OIC eyes Dubai World deal

Some insurance companies have been incurring significant losses but only little has been done to investigate why they are still operating, the chief of the UAE’s largest insurance firm said.

Abdul Muttalib Mustafa Al Jaidi, CEO of Oman Insurance Company (OIC), says the dearth of control has impacted shareholders adversely and this may continue if regulators fail to tighten their control over insurance firms.

“The Insurance Authority should play a more effective role towards controlling the performance and behaviour of most of insurance companies here,” Al Jaidi said.

“Some have lost over 30 per cent of their capital and nobody is questioning them why they are still in business. Why are they there in the beginning? If they are not able to take off then why do they have to stay in the market?”

He said the UAE insurance market – with 59 players – is over-crowded, prompting many to pull down rates just to stay afloat. “Prices are very competitive because economy is still slowing down,” Al Jaidi said.

“It has not picked up significantly and the number of companies here is more than the market requirement. Naturally everyone wants to maintain his market share and the easiest way to do is to cut down the rates.”
While the concept of consolidation would be helpful, the natural cleaning up of the system would take time because there are no clear regulations regarding bankruptcy or solvency ratios.

“Authorities have to control the solvency margins, the profitability, type of products and other rules and regulations that can support companies perform better,” Al Jaidi said. “They have to do more. The solvency ratio has to be there. It has to be properly legislated and regulated so that accountability will be there so whenever a company is in trouble, they can take action.”

Growth prospects

Despite the saturated market, Al Jaidi said Oman Insurance is prepared to defend its dominance in the market and vows to continue to grow its market share.

“As a market leader we cannot afford to stop growing,” Al Jaidi said. “We have to maintain our leadership in the market and strengthen that from year to year. We are very optimistic that things will improve.

“We wish to see 20 per cent market share. Hopefully it will not be far from today. The market is growing by 10 per cent and if we can grow by another 10-15 per cent then that is marvellous. There are a lot of opportunities. The community is in need of more insurance products to be marketed and this is what we are trying to do.”

According to data from Research and Markets and Business Monitor International (BMI), Oman Insurance is the largest local player, accounting for about 20 per cent of total premiums written by national companies, or 14 per cent of total premiums. The next two largest insurance companies –Abu Dhabi National Insurance Company (Adnic) and Islamic Arab Insurance Company – are about half the size of OIC.

Industry estimates show that UAE’s total premiums for 2009 amounted to Dh20.5bn (Dh17.5bn non-life premiums and Dh3bn life premiums) and this is expected to rise 63 per cent and reach Dh33.5bn (Dh29bn non-life premiums and Dh4.5bn life premiums) in 2014.

The growth will be supported by the country’s physical infrastructure, willingness and ability of the government of Abu Dhabi to continue to provide support to neighbouring emirates and the country's competitive advantage in logistics and pharmaceuticals.

In line with this, the 35-year old firm is also looking at expanding in the GCC, North Africa and Asia Pacific. OIC has branches in Qatar and Oman and is currently studying a joint venture opportunity.

“We are in discussions and hopefully we can reach conclusion on the viability of the study,” Al Jaidi said, declining to name the planned investment. “We’d like to go into a joint venture with a controlling share because the best way to perform in a local market is to benefit from the local knowledge of local citizens.”

Dubai World

Al Jaidi said OIC – a subsidiary of Mashreqbank – has no exposures to Dubai World but is looking at insuring the conglomerate.

“We are now approaching them (Dubai World) because the company is restructuring its debts and is in a better position now,” he said. “We are a Dubai-based company and we have to service the Dubai economy. I don’t know when it will happen, it is up to them, but we will never leave them because we believe in the future and the brightness of Dubai and we have a moral obligation to service Dubai’s economy.”

In November last year, Standard & Poor's placed OIC’s BBB+ ratings on credit watch with negative implications after its parent, Mashreqbank, was placed on the same watch list on Dubai World restructuring announcement.

“We were kept under credit watch because they said Mashreq was highly involved in Dubai World but there was no basis on that,” Al Jaidi said.

S&P removed the insurer in the credit watch on April 8 but 20 days later, S&P once again put OIC on credit watch with negative implications following the unexpected resignation of the entire board of directors of the company.

The credit agency removed OIC from the credit watch in July after establishing that the resignation of the old board of directors and the appointment of a new board of directors have not been detrimental to the company’s profile and as such not undermined its relationship with Mashreqbank.

“Rating is important but irrespective of whatever rating we have, the company’s culture, structure and performance are more important,” Al Jaidi said, noting that rating agencies have no unified methodology.

“Most of the bankrupted companies like AIG and Lehman Brothers carry an excellent rating. A rating is a sign for security and satisfaction so if I am able to demonstrate that sign then anything will be irrelevant.”

Financials

OIC’s posted a 5 per cent growth in revenue in the first half over the same period of last year. The net profit for the period increased by 8 per cent to reach Dh154 million as against Dh142 million for the previous year. The gross written premium for the half-year ended June 30 is Dh1.43 billion as against the previous year of Dh1.36 billion.

The company has Dh4.9bn worth of assets, has a liability of Dh3.4bn and Dh1.5bn of equity. Its short-term borrowings stand at Dh639m, which Al Jaidi said is manageable.

“We have more than that (short-term borrowings) so financially we can, when authorities require, offset the debt with fixed deposits and still save some more money,” he said.

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