The industry could triple in size to generate more than US$15 billion in additional revenues.
Push for ailing insurance sector
The region's reinsurance industry could triple in size to generate more than US$15 billion (Dh90.81bn) in additional revenues if the Gulf could increase the low amount of insurance sold to reach the world average. The prediction from Gulf Re, one of the region's largest reinsurers, comes as the industry is hit by a decrease in demand as developers buy less construction cover, merchants need less insurance with shrinking trade, and individuals buy less car insurance.
"If regional penetration rates were to reach closer to the world average of 7.5 per cent, that could potentially generate over $15bn of additional annual premiums for the industry," said Gail Norstrom, the chief executive of Gulf Re. Gulf Re, which started operating in October, is a joint venture between Gulf Investment Corporation (GIC), an investment company owned by the GCC, and Arch Capital, an insurer based in Bermuda.
The Dubai International Financial Centre Authority (DIFCA) is trying to attract more reinsurance companies to the emirate as many international groups move to increase their presence in the region. "The potential for development of the insurance industry across the DIFC is huge," said Abdulla al Awar, the chief executive of the DIFCA. "The historically low insurance penetration levels seen from within the region are likely to grow exponentially over the few years to those experienced in more developed markets."
Primary insurers pass on a portion of their risk to reinsurers to reduce the risk on their own books. The Gulf is extremely under-insured by global standards, with only 1 per cent of the region's GDP spent on insurance. So far, the region accounts for 0.5 per cent of the world's non-life insurance premiums, which equals about $7.2bn. Of that, about $4bn is reinsured. Gulf Re said prospects for newcomers in the region were good as primary insurers are reinsuring more widely than before the crisis.
The company is seeking to generate more reinsurance in infrastructure. "We see continued government investment in infrastructure projects throughout the region as a huge positive for the sector," Mr Norstrom said. The regional insurance sector is still suffering from the effects of the financial crisis on the real economy, said Michael Gertsch, the chief underwriting officer of Gulf Re. "A lot of building is being put on hold, so they (the developers) need less insurance cover," he said. "As that market shrinks, they need less material so this impacts marine insurance. And as people leave they need less car insurance."
Insurance growth has slowed from an average of between 15 and 20 per cent in recent years to an expected 7 or 8 per cent this year. Gulf Re sees business opportunities in high-value oil and gas projects, and plans to expand into the offshore energy sector in a few years. It expects to generate $25 million in premium income this year, and wants to reach $100m in three years. Gulf Re underwrites property and casualty lines of reinsurance, including energy, commercial transport, marine, engineered risks and property.
It generates about two thirds of its business in the UAE, with the rest in Saudi Arabia and Kuwait. email@example.com