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By STEVE YAHN, a writer and editor for national publications for more than 20 years.

Risk managers at major companies are being more selective in their Middle East presence, especially in the southern Mediterranean countries of Egypt, Tunisia, Syria and Libya.

While many U.S. companies with operations in the region declined to talk about their risk exposure there, Smita Malik, director of commercial insurance at Clements International, said: "Depending on the industry that our clients are in, they have retreated or got their staff out until things calm down. Some clients have indefinitely closed shop in some of these locations but may consider investing again depending on the outcome of these protests."

Malik, whose firm is a leading provider of insurance for expatriates and international organizations, said: "However, there are some clients such as non-government organizations and security companies that may go into these locations post-conflict because of the need for their services."

One of the important changing factors on political risk insurance in these areas is affecting the validity of quotes, which means how long new quotes are valid, she said.

"Generally, underwriters would offer a quote and keep it valid for 14 days on political risks type of policies, but the recent instability in many of these locations has led to these quotes being valid for only three to seven days once issued by underwriters," Malik said. "This basically means the clients have a shorter window to make a decision to purchase these policies. Whether they like it or not, companies with operations in these locations have to be more proactive in their insurance strategies."

At Zurich NA, Anne Marie Thurber, managing director of political risk and trade, advises many of her clients in the area to take a "hunker down" approach.

"Overall, in this extremely uncertain investment climate, only the most risk-tolerant investors are looking to make aggressive moves in this region," Thurber said. "For most, it seems that it is wait and see. If you've already made your investment, when these events occur, your best option is likely to sit tight, hunker down and when the situation stabilizes you've got options to evaluate. Hopefully, the investor has already planned for these kinds of events in its investment plan."

Added Thurber: "My advice would be that in countries like these, no matter how stable a regime may appear to be, if it's an authoritarian regime chances are at some point, you may have a significant, disruptive change in the environment. This is extremely difficult to predict as the events of the Arab Spring have so dramatically demonstrated.

"So go back to Egypt," she said. "Who would have thought Mubarak would be on trial right now, where before the country had a very stable but authoritarian regime. So the point is that while it appears a government might be stable, at some point in time people will say, 'Enough.' "

Another challenge for risk managers in these countries is the complexity of insurance options to consider.

Duncan C. Ellis, New York-based managing director, U.S. property practice leader for Marsh Inc., said, "If I were a risk manager, I would definitely be looking at how my policies defined war, civil war and insurrection because you can buy coverage specifically for that in the political risk arena. What would be covered under a political risk policy would not only be war, civil war and insurrection but also confiscation, expropriation and nationalization.

"In addition to war, I'd look closely at civil war, because it's more of a battle within your borders for control like the people trying to throw out Gadhafi, for example," Ellis said.

Ellis, considered one of the top property and casualty brokers in the business, said that once a new government came into play he would be on high alert if he were a risk manager. "What if you get a crazier regime than you had before? Do you get more of a hard-line government than you had before, which then raises the concerns of confiscation, expropriation and nationalization. You may have had a very Western-friendly country which suddenly becomes non-Western friendly."

Ellis said risk managers should check to see if their policies cover strikes, riots and civil commotion. "So when you're talking about what's going on in these countries now, you may call this a civil commotion, someone else may call it a riot and someone else may call it a civil war. The question is, 'What is it?'

"Due diligence would tell you to take a careful look at your policy and have a pretty good understanding of how that policy responds to civil war, or strikes, riots, civil commotion, confiscation, expropriation and nationalization," he said.

In terms of travel to these Mediterranean countries, the number of company employees and tourists venturing there has slowed noticeably, Malik of Clements said.

"Even from a company perspective, corporations are not sending non-essential people at all to many of these locations," she said. "The cost of travel insurance has gone up for everybody. People want to be insured before they go to some of these places but they may not be able to get affordable rates."

Added Anne Marie Thurber of Zurich NA: "Tourism is one of the most sensitive industries of political upheaval. Every time there was a terrorism attack in Egypt, the tourism industry was hit hard. Tourism in countries where there have been recent or ongoing conflicts is going to be hit hardest. In Tunisia, for example, the question is how fast the industry can recover. A rapid transition to a stable government will do a great deal to spur recovery and attract investment."

In Morocco, given that the incidents there have been more sporadic, tourism will continue to be pretty robust, Thurber said.

In Libya, if the rebels are successful in creating a more secular government and are able to utilize their oil revenues in a productive way in terms of stabilizing the economy and developing infrastructure then you could see the development of a very strong tourism business, Thurber said.

She said the problem in Libya is that sanctions are still in place. "We're hopeful that once the transitional council has really taken full control of the country the various countries that put sanctions in place that will remove them," she said. "It looks as if this process is already starting with the unfreezing of Libyan assets abroad."

Looking at the insurance climate in the southern Mediterranean as a whole, Clements' Smita Malik said that insurance companies are now very careful about the limits they are providing and what kind of risks they are insuring because all of them have seen losses come in.

"A lot of insurers have paid for evacuations from some of these countries," she said. "The market has hardened because of all of what's happening with the limits and how many insurers will be available. So the demand has seen an extreme increase."

Despite the political turmoil taking place throughout the Middle East, American Express is committed to keeping open its operations throughout the region.

"What's happening now isn't really changing much of what we're doing at all," a spokesperson for the global financial services company said. "In all of the Gulf and Northern Africa and Lebanon and Jordan we have a joint venture with another company. We've been there before and we'll stay there now. It's the same pattern. Nothing is changing."

American Express is in a joint venture with Mawarid Investments in 18 markets throughout the Middle East and North Africa.

August 29, 2011

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