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“ The local markets have found a business model that is basically giving the right return on equity that their shareholders are asking for.”

everything is imported for the construction industry, and that’s a major area that’s taken a hit in Dubai recently—then develop through the construction phase and obviously on to the operational risk. So that’s a lot of non-marine revenue that’s there for the insurance market going forward, and they are investing their oil revenues into other sectors.

TIM GRIFFIN: The development in many of the MENA economies is going to lead to construction business and this is one area where Hardy sees prospects. That type of business tends to be more complicated than standard risks, and the larger placements would tend to come to London anyway. Time will tell, and it depends how complex the risks are and how big the individual projects are, but in lots of areas, the markets prefer to place their business locally if they can.

TREVOR OATES: The fiscal stimulus packages in a number of countries are different from the way the Middle East is approaching the same problem, because they are being driven by the sovereign wealth funds. So there’s been a higher government involvement from the very beginning. The scale of the projects are often multi-year and, as Tim said, very complex, so the international market needs to be there. But at the same time, you’ll get a number of office blocks, apartment blocks and plenty of speculative building that comes off the back of that initial drive. And the needs of these smaller projects can be catered for within the capacity that’s available locally.

CHRISTOPHER PLEASANT: And the larger projects would be looking for well-rated paper.

TIM GRIFFIN: On the security rating, it depends on where the money is coming from. For government-led projects, there’s a greater chance that business will stay in the local markets than if they’re heavily financed by the banking sector. Private finance will tend to be more focused on minimum security ratings, typically ‘A’ rated paper, and that’s probably the big distinction. But a lot of the projects will be government-backed, and so again, it will be interesting to see how that plays out.

MATTHEW CHANDLER: Obviously, there is going to be the desire to localise some of the risk, but the security remains a big factor in that buying decision.

AHMED RAJAB: Security is a big factor, which is looked at by the project managers and the risk carrier; however, we shouldn’t forget that in the

Middle East and even in North Africa, there are a lot of companies that are rated and have a very good rating. Today, just by having 25 to 30 regional reinsurers, most of which are rated between ‘BBB+’ and ‘A-’, you have a lot of capacity on the facultative side in the region of $1.5 to $2 billion that can be put together on a single risk. On the treaty side, they could mobilise $300 million. So there’s plenty of capacity there.

STEPHEN MAY: Three or four years ago, the rating wasn’t a big issue at all. It has definitely become a lot more high profile in a short space of time. It’s not just being driven by the buyer. A lot of the local insurance companies, which are legally protected to write local business, are not only driving towards strengthening their balance sheet by making sure they buy from as highly rated paper as they can afford, but also the original buyers now are showing more interest in the whole supply chain, which is why you guys are getting a lot more work in the region.

NICK CHARTERIS-BLACK: It’s slightly self-perpetuating because if a primary company seeks a rating for whatever reason, it will then be looking for secure paper from reinsurers, because of the capital charge it will incur for counterparty risk based on the ratings of its reinsurers.

HELEN YATES: Are there any signs that the local insurance market in the region is becoming more sophisticated?

CHRISTOPHER PLEASANT: It’s definitely becoming more sophisticated. With the tightening of the banking sector, we’ve seen many insurance companies that are a lot more dependent upon the return on their investment portfolio than their technical insurance profit. With the system being tested in some instances and increasing awareness about insurance in the security chain, as Stephen said, we’re seeing more people now looking at ratings, who before weren’t worried.

TIM GRIFFIN: My feeling is that there will be more risk retained in the local markets. At the moment, it’s traditionally seen that the local insurance and reinsurance companies will take their slice of the risk and pass it on, and make money through commissions. Where there is the capacity to make good money out of the actual insurance risk, I would expect to see local markets looking to retain more.

STEPHEN MAY: There are going to be several things driving that, and one of them is going to be the demand of the original buyer. And once they’ve

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