Bahrain aspires to become a regional reinsurance centre

Infrastructure work in the MENA region worth $87.6bn in 2013 – the largest regional total for project financing that year – means big business for reinsurance providers that can shoulder the risk for such financing needs. Following the example of island nations such as the Bahamas and Singapore, Bahrain has ambitions of becoming an important regional reinsurance centre. With a strong financial sector, including trend-setting Islamic financial services, the kingdom is well placed to exploit its strengths in the reinsurance market.

Players

The largest companies in Bahrain’s reinsurance sector include ACR Retakaful, Arab Insurance Group (ARIG), Hannover Ruckversicherung, Hannover ReTakaful, Labuan Reinsurance and Trust Re. Of these, the largest is Trust Re, founded in 1989. The company has benefitted from Bahrain’s regulatory regime, and is the largest reinsurance group in the Arab world. Based in Bahrain, Trust Re also has offices in Malaysia, Cyprus, Morocco and China. The company saw its paid-up capital rise from $100m to $170m in 2014.

Oil Syndicate

Bahrain is home to the Federation of Afro-Asian Insurers and Reinsurers (FAIR) Oil & Energy Insurance Syndicate, and as such is already an important centre for the reinsurance of oil and gas projects. The syndicate was established by a number of companies that were members of FAIR, which was founded in 1964 to promote cooperation between insurance and reinsurance companies based in Asia and Africa.

Aside from three other specialised reinsurance pools established by FAIR, the syndicate provides a reliable reinsurance capacity for onshore and offshore energy risks, power plants and energy-related construction projects. Many reinsurance markets in developing countries lack the capacity to meet these risks without risk pools such as this syndicate. The syndicate was incorporated as an independent entity in Bahrain by Legislative Decree No. 7 in January 1999, and is managed by Trust Re. Today its ordinary, associate and brokers membership base includes organisations from 58 different African, Asian and European countries. Members of FAIR in Bahrain currently include the ARIG, Bahrain Kuwait Insurance Company, Bahrain National Holding Company, Takaful Re International, Al Ahlia Insurance Company and Trust Re. In addition to these, two local entities have been recognised as associate members: the Bahrain Institute of Banking and Finance, and the Bahrain Insurance Association. Bahrain hopes similar organisations will also establish offices in the country to further position the market as a reinsurance centre.

Retention

Reliance on reinsurance remains common among insurance companies in the region as a means of hedging against unforeseen risk. According to the September 2014 “MENA Insurance Barometer” put out by the Qatar Financial Centre (QFC), insurers in the region retain about two-thirds of their non-life premiums on average, well below the international average of nearly 90%. Respondents polled by the QFC expected retention levels to rise going forward, however – 65% thought they would rise by up to 10 percentage points in the next year. Given the low-yield investment environment, risk retention holds greater appeal for insurers as a potential path to profitability.

Regulation

The Central Bank of Bahrain has carefully regulated the sector to encourage growth, and has been considering tighter regulations on the shariacompliant sector known as retakaful. While Islamic insurance, or takaful, companies are looking to pass liabilities onto the retakaful sector, retakaful providers currently lack the size to deal with many of the kingdom’s larger projects. “There is a clear need in the insurance market for the emergence of large retakaful companies. These should possess sufficient capital and technical resources capable of contributing to the reinsurance of the sizeable industrial projects and commercial activities, and to support existing takaful and retakaful companies in Bahrain and the region to extend their activities beyond personal lines,” Lakhdar Moussi, an advisor at PineBridge Investments Middle East, told OBG. Alongside these trends, Islamic trade financing is also boosting demand for retakaful within the GCC.