Arab Insurance rides roller coaster

Arab Insurance Group, a regional re-insurer, posted a net loss for last year after the Arab unrest and floods in Jeddah and tumbling financial markets posed financial challenges for the company.

Between protests in Tahrir Square, natural catastrophes in Saudi Arabia and roller-coaster financial markets, the Arab Insurance Group (Arig) had a tough year.

The regional reinsurer posted a net loss of US$21.2 million (Dh77.8m) after claims related to Egypt and Tunisia reached $4.1m and yields on US treasuries turned negative in real terms. Arig made a profit of $23.5m in 2010.

The company was "confronted with substantial losses from the Arab Spring events in North Africa", Arig said in a statement to the Dubai Financial Market yesterday. Arig reinsures premiums on life, medical, property, casualty and engineering.

The global insurance industry had to revise definitions related to political violence after civil unrest toppled leaders in Egypt, Tunisia and Libya last year. Many insurers, including Arig, have been forced to pay out claims outside the coverage provided under contracts amid extraordinary circumstances.

"We would have stood limited chances to put our arguments across to local courts that may feel more sympathetic to the national cause than to a foreign reinsurer," Arig said.

Arig also had to cope with damage related to floods in Jeddah even after officials had enacted remedial action following the previous flooding in 2009.

Its investment portfolio, which has traditionally compensated for higher operational expenses and often still produced a profit, was severely hit as financial markets tumbled amid European debt worries. Investment returns on debt securities held were at 0.6 per cent, or $4m, compared with 5.2 per cent, or $34m, in 2010.

"With yields at historically low levels and most equity and alternative investment markets registering losses towards the end of the year, investment returns fell far short of our targets," Arig said.

The yield on the benchmark US Treasury 10-year note dropped to a record low of 1.89 per cent in September, compared with 3.4 per cent at the beginning of last year. The MSCI All-Country World Index, which tracks stocks from emerging and developed markets, declined 8.2 per cent last year.

Arig's shareholders include the UAE's Emirates Investment Authority, Real Estate Bank and General Pension & Social Security Authority, in addition to the Central Bank of Libya and the Kuwait Investment Authority. Unlike most regional reinsurers, Arig said it did not receive any special support from its public owners.

Arig is looking to diversify away from the Middle East. The insurance sector in the region has traditionally competed on price rather than products and services.

"With no changes in the going market practices, we have little choice but to exercise selective underwriting, turning clients away each year because writing their business would place us in a loss position," Arig said.

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