Æqui-£ibria
Resurrection of the MythicalDilmun
Bahrain, an Arab Insurance Company Location
Gilgamesh wasa legendary king who hailed from the area of present-day Iraq and who was looking for eternal youth and health. He is said to have found both in Dilmun, the present-day Bahrain.Internationally active (re)insurers will find in Bahrain a central location between Europe and Asia, a pragmatically thinking regulator, the beginnings of a reinsurance and consulting cluster as well as advantageous conditions for the setting up of Islam conform operations.
The 9th Annual Middle East Insurance Forum 2013 introduced the appr.500 participants to a number of facets of the island which for over 5000 years has been populated by traders and which is connected by a 20 km long bridge to Saudi Arabia and which neither features corporate nor personal income taxes.
The alternatives in Bahrainconducted Koranconform type of insurance takaful by now comprises a quarter of the market and is developing its own satellites of specialised reinsurers and financially astute Islamic scholars. Rapid growth characterises the classes energy, aviation, motor and – a consequence of the still mostly lacking state provided social security systems health. Professional reinsurers and cpatives are welcome. As the examples of (MedGulf) and AXA (Kanoo family) demonstrate having a reliable regional partner enhances an operation's local roots and thus its market success.
Amongst the event’s sponsors ranked e.g. the ratingagency AM Best, Ernst & Young, the life insurer MetlifeAlico, the local reinsurers ARIG and Trust Re as well as Lloyd’s.
MENA: Regionalisiation of Markets
Justin Balcombe, E&Y MENA Insurance Sector Leader, illustrated the present challenges facing the insurance industry (cat-exposures, low yields, little growth in the traditional markets, uncertain regulatory environment). Those offering protection could encounter a new dynamism if they shifted their activities to growth markets where „underpenetration“ (i.e. still low share of insurance industry compared to GNP) continues to exist.. representing Lloyd’s Enrico Bertagna, indicated that the aggregate premiums Lloyd’s is generating from all MENA states only amounts to .7 b £. Accelerated growth was to be found in the classes of energy and construction insurance, but in other classes the penetration by the insurance industry remained low. At present there was a particular focus on rapidly growing (due to its oil industry) Mozambique.Even the acronym MENA (Middle East & North Africa) which more and more companies are now using suggests that hitherto separate national markets are merging.
Inspired by the EU’s freedom of services and establishment the 17 State of the Middle East are now beginning to consider an integration of their financial services markets, something that in view of the limited size of national markets and hence lacking economies of scale appears rather obvious. An agreement regarding freedom of establishment already exists with the Gulf Cooperation Councilbut still requires implementation under the various national laws.
AXA via its regional HQ Bahrain as well as the attached branch operations writes 550 million US$ of GWP. The company is a 50/50 Joint Venture with the local Kanoo family, a traditional trading house which also acts as the regional partner of BASF, Maersk and Nestlé.
In 2011 Allianz agreed to form a joint venture with MedGulf (domiciled in Beirut and Bahrain) which integrated the existing Allianz subsidiaries. A number of regional insurers appears to be planning new operations in black Africa, e.g. in Nigeria, the most populous and to some extent Islamic State.
Bahrain’s SovereignRating heading back towards A
A year ago Bahrainhad in the context of the Arab „spring” witnessed a number of demonstrations. However, the travel advisory found on the website of the German embassy appears somewhat exaggerated. Bahrain’s downgrading to BBB (still better than e.g. Spain)which was not in line with economic reality (government debt of only 37% of GNP) is now being reversed step y step. For a start end of January 2013 S/P put the outlook to “stable”, so far it had been “negative”.
The local population appears to be well educated (often in the US), as one would expect in respect of an old tradingnation well versed in foreign languages, likes to argue and is tolerant. Women are found even in the top management of the local insurance industry.
Health and Fine Art Insurance look promising
50% of AXA’s business is generated from health insurance.Given the lack of State health systems private insurers can expand without limits as regards health insurance. Recently Saudi Arabia introduced an obligation for employers to enroll their staff. However, coverage normally ceases at age 65 (end of the employment contract). Aging reserves are not yet customary. In particular BUPA from the UK is feared as a competitor.
There is a trend for wealthy Arabs to start private art collections. Furthermore new State operated museums are being created, e.g. a branch of theLouvre in Abu Dhabi. According to Alexis de Beauregard, AXA’s regional marketing head, local AXA subsidiaries are increasingly operating also in the field of fine art insurance. However this is done only by way of fronting on behalf of AXA operations in Köln and Paris.
New Sales Channels
Local insurers that mostly appear to rely on a multi-channel distribution strategy increasingly also feel compelled to offer their products via their own website and to enhance them via elements of assistance. Takaful International for instance guarantees that in case of a motor breakdown or an accident its service provider will within one hour be present failing which the customer is to receive 150 Dinars by way of compensation. Established foreign insurers enjoy relatively easy access based on a brand which is also trusted by local policyholders, e.g. AXA
Vasilis Katsipis, regional General Manager at A.M. Best, criticises that many local insurers as regards major commercial policies retained very little behaved more like brokers.In many cases such policies featured cut-through clauses permitting a direct claim by the policyholder against the facultative reinsurer.
A Sharia-agnostic Regulator
Bahrain‘s central bank simultaneously is its financial regulator. Its executive director Abdul Rahman Mohammad Al Baker underlined that Bahrain has for already 4 years been exercising an effective supervision whose standards are being continuously adapted to changing local circumstances and international best practice. At present 23% of local business are being written on a basis in conformity with sharia. The regulator is not intending to exercise pressure in the direction of a gradual changeover of the market away from conventional insurance products. As Solvency II and potentially equivalency (which might become relevant for reinsurers based in Bahrain and writing EU cessions) the regulator appears to be adopting a wait and see attitude. On the other hand a solvency standard applicable to takaful companies is ready and has been approved by 20 religious scholars.
Under the auspices of the Bahrain Insurance Association (founded in 1991) both the Western (77% of the 215 million BHD/423 millionEURGWP) as well as the Islamic (23%) version of the insurance approach find themselves united.
Takaful: insured in an Islam conform manner
In many aspects Islam-conform insurance functions in a similar fashion as Western insurance. However, additionally it is based on the interdiction of interest and commission as well as on a strict segregation insurance funds belonging to the policyholders and of funds made available by the shareholders. The latter in return for making shareholders funds available and for organizing the risk mutualisation receive a limited remuneration. On one hand Takaful companies are governed by a board of directors in conformity with company law, on the other hand in addition a further sharia board composed of religious scholars who are financially literate ensures the sharia conformity of products. Medium term sharia board members will probably need to be certified as to their qualifications.
European insurers are beginning to view groups residing in Europe that are of the muslimic faith (e. North Africans in France, Pakistanis in the UK and turks in Germany) as a clientele requiring a distinct approach. Insurers are considering via what dedicated sharia compliant organisations they shoudl be offering their services.
Reinsurance Cluster
Besides ARIG which has been domiciled in Bahrain since 1981 and which writes 250 million US$ of GWP also the 1989 founded and 100 millionUS$ capitalised Trust Re maintains its HQ in Bahrain. Trust Re generates an annual GWP of 350 million. US$ and is rated A- by AM Best A- Rating. As per a still somewhat vague comment by the CEOsof the economic development board EDB, Kamal bin Ahmed (simultaneously minister of transport) plans to launch a large new local reinsurer are at an early stage. A national wealth might subscribe to a significant %age of its capital.
Commercial disputes involving a quantum in excess of 50.000 US$ are assigned by Bahrain to an arbitration tribunal that functions on the basis of English law. A training centre affiliated with the UK‘s Chartered Insurance Institute provides staff qualified as ACIIsand FCIIs. The Thompson Reuters news agency which focuses on financial data maintains a regional office in Bahrain. For several years already Lux Actuaries which also operates in Cyprus and India and which is staffed by South Africans, Australian and Cypriots offers actuarial services locally.
Re-Takaful aus Hannover’schen Landen
Only for an interim may Takafuldirectinsurers continue to purchase part of their reinsurance protections from not Sharia compliant reinsurers. In 2006 Hannover Re set up a Bahrain domiciled dedicated reinsurance subsidiary that targets the takaful market segment. Whilst also Munich Re, Swiss Re, SCOR and ARIG are active in this market segmentMahomed Akoob, Managing Director, Hannover ReTakaful views it as a substantial differentiating factor that Hannover Re operates a legally separate company that is capitalized at 60 million US$ and writes 125million US$ in annual GWP and whose entire activities are monitored by Sharia Board. Chairman of this company continues to be Hannover Re executive board member André Aragowhose initiative at the time had resulted in the formation of the subsidiary. ,
HannoverRe Takaful has the mission to operate worldwide as regards Sharia compliant products (primarily MENA and South East Asia). If required Hannover Re also assists with the drafting of business plans for newcos. Apparently there have been first attempts to create takaful insurers in Germany and France, but these did not yet come to fruition. As regards aviation, energy and other classes of business that are heavily London focused to date no takaful products exist.
In Bahrain Hannover Re also maintains a branch that looks after conventional buesiness. At the same address furthermore resides a branch of HDI for facultative busienss. HDI does not aspire to obtain local insurance licences in the region but prefers to write risk vetted by its own specialists on the basis of fronting.
Altogether the forum portrayed a trading nation that looks back ontothousands of years old tradition and which manages to align a Western style management approach with its Islamic traditions.
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