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the facultative side, a recent slowdown in construction has reduced the potential pool of business available. “It’s probably more profound here in Dubai where there are a lot of private projects, but if you look at Saudi Arabia, government-sponsored construction is continuing unabated and that’s been our target all along.”

Rates are slowly starting to harden for certain classes of business as a

result of the financial crisis. Depleted balance sheets and the illiquid market mean that the costs of some risks have gone up, while, elsewhere, the rate of softening has slowed. The primary market should really only go one way, says Norstom. “Rates have got so low that it’s hard to reduce any further, so I think there is resistance to another round of huge rate reductions in the market. But the local insurers are trying to make premium targets and that begets all kinds of behaviours.”

For reinsurers, there is more attention to technical underwriting and

evidence of underwriting discipline. Norstom saw signs of the market turning at the January 1 renewals and expects further hardening come the July 1 renewals. But even here, there is a two-tiered market. “When the risks are big enough—those that require international capacity—you get the usual gang of reinsurers, and an international approach to pricing deductibles and policy wordings,” he says. “But for risks that are a billion US dollars or less, the local market can handle it quite easily and that remains pretty competitive, as they compete on price.”


Reinsurance premiums would once have been ceded outside of the Middle

East into markets such as London, the US and Bermuda. But distribution channels are changing, and international reinsurers are responding to this by opening dedicated offices in the region. They are now also competing with local start-ups such as Gulf Re, Riyadh-based Saudi Re, Bahrain-

based ACR Takaful and Kuwait-based Al Fajer Re, which were set up in 2008. “More and more premium is being captured in the region and that suits the desires of local insurers quite a lot,” says Norstom. “They really want to support local reinsurers.”

Three or four dedicated Middle East reinsurers are not yet enough, thinks

Fetooh Al Zayani, managing director of business development at the Qatar Financial Centre Authority (QFC). She thinks at least 10 to 20 are needed to change the market dynamics. “At present, 70 percent of our reinsurance needs—our book of business—gets reinsured internationally in Europe, the US and elsewhere. So just three or four reinsurers are not going to change this trend and retain the premiums in the region.”

With such low insurance penetration in the Middle East market, it is currently

difficult to see how it could support 10 to 20 reinsurers. But this is expected to change dramatically. The introduction of compulsory insurance, such as medical cover in Saudi Arabia, and the growth of takaful re/insurance should encourage take-up. Takaful re/insurance is more acceptable to the largely Muslim population of the Middle East, as it abides by Sharia law. “Fifty percent of the population is under 25 years of age,” says Al Zayani. “This means that the region has a huge pool of potential demand. And these young people are now more aware and better informed about insurance and financial planning, which will definitely fuel demand.”

As international insurers, reinsurers, brokers and other service providers

turn to the Middle East, the Gulf ’s financial centres are vying for their attention. Huge marketing budgets have been spent in an effort to attract business to Dubai, Qatar and Bahrain. Each centre has also invested heavily in setting up an environment that is conducive to international business. It’s all healthy competition, believes Al Zayani. “Before it was Bahrain versus Hong Kong or Singapore and now it is Bahrain versus the QFC versus the DIFC. We believe all centres will be successful because they collectively market the region to the whole world.”

Middle East Report 2010 | INTELLIGENT INSURER | 7

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