Insurers are bracing themselves for a flood of claims from companies connected with Middle East trouble spots.
International companies have been facing serious disruptions since troubles erupted in Tunisia, Egypt, Libya and elsewhere, with many closing down operations and evacuating staff. Others have suffered property damage stemming from violent street protests.
Insurers say local companies with links to unpopular regimes face the possibility of investigators examining their assets.
Companies can take out specialist cover to protect themselves against civil unrest and expropriation by governments.
"Our expectation is that losses will increase and we may be requested to pay claims during the year, especially in Egypt, Yemen, Libya and Tunisia," said Khemais el Gazzah, a director at the Islamic Corporation for the Insurance of Investment and Export Credit (ICIEC), an insurer based in Saudi Arabia and half-owned by the Islamic Development Bank.
ICIEC has already received notifications from companies in countries affected by civil unrest, saying they intend to claim for disruption to their business.
Egypt and Tunisia have stepped up their scrutiny of companies with government ties under pressure from citizens concerned about corruption in public life.
Staff strikes and government curfews have also hampered operations at some companies, said Mr el Gazzah.
Claims would also be made by small businesses whose exports to those countries may be affected by the turmoil, he said.
It is too early to assess the extent of claims, said Nila Davda, a senior executive at Sovereign Risk Insurance in Dubai. The company insures banks against loans given to companies operating in the region.
"At a minimum I expect there to be claims from damage caused by political violence," she said.
"The environment is very uncertain as we've gone from low to high risk in a matter of weeks, and how it unfolds will be different from one country to another."
In Egypt, Ahmed Ezz, the steel tycoon and former ruling party secretary general, was detained along with three former ministers by prosecutors, the state-run Middle East News Agency reported last week. Before his detention, Mr Ezz said he refuted all allegations of corruption and embezzlement of public funds made against him.
Mr Ezz is chairman of Ezz Steel, the largest independent producer of steel in the Mena region. The company says its plants have not been operating at full capacity because of the government-imposed curfew and communications disruptions.
A company spokesman yesterday declined to comment on whether it would consider making an insurance claim.
Meanwhile, strikes have continued at state-owned companies across the country, including Misr Spinning and Weaving, Egypt's largest public-owned company.
Workers have also gathered at several government-controlled companies in Sana'a, Yemen, to demand higher wages and the resignations of their managers.
tarnold@thenational.ae
Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.
Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.
“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.
Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.
“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.
Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.
From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.
Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.
BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.
Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.
Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.
“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.
Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.
“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.
“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”
The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”
2020 Oscars winners: in numbers
- Parasite – 4
- 1917– 3
- Ford v Ferrari – 2
- Joker – 2
- Once Upon a Time ... in Hollywood – 2
- American Factory – 1
- Bombshell – 1
- Hair Love – 1
- Jojo Rabbit – 1
- Judy – 1
- Little Women – 1
- Learning to Skateboard in a Warzone (If You're a Girl) – 1
- Marriage Story – 1
- Rocketman – 1
- The Neighbors' Window – 1
- Toy Story 4 – 1
