Ian Sangster, Q-Re


unlocking its potential


Ian Sangster of Q-Re reports on the development of the Gulf region and expounds its potential as a signifi cant area for future captive growth.


A


s a reinsurer registered and based in Qatar in the Arabian Gulf I am able to provide a brief overview of the development of the insurance industry within the Gulf Cooperation region, touching upon the opportunities that exist to establish a


captive insurance company. The insurance industry of our region may now be described as entering


early adulthood. It is not yet a fully mature industry as for a number of years before the increase in the price of oil in the early 1970s there were limited opportunities for growth. Companies that were established prior to this period were mainly agency operations of UK companies that had expanded throughout the world in the days of empire, protectorates and the like.


They wrote small portfolios of general business, migrating to include construction and erection covers as the relative wealth of the early 1970s oil boom allowed regional countries to begin to develop modern infrastructure and downstream industries. Throughout the 1960s and 1970s a number of local and national insurance companies were established throughout the Arabian Gulf as opportunities arose to establish a nascent domestic and regional insurance industry.


The foreign agencies continued to operate but faced increasing competition from the newly formed ‘national’ insurers. Indeed these national companies were, in a number of countries, given certain exclusive rights such as being the nominated companies able to quote and write government business.


This may have seemed a rather restrictive practice, but it was necessary to provide a measure of protection while the young industry developed expertise and gained a foothold in its domestic market. The foreign companies benefi ted by being able to provide local reinsurance capacity, supplying both experience and access to sound parental capacity when required. The non-governmental open-market business remained open to all the registered insurance companies.


Over time, the foreign companies who were operating through agents created branches or formed local companies in the various Gulf countries, adding to the strength of the local industry. They were excluded from governmental business in various territories for many years but they did, however, operate side by side with the national insurers and in many ways they complemented one another.


The concept of captive insurance was not known or even discussed at


this juncture in the development of the regional insurance industry. The business of the region was focused on the insurance of infrastructural and industrial developments and the development of the direct insurance market.


Regarding regional infrastructural and industrial development, much had to be done throughout the Gulf as the traditional pre-oil boom industries were more of a ‘subsistence’ nature—mainly for local consumption with perhaps some limited regional distribution. Throughout the region little development was taking place within the cities, towns and villages. Road networks were scarce, electricity distribution outside the main towns was limited, population growth was relatively slow and without a fair and realistic price for oil production there were limited funds available for development.


The insurance industry therefore developed very slowly and only a few of the companies in the region grew to be of any signifi cant size.


The tipping point for our industry was the quadrupling of oil prices in


the early 1970s—a major drama in a world which had, hitherto, been used to buying oil for what were virtually give-away prices.


That one bold act by the Gulf oil-producing countries not only provided


a local revenue stream of cash that would result in a regional boom, but triggered a wider cascade of developments throughout other areas of the world where high extraction prices had precluded the development of known oil reserves. This period of history provided the platform for other global industries to develop and drove industrial development.


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