4194061, Lebanon GM Nathalie Bontems,, Tel: +961 1 492801, North Africa GM Adil Abdel Wahab,, Tel: +213 661 562 660. France Sales Director Manuel Dias,, Tel: +33 1 4766 46 00 Printed at Rashid Printers & Stationers LLC, Ajman, UAE No part of this magazine may be reproduced, stored in a retrieval system or transmitted in any form except by permission. The publisher makes every effort to ensure contents are correct but cannot accept responsibility for errors or omissions. Unsolicited material is submitted to Policy entirely at the owner’s risk; the publisher accepts no responsibility for loss or damage. With regret, competitions and promotional offers, unless otherwise stated, are not available to readers outside the Middle East. Reproduction in whole or part of any photograph, text or illustration without written permission from the publisher is prohibited. Due care is taken to ensure that the content of Policy is fully accurate, but the publisher and printer cannot accept liability for errors and omissions. © Mediaquest Corp FZ 2011. ISSN 1990-8288

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A snapshot of developments from across the globe



01| More big catastrophe losses could boost prices Insurance prices were mostly unmoved by a spate of costly natural disasters during the first quarter, with intense competition continuing to weigh on most segments of the market, insurance broker Marsh said. Firmer pricing was seen only in regions and markets directly affected by catastrophe losses, Marsh said in a report, quashing expectations that hefty claims from earthquakes in Japan and

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New Zealand and flooding in Australia might drive a broad rise in insurance prices. However, Marsh cautioned that any more big natural disasters this year would likely eat into the industry’s capital reserves, potentially prompting insurers to raise prices in an attempt to rebuild their financial strength. “Any future catastrophe losses this year are more likely to directly impair the capital positions of reinsurers than impact earnings, which could drive rates higher,” said Nick Bacon, CEO of Marsh unit Bowring Marsh. Global insurance prices have been flat or falling across most of the market for the past three years, reflecting competition between insurers holding abundant supplies of capital amid comparatively moderate catastrophe losses. Risk-modelling  experts estimate the earthquake that hit Japan on March 11 could cost insurers up to $34 billion, making it one of the costliest natural disasters on record. The Japanese quake came on top of a string of catastrophes in 2010, including an earthquake in Chile and winter storms in Europe, which cost the industry $43 billion, an increase of 60 per cent on the previous year, according to reinsurer Swiss Re.

02| Tokio Marine acquires 49% stake in US-based WNC Tokio Marine Holdings said its wholly owned subsidiary RJ Kiln & Co. Ltd. has acquired a 49 per cent stake in US-based managing general agent, WNC Holdings, as part of the group’s strategic plan  to  expand  international business.  The  acquisition  was funded by internal resources of its subsidiary Kiln, an insurance group  underwriting  mainly through  Lloyd’s,  said  Tokio Marine. With premium income of more than $100m and 190 staff, the California-based WNC provides  specialized  property insurance  to  mortgagees through financial institutions. “We aim to become one of the top-tier insurance groups in the world, and place emphasis on  developing  scale  and profitability from international business as our driving force in our mid long-term business development plan,” said Tokio Marine in a statement. 

 Tokio Marine acquired Kiln in 2008 and the London-based insurer has strengthened its distribution channel through investment  to  its  business partners. “Kiln shall endeavor to develop scale and profit by increasing business through WNC,” said Tokio Marine.



03| AXA launches new five-year plan, sells Canadian unit for $2.7bn AXA, Europe’s second largest i n s u r a n c e   c o m p a n y,   h a s launched a new five-year plan to boost profits and cut debt, kicking off with the cash sale of its Canadian unit for $2.7 billion. AXA said the sale marks another step in its move to redeploy its capital in highergrowth  emerging  markets, where  the  French  insurer plans to double in size and profitability on a comparable basis by 2015. It also said it would look for acquisitions in emerging markets. Under the new plan, AXA is aiming for underlying growth of 10 percent in earnings per share by 2015 on a compound annual growth rate basis, chief executive Henri de Castries said. The  group  has  been under pressure to deliver a convincing strategy after the

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financial crisis made it shelve previous growth targets. “It’s not a revolution but it’s  a  significant  evolution,” de Castries said. “We’ve tried to learn our lessons from the crisis, even if some of you could think that it has taken too long.” Under the five-year plan AXA is aiming for an operating free cash flow target of 24 billion euros and an adjusted return on equity target of 15 per cent. AXA has grown over the past three decades from a small mutual insurer in Normandy to a global player via a string of acquisitions. It is now turning its hand to making the parts fit together better and saving costs as the global economy recovers.


04| MAA Holdings approved to sell life subsidiary to Zurich MAA  Holdings  has  won regulatory approval to sell its entire stake in its insurance subsidiary Malaysian Assurance Alliance to Zurich Insurance Co. Ltd. for a cash consideration of 344 million ringgits ($114m).
 In April, MAAH said it was in discussions with Zurich for a proposed divestment of MAAB. Earlier, Zurich’s chief executive of Global Life Asia Pacific and Middle East, Dan Bardin, said that the Swiss insurance group is eyeing growth in Malaysia, Singapore  and  Taiwan.

The discussions have also involved MAA’s proposed disposal of the entire equity interest in Multioto Ser vices  Sdn,  MAAGNET Systems Sdn and its wholly owned subsidiary MAAGNETSSMS  Sdn,  and  Malaysian Alliance Property Services Sdn, according to MAA.


05| Swiss Re joins Ethiopian microinsurance Swiss Re is to reinsure a fiveyear project that provides drought insurance for crops in Ethiopia, in a micro-insurance programme developed by the World Food Programme (WFP) and Oxfam America. The world’s biggest reinsurer will commit $1.25 million to the project,

it said at the Agricultural Risk Management conference, which will cover the contract with farmers in Ethiopia as well as three future and yet to be determined countries. The move comes as insurers seek ways to capitalise on the fledgling  micro-insurance sector  which  insures  lowincome people against specific perils in exchange for premiums proportionate to the likelihood and cost of the risk involved. The initial project will allow Ethiopian farmers to use labour to pay for a weather index-based insurance contract that will compensate if a severe drought event hampers crop growth. National  insurers  Africa Insurance Company and Nyala Insurance Company will insure the crop contracts, while Swiss Re will provide the reinsurance for the project – which has been coordinated by the WFP and Oxfam America.  The  UN appealed for $75 million in food and other aid in April for two million people in Ethiopia’s southern region.


06| Bharti’s 74% AXA stake sold to Reliance After nearly five years of its association, India’s Bharti group has exited from its financial services joint ventures with French firm AXA and sold its entire 74 per cent stake in general and life insurance businesses to Mukesh Ambani-led RIL for an undisclosed amount. The company had entered into these joint ventures with the AXA group in 2006 and held 74 per cent stake in these ventures — Bharti AXA Life Insurance and Bharti AXA General Insurance. Bharti also said that it was in the process of offloading its stake in its joint venture with AXA for asset management. According to a Reliance statement, RIL and its subsidiary Reliance Industrial Infrastructure (RIIL) would effectively own 57 per cent and 17 per cent, respectively, in both the insurance companies and would become AXA’s joint venture partners in India. AXA would retain its current 26 per cent shareholding and would continue to manage the day-to-day operations of both joint ventures.

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07| Allied World to buy Transatlantic for $3.2 bn A l l i e d   Wo r l d   A s s u r a n c e Co Holdings agreed to buy Transatlantic Holdings for $3.2 billion in stock, creating a specialty insurer and reinsurer with broader reach and product offering. Shareholders of Transatlantic, which was once controlled by American International Group, will receive 0.88 Allied World share each, or $51.10 per share, representing a 16.1 per cent premium  over  Transatlantic’s closing price. The deal allows New Yorkbased Transatlantic to change domicile to Switzerland, where Allied World is headquartered and which is more favorable from a tax perspective. Allied World chairman and CEO Scott Carmilani will be the president and chief executive of the new company. Transatlantic CEO Robert Orlich will retire when the deal closes, which is expected in the fourth quarter of this year. AIG owned a majority stake in Transatlantic until it was forced to sell it off as part of its efforts to repay the US governments for a massive crisis-era bailout. Experts have been anticipating more reinsurer deals, especially in Bermuda, for a while now, predicting that a soft pricing environment would prompt wellcapitalized companies to merge. The  combined  company will operate under a holding company structure, with the corporate  name  TransAllied Gro u p   Ho l d i n g s,   o f f e r i n g specialty  insurance  and reinsurance  products  and services  via  two  brands  – Transatlantic Reinsurance and Allied World Insurance.

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News Industry updates from around the Middle East

uae | QATARLYST STEPS UP CLIENT ENGAGEMENT ACTIVITIES Qatarlyst, a leading provider of technology-based insurance transaction ser vices wholly owned by the Qatar Financial Centre, has stepped up client engagement activities, mainly in the UAE and Qatar. Early May saw a successful training drive in Qatar with more than 30 platform users from a number of Qatar insurance companies and brokers trained, said a statement. “Dubai, in particular, and the UAE in general are currently showing the highest usage on the insurance platform,” said Khalid Mughesib, deputy CEO responsible for Mena markets development  a nd  boa rd member on Qata rlyst. “We want to match the engagement

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of our clients with support from our teams, hence it is necessary to be as close to our community as possible.” Qatarlyst has been running awareness seminars, specifically for the small- to mediumsi ze brokers. Ind iv idua l meetings and system demonstrations were held with some of the major insurance brokers in the region who are not yet active on the platform. I n add it ion to a nu mber of retail brokers in the UAE market, May saw some insurance and reinsurance companies, a L loyds cover-holder and Lloyds broker (active in the Middle East) applying to joi n t he Qata rlyst com munity, read the statement.

uae | NOOR TAKAFUL FAMILY AND NOOR TAKAFUL GENERAL ASSIGN STABLE OUTLOOK Rating agency Standard & Poor’s (S&P) has assigned ‘BBB-’ ratings to Islamic insurance companies Noor Takaful Family and Noor Takaful General, based in the UAE. The outlook is stable. S&P expects the companies to sustain at least strong capital adequacy and strong liquidity with strong business growth, although this is unpredictable in view of the immature status of the Islamic insurance market in the UAE, said a statement. The stable outlook reflects the agency’s expectation that both companies will grow rapidly in the UAE Islamic insurance market, with underwriting earnings for both takaful funds breaking even by 2013. The ratings reflect S&P’s view of the companies’ stand-alone credit profiles (SACP). Although the agency considers the companies government-related entities (GREs), the ratings do not factor in any uplift for potential extraordinary government support. The assessment of ‘BBB-’ reflects their strong capital adequacy and liquidity, partly offset by the marginal competitive position, which reflects their still-developing status in the UAE insurance market. S&P noted that Noor Takaful has become a recognized brand in the UAE following the companies’ 2009 start-up as Islamic insurers based in Dubai. The brand is known for its association with the highly influential investment group, Noor Investment Group, which is backed by Investment Corporation of Dubai (25 per cent), Dubai Investment Group (25 per cent), and several highnet-worth UAE national individuals (50 per cent). The Noor Investment Group also owns Noor Islamic Bank. S&P expects no further increase in the Qard Hassan (shareholder loans to takaful funds) facilities extended in the companies after 2013. The core investor group is expected to be fully supportive through additional capital to balance the expected growth of takaful fund underwriting income, and the investment portfolio should retain its high short-term liquidity, and low credit risk profile, but that it will be progressively diversified to reduce concentration risk.

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