Counting on insurers

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Arab Re

Sourcing of regional reinsurance is an issue of growing importance to primary insurance providers across the region, be they established companies or newcomers. For reinsurance company Arab Re, this translates directly into a substantial increase in perceived business opportunities. “I can confirm that our board has taken the decision to double our capital. This issue is now on the front burner,” deputy general manager of Arab Re and current ranking executive, Tayseer Treky, tells EXECUTIVE. He expects the capital increase to be completed before the end of the year.

Established in 1972 upon direct recommendation by the General Arab Insurance Federation, Arab Re’s capital had last been increased in 1998, from $12.3 million to the current $25 million. From its inception, the firm’s mission was directed specifically at assisting insurers in markets across the region and run Arab reinsurance pools. With greater integration of Arab markets on the horizon, the firm feels that it is time to assume a bigger role. “We are the Pan-Arab reinsurance company par excellence,” Treky claims. “We are an ambitious company but we are also aware of the limitations of our size and from market conditions. Our policy has always been gradualist.”

In terms of immediate expectations, the firm’s outlook actually projects rather steep growth. After gross premium income rose from $17.9 million in 2002 to $20.7 million in 2003, Arab Re’s anticipation for 2004 is a near 50% increase in premiums, to $30 million. For 2005, the company expects a further increase to $35 million.

Arab Re’s premium income originates to 92% from the region, with the remainder generated in Asia and Africa. Lebanon is the number one market for the Beirut-based firm, accounting for 16% of premium income, followed by Egypt (13%), Libya (12%) and the United Arab Emirates (10.5%). “The degree of our presence in different Arab insurance markets is determined by our marketing orientation and also by the existence of our shareholders in different markets,” says Treky, “We tend to be stronger where we have shareholders.” The company’s shareholder base includes 55 entities from 16 countries, mainly insurance and reinsurance companies but also some public and private sector banks. The largest equity stake by a single shareholder does not exceed 12%. Following a three-year period where the company saw its premium income drop annually between 1997 and 2000, Arab Re benefited from the changed reinsurance world, post the September 11 terror attacks. Some European and international reinsurers lost parts or all of their enthusiasm for doing business in Arab countries. And like many in the hardening global market, insurers from across the region encountered harsher conditions and stricter limits from their international reinsurance partners. While acknowledging that September 11 triggered a wave of changes in the relations between regional insurers and international reinsurance firms, Treky sees the changes as rooted in factors that came into play considerably before the fateful day. “Arab Re anticipated well ahead of 9/11 that smaller Arab companies would one day face difficulties with their reinsurers, due to economies of scale. The concentration and mergers in the global insurance industry in the 1990s made the average sized Arab company probably less attractive,” he says. “We have long been telling our clients not to put all their eggs into the basket of international reinsurers, because a day would come when the need for regional reinsurance would be greater.”

With WTO membership impending for an increasing number of Arab countries and liberalization of – thus far – closed insurance markets looming, the managers in Arab Re’s executive offices in downtown Beirut see not challenges but substantial new opportunities in the opening of more Arab markets to more players. In Libya, for example, where two new insurance companies are under formation, the persons driving the process of establishing these firms are, in Treky’s words, “old good friends of Arab Re.” Because of its low insurance density and penetration, Syria would be a promising market even if the insurance regime were to prevail as it is, Treky says. “If, however, the Syrian insurance market opens up and more opportunities come into the picture, the pace will be much faster and growth will be greater.” Also in Iraq, once the country returns to normalcy and security, the insurance market is, in his opinion, bound to grow very quickly and perhaps recover its grandeur as the Arab world’s biggest and best developed one. Arab Re has major shareholders in these two countries, which leads the manager to expect that in the hoped for business growth there, the company “will enjoy the support of many friends we have.” As good connections, vital as the are, cannot substitute crucial skills, Arab Re is focusing in practical preparations for its future on developing their human resources in a two-pronged approach of training their existing employees and seeking to hire new additional staff with significant experience in reinsurance from within the region.

The future of Arab insurance markets may at last favor the fulfilling of the vision that guided the creation of Arab Re over three decades back but that was blocked for the longest time by regional strife. Today, Arab Re believes that after the hard school of corporate survival under the worst circumstances imaginable, future business obstacles could not cause more than a light hiccup for this reinsurance company.

Medgulf

He who wants to play in the big leagues has to live by big-league rules and must be willing to compete on every ground. The Mediterranean & Gulf Insurance and Reinsurance Company – known in the market as Medgulf – abides by these terms. It employs the business logic that permanent growth is an absolute obligation for a company that aspires to reach market leadership and stay in that coveted position.

“In life and business, you never want to stop, because if you do, you don’t expand anymore,” says Michel Abou Jamra, Medgulf’s executive vice president. “And if you don’t expand, somebody else will.” The company’s ascendance over the past decade and their long-term plans match this disposition. Although displaying a single corporate identity, Medgulf actually is a group comprising two separate companies, an anonymous shareholding company (sal) in Lebanon and an offshore exempt company (ec) in Bahrain, which was established in 1995 for conducting business in Saudi Arabia. Both companies achieved rapid growth and are today holding claims to being the largest private sector insurance operator working in Saudi Arabia and the leading non-life insurer in Lebanon. After receiving license approval by the Bahraini central bank, Medgulf earlier this year entered Bahrain directly as their third market. And having every intent to acquire the stature of true regional insurer, Medgulf executive management confesses as their strategic aim to establish a presence in the majority of Arab countries.

However, the company does not rush in implementation of the far-reaching ambitions by seeking a fast geographical rollout. “It is not important to pretend being a regional player but it is important to do things needed to become effective as regional player,” Abou Jamra says.

“We are looking to expand quite soon into the UAE and have further expansion projects. But we do it in phases, digesting every move before making the next one,” elaborates Faysal Malak, the company’s executive in charge of bancassurance and communications. According to the company’s annual report, Kuwait and Oman are further targets for expansion in the near to mid term. Medgulf can certainly be expected to have the staying power for regional deployment, thanks to being backed by two of the strongest financial private sector groups in the region, Prince Walid Bin Talal’s Kingdom Holding and the Saudi Oger/Groupe Méditerranée of Lebanese tycoon Rafik Hariri. Medgulf chairman Lutfi Zein is the third main shareholder. The group’s financial acumen is reflected in multiple capital increases that the shareholders injected into the two companies over the past three years, bringing capital in Lebanon from $8.5 million in 2000 to over $13 million in 2002, and raising it from $15 million in 2001 to $ 33.3 million in 2003 for the Saudi arm.

Results for 2003 were good in both markets, Abou Jamra tells EXECUTIVE. Premium income for the group reached around $135 million, up from $120 million in the previous year. Shareholder equity climbed to $57 million. Through subsidiary company Addison-Bradley, Medgulf is also active in Jordan, the UAE and UK.

Although the operation in Saudi Arabia achieved the higher premium income between the two group companies, the number of individual policies written in Lebanon was six to seven times larger, according to Abou Jamra. “The market structures are not the same. In Saudi Arabia, we have much more corporate business and fewer private clients. Driving license insurance is the single main retail product with premium turnover there,” says Malak. “However, after new regulations come into force in Saudi Arabia and the GCC [Gulf Cooperation Council] countries, the situation might change and offer better prospects for individual sales.” Economic conditions in the Gulf countries are definitely influencing residents and nationals to view insurance with greater interest, agrees Abou Jamra. “In earlier years, employers in GCC countries provided ample packages to their expatriate workforce but under a more competitive labor market today, nationals and foreign employees alike seek out insurance companies for the benefits they offer,” he says.

The increasing adaptation of Gulf economies to international business and banking practices – such as requiring insurance as precondition for issuing a letter of credit – also help in widening the reach of insurance in the region, and the emergence of regional enterprises with employees in numerous Arab countries is creating new demand for services of insurers that are present across markets, say the two executives. Seeing this new Arab insurance environment taking shape, the Medgulf Insurance Group is enforced in their perspective that continued growth into a major international player is the way to secure their ambitions for Arab market leadership. The firm’s management culture is geared toward accommodating this. “We are working in a team with a diversified cultural background of people living in different Arab countries. All our management and middle management are ready to move to any market, and task forces can be formed wherever needed,” says Abou Jamra, adding that in the creation of this unified culture, the Medgulf main base in Lebanon plays a crucial role.

Arabia

Their name is tradition in the Middle Eastern insurance business. Commemorating their 60th anniversary this year, Arabia Insurance has sold policies in Arab countries already before some of them had gained their independence. The firm’s fortunes since its establishment in mandate-era Jerusalem in 1944 read as a corporate diary of exposure to changing political conditions and ideological risks, and of sustaining business throughout. With operations in seven markets – Kuwait, Bahrain, Qatar, Oman, the UAE, Saudi Arabia, and home base Lebanon – Arabia Insurance remains active in a larger number of Arab countries than most competitors. The company’s strategic growth focus for the foreseeable future, however, is on two markets where Arabia is active today and two others to which the firm wants to return after a long enforced absence. “We are shooting for market share in Saudi Arabia and Lebanon, and ultimately in Syria and Iraq,” the general manager of Arabia Insurance, Fady Shammas, tells EXECUTIVE. With the news of the release of Saudi Arabia’s insurance law just out, Shammas leaves no doubt that the kingdom is the most titillating market for the company at this point. “It tops the list in terms of our involvement in the region. We will consolidate and create a joint company in Saudi Arabia,” he says. “If medical and some other insurance covers are made compulsory, market potential could go from $1 billion in annual premiums to $5 billion within the next few years.” Arabia’s plan is to form a company involving several partners, probably including other insurance operators and a major bank. If negotiations among the prospective partners work out, the firm would enter the Saudi market as an insurance and reinsurance firm, with a mandatory minimum capital of $53.33 million. The business vision would entail competing for all public tenders – especially the energy and airline ones – and, for acceleration of retail business, engage in bancassurance as a distribution channel from day one of operations. Arabia’s confidence of being able to rise high in the kingdom’s insurance market is based, in good part, on the company’s knowledge of the Saudi market. By 2003, it had generated 19% of their business in the kingdom, although it had to operate their seven branches under the same hand knit setup as other private sector insurers, necessitated by the impossibility to register and run a regular insurance company in Saudi Arabia until the passing of the country’s new insurance law.

For their corporate structure, this meant the firm established an offshore Bahraini company as operator of the Saudi business called, Arabia Insurance International, while Beirut headquartered Arabia Insurance Company coordinated activities in the firm’s five other GCC markets, including Bahrain, and Lebanon. Consolidated unaudited figures for the two entities in the Arabia Insurance group for 2003 showed total assets of 260 billion LL, continuing a steady increase since a new management team took the reigns in 1999. Capital is an unchanged LL51 billion, and total equity without provisions reached $75 million. From non-life business alone, the company expects to realize a net profit of $8 million for 2003, an increase of 40% over 2002. The life division, in which Arabia launched a new concept in 2002 with aggressive ambitions for growth across its geographical markets, also realized good results for 2003 and improved its share in Arabia’s total gross premiums from 6% to 8%. As one of the first companies to participate in interactive ratings with regional ratings agency, i.e. Muhanna, Arabia was rated A for 2001, and the rating was confirmed for 2002. The largest shareholder in Arabia Insurance is leading regional banking group, Arab Bank. In line with a policy to close branches that have not been profitable for seven consecutive years and show no sign of better prospects, Arabia last year shut down one branch in the UAE and one in Saudi Arabia, out of its total network of over 30 branches and agencies. Reconfirming the company’s strategic commitment to Lebanon through opening two new branches, Arabia is raising the count to five active branches nationwide this year, plus five life agencies and one general agency. Syria and Iraq are the markets where Arabia has intense long-term ambitions in a combination of historic affinity, sense of mission, and business expectations. “We are very attached to these countries,” Shammas says, “and it is in our mission statement to export insurance knowledge to these markets.” The proper timing to emerge on the Iraqi market is still difficult to determine for now, but as to Syria, Arabia already conducted a proprietary feasibility study, which the company holds under close wraps. As soon as the legal path is cleared, the insurer intends to move full speed ahead, Shammas confirms. “Hopefully, we will be the first private sector insurance company to newly incorporate in Syria.”

Commercial

There are myths to be dispelled also when it comes to working in several Arab markets, and the most notable of these myths may well be the assumption that cross border activities are only for big companies. For Commercial Insurance, a seasoned Lebanese operator with over four decades of accumulated expertise, the decisive factors for regional activities by an insurer are having the requisite skills and finding the right partners. “There is no minimum size needed for being able to venture into new markets,” says Max Zaccar, the chairman of Commercial. “To be a good insurer, you first need a good team, which we are proven to have and are improving upon. Then you need the professional approach, for which we have been recognized for the last 42 years by our clients, by our market, and by our reinsurers.”

For not counting among the country’s market-dominant top ten insurers, Commercial – which achieved an income of just under $6 million in gross premiums in 2002 – has a track record of versatility and wide competency. Medical and motor covers provided the primary sources of income, but the firm is also regarded as specialist in marine insurance and has a small portfolio in term life policies. Strong client orientation motivated the insurer to be a by local industry standards very early implementer of a round-the-clock customer help line and develop group insurance solutions offering schools easy term life covers that safeguard the education of children in case of parental death. Despite losing a prominent corporate account in 2003, Commercial achieved a 25% increase in profits. “To us, this is confirmation of the way we do our business. It allows us to think that we can invest,” says Zaccar. Market conditions permitting, management harbors strong expectations to realize much growth in Lebanon over the coming years – but the company does not wait for “better days” to arrive before making new moves. Management took on 10 new trainees, equivalent to a quarter of their workforce; it partnered with a university, NDU, in a research and instruction project; and it offered staff members options of continued training at the company’s expense. These measures create a noticeable cost burden, which Zaccar accepts as a price for better productivity. “We are in a period of investing and saying to the market and our people that we are committed to the future,” he says. “Since the end of 2003, the entire company is changing attitudes. We are becoming more aggressive, more aware and more present.” It seems natural that a company engaged in an internal renewal cycle would not treat geographic expansion into new countries as a main concern. But Commercial has indeed made contacts with Iraq, from where it is awaiting feedback, and also explored possibilities in an African country. While Gulf and North African insurance markets are in his view heavily covered, Zaccar would see opportunities in these countries as well as in Libya and Syria. The trigger to make Commercial pursue new opportunities abroad would be interest from potential partners in a target country or from an international insurer seeking after a Lebanese partner for establishing a platform to enter this and regional markets. It would be an attractive proposition to Zaccar. “If partners from an Arab country would seek our professional partnership, we would be most interested, and also if we happen to be approached by an international player” he says and would not be deterred by questions over majority or minority shareholding. “We could be the leaven in any partnership. We are professional insurers. If we are thrown into a market, whatever the shareholding, we can produce results.”

The people of Commercial Insurance appear to believe in themselves, and accept challenges. They’d better. After all, the company just designed a new motto to express their corporate identity: ‘live boldly.’

Thomas Schellen

Thomas Schellen is Executive's editor-at-large. He has been reporting on Middle Eastern business and economy for over 20 years.

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