Gulf Re, a newly formed joint venture between the Bermuda-based Arch Capital Group and Gulf Investment Corporation (GIC), is set to offer dedicated reinsurance services for GCC mega projects in oil, gas, power and water desalination.
Gail Norstrom (pictured above), CEO of Gulf Re, told Emirates Business that currently 95 per cent of reinsurance business in the GCC region goes to international companies outside the region.
Gulf Re, Norstrom predicted, will play a major role in the fast-growing insurance business in the region and will capture a growing share of the market. He also discussed the firm’s long-term vision and expansion plans.
Can you describe Gulf Re?
Gulf Re is a joint venture between Arch Capital and GIC and they will subscribe to a total of $400 million (Dh1.5 billion) of capital. The initial paid up capital of Gulf Re will consist of $200m, with an additional $200m to be funded depending on the business needs of the company.
Gulf Re will be owned by Arch Capital and GIC equally. Gulf Re underwriting activities are expected to commence during the first half of 2008, subject to receipt of the necessary regulatory approvals from the Dubai Financial Services Authority. We will be operating from the Dubai International Financial Centre (DIFC).
What are your expectations for the company’s business in the near future?
Gulf Re will initially target high-value oil and gas, power and water desalination projects in the six GCC countries. We will be very focused in this market at the initial stage.
The reinsurance business of these projects accounts for around $1.8bn, of which 95 per cent goes to international reinsurance companies and our presence in the region will help us generate a considerable portion of this business.
We will target around $1.3bn of the reinsurance business in the GCC. Our focus will be government-initiated projects.
The GCC is home to a large and fast-growing, state-of-the-art asset base, built and operated to the highest standards. The joint venture will allow us to expand our platform in a region where there is a strong need for local reinsurance capacity and specialist expertise for these assets.
We will be very selective in our reinsurance scheme, and GIC is focusing on helping GCC economies to diversify their activities away from oil and gas dominance, so this will help the company in expanding its business in light of the growing infrastructure projects in the region.
Despite the expected governmental support, Gulf Re will be operating in the regular market in a very transparent way.
What is your business strategy for investing Gulf Re capital?
We have a very conservative business plan and we have outside investment managers. We will focus on highly liquid investments and assets to match the investment strategy to the business.
In the reinsurance business, we have to liquefy our assets quickly to meet our clients’ needs so we will focus on cash and short-term investments. Gulf Re will never take risk in its balance sheet. The only risk we are taking is in our reinsurance operations.
We believe we have long experience in assessing and managing our risks and as far as we go, we will focus on risk management as we understand it very well. We will help our insurance clients to understand these risks and ways of managing them.
What are your future expansion plans?
We have long-term plans to offer reinsurance services for industrial, utility and transportation assets. The company will write a broad range of property and casualty lines of reinsurance, including aviation, energy, commercial transportation, marine, engineered risks and property, on both a treaty and facultative basis.
We see expanding marine activities in the region, especially in the UAE. We have plans to offer reinsurance for this business – such as for oil and gas tankers.
Also, the aviation sector is expanding very fast and with increasing players in the region, there will be opportunities for reinsurance of selected aviation companies. We may also expand our geographical focus to the broader Mena region but at the initial stage we will be operating with GCC clients.
The regional insurance sector is small. How will your business expand?
The insurance and reinsurance business in the GCC region is around 0.2 per cent of the global business. However, it is growing by more than 20 per cent annually and this is very encouraging because this creates a wide range of opportunities for insurance companies.
The penetration of premiums/GDP is around one per cent compared to the international ratio of 7.5 per cent. Also, the per capita expenditure on insurance is around $40 annually compared to the international rate of $550 per year.
But this is an advantage for the region as there is high potential for the insurance market. Regarding the recent economic turbulence and volatility in mature markets of Western Europe and North America, the world’s insurance and reinsurance companies are looking beyond their traditional markets.
We have a gap in the insurance industry, between developed markets in the West and East. We are in the middle and we can fill this gap if we prepare the required infrastructure and appropriate systems for insurance companies to operate more efficiently.
We see major turmoil in the international insurance sector. What has been the impact on the GCC market?
The GCC insurance and reinsurance market is not immune to global developments. Given the recent economic turbulence, volatility and evident slow growth in the mature markets of Western Europe and North America, the world’s insurance and reinsurance companies are now looking beyond their traditional market boundaries.
As we have seen, GCC insurance companies are softening significantly and they are reinvestigating their risk management and rethinking the way they are assessing their clients’ balance sheets.
However, the GCC market is becoming important due to the fact that the region has very slight exposure to natural catastrophe, not like other parts of the world where we can see major disruptions and deep changes in the markets. We will have the luxury of focusing on our market needs.
What is your expected role in expanding the insurance industry in the region?
Gulf Re will meet the need for a Gulf-based reinsurer with significant financial resources and specialist expertise. The company will add depth to the GCC insurance sector and support the growth of GCC insurers.
The non-life insurance market in the GCC amounts to $1.8bn and mostly goes to international reinsurers so we will be talking with local insurance companies and potential clients to understand their needs and create proper reinsurance schemes.
We will spend the first year studying developments of the local markets and this will give Gulf Re the upper hand in the regional business because we will be able to talk directly with our clients and they will not need to go to other countries, such as the UK or Switzerland, for reinsurance services. Also the market is expanding and this will create more reinsurance opportunities.
Do you have plans for Islamic reinsurance services?
The re-Takaful products are growing by 20 per cent annually and reached $2.5bn last year. The Islamic insurance and re-insurance sector, Takaful and re-Takaful, started gathering momentum. It is based on the principle of co-operative insurance and mutuality.
As the Shariah compliant alternative to conventional insurance, the market for re-Takaful is making progress and looks set to continue this growth as more Islamic finance instruments become available.
We are just starting but we may think about creating a re-Takaful organisation to offer Islamic reinsurance services to our clients. This needs very precise evaluation and requires the recruitment of very highly specialised staff.
There is a shortage in insurance and reinsurance specialists in the Middle East. How are you planning to address this issue?
Yes, I understand the severe shortage in reinsurance staff in the region and we are planning several steps such as recruiting young graduates to start a long-term process of educating and training them on the reinsurance business.
Local insurance companies should also help in developing skills of those junior staff. One of our plans is to provide training programmes to our clients and insurance companies.
This is one of the benefits of the joint venture with Arch Capital as the global reinsurer will offer its training facilities to reinsurance staff from the GCC region.
In addition, we will create training programmes dedicated for GCC insurance companies and we will offer these services from our office in Dubai. The first session of training may start early next year.
What are the expectations for the UAE insurance and reinsurance market?
There are more than $1.7 trillion projects under construction or planned in the GCC region, and the UAE accounts for a major stake of 40 per cent of these projects, creating massive opportunities for the insurance and reinsurance market.
UAE insurance companies also accounted for 42 per cent of the total GCC premium income in 2007. As the UAE is expected to maintain this percentage during the next few years, Gulf Re expects to be a major partner in the UAE reinsurance business.
PROFILE: Gail Norstrom, CEO of Gulf Re
Gail Norstrom has more than 36 years of insurance industry experience. He was previously a managing director of Aon Risk Services Property Practice Group in the United States.
Prior to joining Aon, he served with Industrial Risk Insurers in various senior executive positions, including as president and CEO. Gulf Re’s core management team includes four additional senior executives with years of experience in Europe and the US with leading insurance firms.
Gulf Re targets high-value energy projects