meinsurancereview.com, December 2011
Can the Middle East set up reinsurance hubs, drawing from lessons learnt in Asia? This question was posed at a roundtable hosted by the Qatar Financial Centre (QFC) Authority following the 11th Singapore International Reinsurance Conference (SIRC) last month. While there are up and coming reinsurance centres in the Middle East, their development could pick up if the region is associated more closely with Asia rather than Europe. Roundtable organiser Middle East Insurance Review captures these and other key points from 120 minutes of free-flowing dialogue between regional CEOs that touched on topics ranging from the ingredients of an ideal financial centre to the readiness to launch new capacity when the time is right.
Can Singapore’s success be replicated in the Middle East?
John Tan: First, we should look at why the SIRC draws so many people. They are here because many of their clients are in this region. Singapore has already established itself as a reinsurance centre. If Qatar can build up its infrastructure and reputation as a reinsurance centre for the Middle East region, we can potentially see similar success.
Scott Ryrie: It’s all about the fundamentals. Singapore developed because the Monetary Authority of Singapore (MAS) wanted companies to be here.
One of the most important things for me as a CEO is regulatory certainty. The MAS also engages us as an industry, and conducts dialogue with the Singapore Reinsurers’ Association twice a year. Of course you don’t always get what you want, but there is a middle ground. And it helps that the MAS also acknowledges the differences among the reinsurers.
Shashank Srivastava: The QFC was established for this very purpose – to build Qatar’s financial services sector. We are trying to meet the industry’s needs, from a regulatory, legal and tax environment point of view, among others. The QFC law actually mandates that we work with the industry and eliminate bureaucracy to the maximum extent possible.
David Kinloch: Financial centres cannot be everything to everyone, so they should not be competing.
If you can create an environment of certainty, combined with the right level of capital, reinsurers will follow inevitably. Reinsurers are cautious by nature. And you get only one chance to get them. If they settle in another jurisdiction, it may take another decade before they consider coming back.
Key issues in the Middle East
John Tan: The Middle East will have an advantage in terms of raising capacity given the uncertainty in Europe, and reinsurance business will naturally be directed to where capacity is. Going forward, capacity will become an increasingly rare commodity. This will be exacerbated by challenging issues around the world, such as surging inflation, low interest rates and slowing economic growth. Frequent natural catastrophes will also become the new normal, and this will shake up the industry if the trend continues. So we will be watching out for capacity.
Shashank Srivastava: Qatar is capable of offering capacity, but the last couple of years haven’t been the right time to do so. We’re waiting for the right time to enter the market with capacity.
John Tan: The Middle East also needs to harmonise regulations within the region. When the regulatory gaps are closed, markets become more accessible, competition goes up and margins come down. This will in turn challenge the status quo and reshape how reinsurance is being done. We will see the need for new structures, products and ways of doing things in order to successfully develop the market.
Hiring and retaining talent
Malcolm Steingold: As a reinsurance broker, we cannot provide analytical support and execute on reinsurance contracts if we don’t have the right level of skills. In the Asia Pacific, Aon Benfield helps clients have a better understanding of risk and advises on appropriate levels of capital to support this risk. To do this, we need highly skilled people.
It all comes down to getting the right talent and developing it. That is something Qatar should work on as a financial centre. Talent is what has made London successful as an insurance and reinsurance market. You can import talent in the short term, but in the long term it is unsustainable if you do not invest in it and develop it locally.
Shashank Srivastava: I agree that we need to raise the level of financial services education in the region. This is why we have the Qatar Finance and Business Academy (QFBA), which is sponsored by the QFC Authority and aimed at developing financial skills.
Legal process and contract certainty
S A Kumar: As a reinsurer doing business in the Middle East, we are not fully at ease with the legal system under which the contracts are being interpreted. There were cases when policy conditions were interpreted citing local practices which were at variance with the accepted definitions.
We also came across instances where Middle East countries insisted on adjudicating international contracts as per local laws with the domestic jurisdiction as the seat of arbitration. These are issues to be addressed to attract reinsurers.
Qatar will be able to learn from the regulatory experience of Asian countries as some of them have put in place sound and non-invasive regulations. After attracting capital and talent, to sustain it Qatar should provide expatriates not only good housing and schooling, but offer fair and equitable employment practices.
Shashank Srivastava: The QFC Authority has thought through all these issues. One thing we have learnt is the importance of the legal environment. One of Singapore’s core competencies is that its law is based on the English Common Law. The Middle East, on the other hand, has a combination of Napoleonic, Egyptian and Shariah laws. For instance, the Dubai International Financial Centre’s legal system is based on the English Common Law, but there is still uncertainty around how this will interact with the Federal courts.
The QFC is part of the Federal infrastructure. The legal environment is modelled on English Common Law and international best practices. But then again, this is only in Qatar.
As for expatriates feeling at home, the numbers say it all – of Qatar’s population of 1.6 million, there are only about 300,000 locals. The rest are expatriates.
David Kinloch: After all that is said and done about culture and social buzz, expatriates anywhere look for four things: security, housing, education, and health facilities and services.
Mindset change needed away from “EMEA”
Shashank Srivastava: One of the things we have noticed, especially with international companies, is the tendency to club Middle East together with Europe. It’s still seen as Europe, Middle East and Africa. But the Middle East needs to be seen as part of Asia. Once that happens, the dynamics change completely.
Clarence Yeung: We should look at this in terms of capital flow. Where is the money going? Human resource flow is equally important. Swiss Re wants to be as close as it can to its clients, but in reality, the economies of scale do not justify our presence in every market. That is why we set up where there is the smoothest flow of human resources – import as well as export. And the most obvious locations in Asia are Singapore and Hong Kong.
Akshay Randeva: The key issue is not where capital is going, but what the trend will be in the next decade. If you look through the rear view mirror, the market was largely oriented towards the West. But if you look towards the future, the picture is different. The UAE’s top trading partners are from Asia, whereas 10 years ago they were from Europe. Things are changing quickly, and capital will follow those changes.
Getting the critical mass
Marcus Taylor: The Middle East does not form part of IAG’s strategic plan at the moment, but I encourage the QFC Authority to keep raising awareness about these issues of capacity, regulation, tax etc as discussed this morning. Companies will move towards financial centres if there are sufficient volumes of profitable business given the right environment.
If you look at the traditional markets of London, Bermuda etc, there is very little Asian business now being placed there as the first port-of-call. Profitable business is placed in the region and it only takes one or two local markets to stop the premium flow into the traditional markets and they will come looking.
Kent Chaplin: The critical mass has to be there. Lloyd’s has 85 syndicates, and getting 85 different companies to move in the same direction will take time. We are here because most of our business is regional, and Singapore offers a platform to that.
Scott Ryrie: It is important to capture the big names to set up shop first. Once you get them, the others will be attracted to come.
Shashank Srivastava: The QFC Authority has created a good platform to access the region. The Middle East is perhaps the only part of the world which is a net exporter of both capital and risk. The aggregate GCC cession rate was 46% in 2009, but this will change along with macro factors. Investments are booming, the region has the fastest growing population in the world, and new product lines like medical are becoming compulsory. So it makes sense to access the region by being on the ground.
Akshay Randeva: Does Qatar have the will and means to establish a financial centre? These are fair questions to ask. I won’t delve into the means, which you are well aware of. As for the will, the best way to describe it is to talk about the structure of the QFC Authority. Our board is chaired by the Minister of Economy & Finance, and the Vice Chairman is the Minister of Business & Trade. Having these gentlemen on the Board speaks volumes about the will we have.
Is Qatar serious? Absolutely. The QFC was set up in 2005 and in six years, we’ve put together the regulatory, tax and legal environment. We have built up a critical mass of about 140 firms, and now we are focussing on three key areas – reinsurance, captives and asset management. As David said, no financial centre can be everything to everyone. A lot of thinking went into picking these sectors. What we need now is to reach out to the industry to find out what more they need from us.
Reinsurers can access the market from anywhere. So being in Qatar, an integral part of the GCC, reinsurers can access the whole region and the projects relating to the infrastructural developments taking place there.
Shashank Srivastava: We don’t measure ourselves in terms of number of companies. We are creating a financial services industry, and are extremely quality conscious. Do we have the requisite players to build a reinsurance industry? Yes, 60% of the companies in the QFC are domestic firms.
But at the end of the day, we measure our success in terms of how much underwriting premiums are from Qatar.
We are still building awareness about QFC, and definitely reaching out to Asia.
Roundtable participants
Mr Shashank Srivastava
Acting CEO and Chief Strategic Development Officer,
QFC Authority
“There is the tendency to club Middle East together with Europe. It’s still seen as Europe, Middle East and Africa. But the Middle East needs to be seen as part of Asia. Once that happens, the dynamics change completely.”
Mr Akshay Randeva
Director, Strategic Development,
QFC Authority
“Reinsurers can access the market from anywhere. So being in Qatar, an integral part of the GCC, reinsurers can access the whole region and the projects relating to the infrastructural developments taking place there.”
Mr Malcolm Steingold
CEO,
Aon Benfield Asia Pacific
“Talent is what has made London successful as an insurance and reinsurance market. You can import talent in the short term, but in the long term it is unsustainable if you do not invest in it and develop it locally.”
Mr Scott Ryrie
Former CEO,
Allianz SE Reinsurance Branch Asia Pacific
“It is important to capture the big names to set up shop first. Once you get them, the others will be attracted to come.”
Mr John Tan
Chief Executive,
Asia Capital Reinsurance Group
“The Middle East will have an advantage in terms of raising capacity given the uncertainty in Europe, and reinsurance business will naturally be directed to where capacity is. Going forward, capacity will become an increasingly rare commodity.”
Mr S A Kumar
President & CEO,
Asian Reinsurance Corporation
“After attracting capital and talent, to sustain it Qatar should provide expatriates not only good housing and schooling, but offer fair and equitable employment practices.”
Mr Marcus Taylor
Senior Manager, Reinsurance International,
Insurance Australia Group
“If you look at the traditional markets of London, Bermuda etc, there is very little Asian business now being placed there as the first port-of-call. Profitable business is placed in the region and it only takes one or two local markets to stop the premium flow into the traditional markets and they will come looking.”
Mr David Kinloch
CEO,
Labuan IBFC
“Reinsurers are cautious by nature. And you get only one chance to get them. If they settle in another jurisdiction, it may take another decade before they consider coming back.”
Mr Kent Chaplin
Regional Manager, Asia Pacific & Managing Director,
Lloyd’s Asia
“Lloyd’s has 85 syndicates, and getting 85 different companies to move in the same direction will take time. We are here because most of our business is regional, and Singapore offers a platform to that.”
Mr Clarence Yeung
Managing Director & Head of South/ East/ Southeast Asia,
Swiss Re
“Swiss Re wants to be as close as it can to its clients, but in reality, the economies of scale do not justify our presence in every market. That is why we set up where there is the smoothest flow of human resources – import as well as export.”