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Middle East finance centers grow

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MANAMA, Bahrain—While insurance buyers in the Middle East need access to more local capacity, the emergence of three nascent financial centers in the burgeoning economic area may only serve to cause confusion, experts say.

Bahrain, Dubai and Qatar all are marketing themselves as financial centers in a bid to attract foreign capital to the area.

But experts said that while risk managers in the region would benefit from increased access to local insurance capacity, three centers are not needed to attract capital.

Others, however, argued that the financial centers can co-exist.

As local insurers compete for the right to handle commercial business on what amounts to a brokerage basis, some jurisdictions are setting up financial centers, partly in an attempt to entice foreign insurers and their capital.

"It looks like the Dubai International Financial Centre took the initiative and has the largest infrastructure," said Carlos Wong-Fupuy, managing senior financial analyst with A.M. Best Europe Ltd. in London, a subsidiary of A.M. Best Co. Inc. based in Oldwick, N.J.

But that center has not attracted herds of insurers looking to invest in the region, he said.

"I think three is far too many," said Vasilis Katsipis, assistant general manager, analytics at Best in London.

"Up to now we haven't seen a significant influx of capital to set up risk carriers," he said.

Three financial centers may serve only to confuse potential investors, said Bhavesh Ghandi, senior manager with Ernst & Young in Manama, who spoke at the fourth annual Middle East Insurance Forum in Manama, Bahrain earlier this month. "Is there enough happening that we need three centers? What is the difference between each one? Right now, to be honest, I'm not sure."

Others defend the presence of three financial centers.

"Each offers something different," said Fetooh Al Zayani, managing director, business development (insurance and reinsurance) at the Qatar Financial Centre Authority in Doha, Qatar.

The Qatar center, for example, is not marketing itself as an international center. "It is being created to help the financial (sector) in Qatar," she said. The Central Bank of Bahrain, which is that country's financial centre, emphasizes Islamic finance more heavily than the others and Dubai, with its dearth of petroleum resources, is focusing on the growth of its service-based economy, said Ms. Al Zayani.

Despite the debate over whether three financial centers are needed, many experts gathered at the forum agreed that the Middle East isn't yet ready to stand on its own when it comes to insuring the risks fueling its economic boom, experts say.

Insurers in areas such as Qatar, Bahrain and the United Arab Emirates are acting more as fronting companies or brokers, passing the risks along to reinsurers or policyholders' global programs in Europe, the United States and other parts of the world.

Some foreign insurers have realized there is a need for more commercial insurance capacity in the region and are establishing branches in the Middle East, but much of the capital flowing there is being used to back the massive exposure in personal lines markets.

On the commercial side, the explosion in building and energy projects has created a huge demand for insurance in a domestic market lacking the capital to retain much of the exposure for itself, said Peter Vayanos, vp for the Beirut, Lebanon-based unit of McLean, Va.-based Booz Allen Hamilton Inc. who focuses on the Middle East. "What that leads to is a large degree of fronting," he said, with reinsurers taking most of the risk.

During a presentation at the Middle East Insurance Forum, Hugues de Roquette-Buisson, regional manager for Africa and the Middle East at Assurances Generales de France, an Allianz S.E. unit, said: "Too many small and medium-sized companies with low-retention capacity have been acting in the nonlife sector more as reinsurance brokers than as full insurance players," he added.

A lack of local capital, however, has not translated to coverage shortages or pricing problems for the region's largest risks.

"Availability is not a problem," said Remy Rowhani, finance division manager at Qatar Steel in Mesaieed, Qatar. The steel company's last property/casualty renewal written locally by Qatar General Insurance & Reinsurance Co. included only a slight price increase, he said.