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COUNTRY PROFILE – IRAQ

Demand for insurance grows as investment pours into Iraq Mr William Wakeham of AAIB Insurance and Reinsurance Brokers says that the Iraqi market can be strengthened through new laws to empower the regulator; and that reinsurers should also consider revising their terms and capacity offered.

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n 2011, an estimate of Foreign Direct Investment (FDI) flowing into Iraq totalled over US$55 billion. This ref lects the improved securit y situation, greater certainty as regards the political landscape and macroeconomic policies, the potential of a resurgent energy sector and the need to rebuild a country that has been hampered by years of conflict. This is a substantial amount of money and represents a vote of confidence on the future of Iraq and the Iraqi people. Analysis of FDI patterns show the diversity of investment sources with government and private contracts being dispersed over a range of core countries (see Table 1). The size of the investments bring into focus the need to access and harness capacity in global markets and the requirement for a combination of local and international expertise in risk management, insurance intermediation, risk assessment and underwriting. This combination will help to ensure that optimal and cost effective risk management and insurance programmes can be devised. The breadth of industry sectors where investment is being channelled into is illustrated in Table 2, with the power, energy and real estate sectors being dominant.

Table 1: Geographic origin of foreign commercial activity in Iraq Country

Value ($ mil)

% Total

S Korea

11,988

21.5

6,878

12.4

Table 2: Sector breakdown of foreign commercial activity in Iraq Sector

Value ($ mil)

% Total

Real Estate (Residential)

14,524

26.1

Oil & Gas

12,769

22.9

Electricity

11,196

20.1

Water & Sanitation

4,285

7.7

Defence

2,850

5.1

Real Estate (Commercial)

2,433

4.4

Telecommunications

2,063

3.7

Industry

1,919

3.4

Transportation

1,213

2.2

844

1.5

Tourism

Source: Dunia Frontier Consultants: “2011 Year in Review: Foreign Investment Activity in Iraq”.

Further, as reported in the Iraq Business News recently, a list of 47 pre-qualified bidders for Iraq’s fourth round of energy exploration rights have been listed. This demonstrates the high degree of interest in the tenders being issued by the Petroleum Contracts and Licensing Directorate (PCLD) at the Ministry of Oil. The oil sector will be a major driver of economic regeneration in Iraq.

Local capacity grows: More licensed insurers

UK

4,096

7.4

Netherlands

3,825

6.9

Turkey

3,694

6.6

Germany

3,172

5.7

China

3,093

5.6

UAE

2,959

5.3

Italy

2,829

5.1

The increase in economic activity has led to a growth in number of insurance companies in Iraq (see Table 3). Since the last survey that was undertaken in May 2010, more insurers have been established and most are headquartered in Baghdad, the country’s commercial, financial and political centre. While market statistics are difficult to obtain, conversations with counterparts suggest the market remains profitable. The demand for the services of local insurers is expected to grow as more international companies look to establish themselves in Iraq and insist on locally issued polices.

Iran

2,184

3.9

The regulator

US

Other significant countries, with one to two per cent of reported deal volume are France, Cyprus, Japan, Russia, Sweden, Kuwait, Australia, India and Ukraine. Source: Dunia Frontier Consultants: “2011 Year in Review: Foreign Investment Activity in Iraq”.

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The Iraqi Insurance Diwan is in charge of supervising and regulating the insurance sector. The Diwan has performed relatively well, bearing in mind the limited resources that it has, the baseline position that existed in 2005 when the new


COUNTRY PROFILE – IRAQ

Table 3: Iraq: Insurance companies Paid-up capital

Company

Area

National Insurance Co

Baghdad

15,000

Asia Insurance Co

Sulaimanya

15,000

Al Aqtsaad Insurance Co

Baghdad

5,000

Shatt Al-Arab Insurance Co

Baghdad

5,000

Wadi Al Rafedien for General Insurance

Tikrit

5,000

Iraqi General Insurance Co

Baghdad

3,200

Iraqi Reinsurance Co

Baghdad

3,200

Al Ahlia Insurance Co

Baghdad

2,500

Awr International Insurance Co

Erbil

2,250

Dar Al Salaam Insurance Co

Baghdad

2,200

Al Ameen Insurance Co

Baghdad

2,000

Al Badia Insurance Co

Baghdad

2,000

Al Batik Insurance Co

Najaf

2,000

Gulf Insurance Co

Baghdad

2,000

Kurdistan Insurance Co

Erbil

2,000

Union International Insurance Co

Baghdad

2,000

Iraq International Insurance Co

Baghdad

1,815

Al Hamra Insurance Co

Baghdad

1,500

Al Maseer Insurance Co

Baghdad

1,500

Ard Al Watan Insurance Co

Baghdad

1,500

Jihan Insurance Co

Baghdad

1,500

Middle East Insurance Co

Baghdad

1,500

Dar Al Theqa Insurance Co

Baghdad

1,012

Al Khair Insurance Co

Baghdad

1,000

Dar Al Iraq Insurance Co

Baghdad

1,000

Dilnia Insurance Co

Sulaimanya

1,000

Al Reham Insurance Co

Baghdad

500

Star Kar Insurance Co

Erbil

500

Moalem Insurance Co (Branch Office, Iranian)

Baghdad

(Iraqi Dinar million)

*

* Moalem Insurance Co is a branch for its Iranian head office, so it does not require capital, as the head office has its own capital Source: Iraqi Insurance Diwan. June 2012

share of domestic insurers and their reserves. Further raising minimum capital levels will expand their capacity and financial strength, and make them more attractive to companies seeking coverage.

Reinsurance Treaties: A new approach needed for a new Iraq Many Iraqi companies use the longstanding reinsurance treaty placed with Munich Re on a pool basis. However, there were mounting dissatisfaction from some insurers who use the treaty. As the limits are low, lines of business covered by the treaty are restrictive and the terms for insurers are not favourable. So, improving the terms, expanding the lines of business and increasing the capacity, appear as important changes that are required if local insurers are to participate more actively in the market. Companies like Ur International, established in Erbil two years ago, have put in place a treaty with Swiss Re. Indeed the Iraqi market is witnessing a new trend with insurers looking outside the pool for their reinsurance needs. There are relatively highly capitalised companies like Asia Insurance which is getting excellent reinsurance terms away from the pool. Hence, the pressure on the Munich Re lead treaty will grow and the status quo will change. In summary, the two main priorities for further strengthening the insurance sector in the short to medium terms are: • Strengthening the Diwan’s capacity and impact by changing the legislative environment to entail local fronting and a minimum retention; and • Improving the terms, lines of business and capacities of reinsurance treaties for Iraqi companies. The challenges have been identified. Now is the time to plan and act. Mr William Wakeham is the CEO at AAIB Insurance and Reinsurance Brokers.

Insurance law was enacted and considering the mounting workload and growing number of licence applications that the Diwan has had to deal with. Having said that, there is more work to be done by the Diwan. On the legislative front, this would include fresh regulations requiring local placement of risks, a more robust insurer supervision and inspection regime that incorporates both off site and onsite inspections, and a review of the capitalisation requirements to determine how much these should be increased by. Allocating an increased budget and more resources to the Diwan will enable it to pursue a more participative and influential work schedule. Changing the legislative environment so as to require local fronting or a minimum retention will bring additional premium into the local market, thereby boosting the market www.meinsurancereview.com

July 2012

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Demand for insurance growsas investment pours into Iraq