An open and competitive reinsurance market is vital for emerging economies in the Middle East to ensure risk transfer and market development, a new report from AM Best revealed on Saturday.
According to the insurance rating company's study, this approach is needed at a time when economic integration and globalisation have been cast aside in favour of "populist and nationalist sentiments around the world" amid geopolitical pressures, the fallout of low oil prices, Brexit and the protectionist stance of Donald Trump in the US.
Examples of protectionist measures can be found in Middle East countries such as Saudi Arabia, the UAE, Jordan and Egypt where regulators, looking to safeguard local policymakers and insurers, have introduced restrictions on foreign ownership and limits on foreign investment.
Valeria Ermakova, a senior financial analyst at the rating agency, said that placing risks primarily within national borders creates a problem of potentially weaker reinsurance security, given that emerging markets generally have lower levels of financial strength by international standards.
“This issue is amplified by premium funds being invested in devaluing local assets, considering the challenging economic conditions and volatile financial markets that some of the countries experience,” she said.
“Furthermore, isolation of insurance markets may lead to a lack of consumer choice and inadequate service levels as national players are not able to benefit from the expertise of their peers in the global market, where technology and innovation are drivers of the industry.”
While a number of catalysts for the growth of the UAE's insurance industry are in place, its profitability has been weighed down by cut-throat competition with 61 insurance firms registered by the UAE Insurance Authority at the end of 2015.
However, insurance penetration rates in the UAE reached 2.76 per cent in 2016 with a total premium growth of 1.04 per cent, according toAM Best. The biggest growth area was seen on life premiums with a 3.54 per cent increase compared to a 1.16 contraction on non-life premium growth. This reflects some firms quitting the non-life insurance business altogether in the UAE, such as Zurich, which exited in November 2015.
Saudi Arabia, meanwhile, saw its insurance market penetration reach 1.55 per cent last year but with a higher total premium growth of 1.43 per cent.
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The rating agency highlighted a number of domestication moves for the region’s insurance sector, such as regulations mandating staff localisation.
This presents an issue for the market as until now insurance companies in the Middle East have largely been staffed by expatriates, and the intention to protect domestic writers “has come at a time when Middle Eastern countries are looking to reduce dependence on oil and open up their economics to increased foreign investment”.
Saudi Arabia’s nationalisation programme has seen a complete Saudisation of its banking industry, something it now wants to replicate in its insurance sector with similar efforts also adopted in Qatar and the UAE.
AM Best said this can create pressure for companies to employ staff that lack the requisite skills to manage insurers.
Salman Siddiqui, associate director, said: “Excessive protectionism, such as the discouragement of cross-border reinsurance placements, may have major negative implications as it creates an unnecessary exposure of national assets and government funds to claims from catastrophes or man-made disasters, as well as to an accumulation of losses. On the other hand, the availability of reinsurance capital from a diversified international panel brings down risk-transfer costs and helps to disperse risk.”
However, the landscape is changing as the Middle East’s hydrocarbon producers, including the UAE and Saudi, have faced fiscal pressure amid low oil prices encouraging them to diversify their economies and increase the involvement of private companies in the sector.
Consequently, the Saudi government is now considering allowing the level of foreign ownership in legal entities to increase from 30 per cent to 49 per cent with the UAE considering an increase from 20 per cent to 49 per cent.
AM Best said that it expected oil-producing countries to seek a balance in the coming years by opening up their economies while also ensuring “adequate levels of insurance domestication”.
The report also highlighted protectionist moves made by other Middle East nations, such as Jordan and Egypt, where restrictions have been placed on the investment activities of insurance companies, something the rating agency considers a risk for the insurers in those countries.
In Egypt and Jordan, insurance companies are permitted to invest their funds only in local securities and assets. This reduces investment opportunities for insurance companies, who require well-rated, highly liquid assets to support their underwriting operations, said the rating agency.
"As a result, Egyptian insurance companies have primarily invested their funds in short-dated Egyptian government bonds, while Jordanian insurers largely target domestic equity listings,” the report said.
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Stars: Basel Adra, Yuval Abraham
Rating: 3.5/5
England World Cup squad
Eoin Morgan (capt), Moeen Ali, Jofra Archer, Jonny Bairstow, Jos Buttler (wkt), Tom Curran, Liam Dawson, Liam Plunkett, Adil Rashid, Joe Root, Jason Roy, Ben Stokes, James Vince, Chris Woakes, Mark Wood
The White Lotus: Season three
Creator: Mike White
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The rules on fostering in the UAE
A foster couple or family must:
- be Muslim, Emirati and be residing in the UAE
- not be younger than 25 years old
- not have been convicted of offences or crimes involving moral turpitude
- be free of infectious diseases or psychological and mental disorders
- have the ability to support its members and the foster child financially
- undertake to treat and raise the child in a proper manner and take care of his or her health and well-being
- A single, divorced or widowed Muslim Emirati female, residing in the UAE may apply to foster a child if she is at least 30 years old and able to support the child financially
Under 19 World Cup
Group A: India, Japan, New Zealand, Sri Lanka
Group B: Australia, England, Nigeria, West Indies
Group C: Bangladesh, Pakistan, Scotland, Zimbabwe
Group D: Afghanistan, Canada, South Africa, UAE
UAE fixtures
Saturday, January 18, v Canada
Wednesday, January 22, v Afghanistan
Saturday, January 25, v South Africa
Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.
Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.
“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.
Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.
“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.
Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.
From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.
Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.
BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.
Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.
Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.
“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.
Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.
“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.
“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”
The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”
Skewed figures
In the village of Mevagissey in southwest England the housing stock has doubled in the last century while the number of residents is half the historic high. The village's Neighbourhood Development Plan states that 26% of homes are holiday retreats. Prices are high, averaging around £300,000, £50,000 more than the Cornish average of £250,000. The local average wage is £15,458.
Tips to avoid getting scammed
1) Beware of cheques presented late on Thursday
2) Visit an RTA centre to change registration only after receiving payment
3) Be aware of people asking to test drive the car alone
4) Try not to close the sale at night
5) Don't be rushed into a sale
6) Call 901 if you see any suspicious behaviour
