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By Cyril Tuohy, managing editor of Risk & Insurance®

Gross written reinsurance premiums in the Middle East and North Africa grew by 3.4 percent in 2010, down from 11.1 percent in 2009, according to an A.M. Best & Co. analysis of 12 rated reinsurance companies.

The report pointed to difficult economic conditions as the result of lower growth rates. Still, any growth is a sign that Middle East and North Africa markets were resilient.

Older, established reinsurers are still underwriting the bulk of the reinsurance premium in the region, the report said. Recent start-ups are growing more rapidly, but from a lower base.

New reinsurance companies in the region include, ACR Re Takaful MEA, Al Fajer Retakaful, Gulf Reinsurance, Oman Re and Saudi Reinsurance Co., which were established in 2008. Q-Re, which took over the reinsurance portfolio from Qatar Insurance Group, was established in 2009.

Reinsurers also have been unable to rely on investment income to bolster balance sheets because of investment market volatility. That puts more pressure on reinsurers to make a profit from underwriting.

"Companies are coming under pressure to focus increasingly on technical expertise, profitable underwriting and reduction of exposure to investments through de-risking or restructuring their balance sheets," the report said.

The report also pointed to the Arab Spring as a source of uncertainty in the region, and that the protests and uprisings have caused "negative impacts." One of those impacts is for reinsurers to increase reserves.

The effects of the Arab Spring are more prevalent on reinsurers that are restricted to a single market, where their concentration is significant, the report said. Diversification is the antidote.

Reinsurance pools, which include the Arab Reinsurance Co., provide coverage of nonlife risks including fire, engineering, marine hull and cargo. This pool has been profitable, the report said.

BROKER LAUNCHES RIG COVERAGE

Even Iraq, which is preparing for the drawdown of U.S. troops over the next several months, has attracted the interest of Marsh and Anglo Arab Insurance Brokers, which recently announced the launch of the Iraq Land Rig Facility, a program to insure land-based oil rigs.

The program provides cover for physical loss of or physical damage to drilling rigs and associated equipment, machinery breakdown and third-party liability risks, from the moment they touch Iraqi soil, Marsh said.

Aimed at drilling contractors and coverage can be tailored to meet the needs of one-shot well exploratory drillers.

"This facility enables all contractors, from small independents through to global firms, to pioneer the development of Iraq's oil economy," said Simon Boxall, a managing director in Marsh's global energy practice.

Rig insurance often can be too expensive for small drilling contractors looking to branch into the region -- Libya, for example, where the fall of the Ghadafi regime appears imminent, or in newly created South Sudan, which has important oil reserves.

"Rig insurance is essential for drilling contractors but the costs can often be prohibitive, especially for smaller firms seeking to branch out into emerging territories," Boxall said. "Drilling contractors need local risk and insurance expertise to take full advantage of the opportunities that exist in Iraq."

September 30, 2011

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