Mohammad Mazhar Hamadeh, General Manager of Al Ain Ahlia Insurance Company is famed for his flexibility and high profile having both a law degree and long insurance career makes switching experience much easier.
He comments: “in the long run, we're likely to see more consolidation in the insurance industry. Larger companies prefer to take over or merge with other companies because the insurance industry is becoming highly competitive.”
Hamadeh is keen to emphasize that in the simplest terms, insurance of any type is all about managing risk. As a result of globalization, deregulation and terrorist attacks, the insurance industry has gone through a tremendous transformation over the past few years.
He took Al Ain Ahlia Insurance Company to new heights since the day the company was founded in 1975 as a small insurance company to today’s big conglomerate extending its reach to Erbil, Kurdistan.
BL: Mazhar, how far did your law degree advance your career?
Hamadeh: First of all, I started my career with Al Ain Ahlia Insurance since day one when the company was established in October 30, 1975, and since that time I started my career as a branch manager for about 18 years and later on I worked for another 20 years in Abu Dhabi as the General Manager of Al Ain Ahlia Insurance Company. Yes, I have first of all my bachelor degree in law from Lebanon in 1981 because I was working for Al Ain Ahlia Insurance while I was studying in the university. After that I accomplished my higher diploma in law. I believe that law is very close to insurance because we are processing policies and contracts, and I benefited a lot from my career in the insurance field and also Al Ain Ahlia Insurance Company benefits from my background as a lawyer. It was the best decision I ever made because it is a mutual benefit. We started the company at that time in 1975 with 25 shareholders and Abu Dhabi government was among the shareholders. His Highness Sheikh Zayed bin Sultan Al Nahyan, Founder of the UAE was also the founder of Al Ain Ahlia Insurance Company. At that time, we started the company with a capital of Dirham 5 million which is equivalent to US$ 1.3 million. Now, the company owns four buildings in Abu Dhabi and many pieces of lands in the UAE and we have total assets of around Dirham 2 billion with equity of about 1 billion. Al Ain Ahlia Insurance is a reputable company in UAE and in Abu Dhabi and it is the second largest company after Abu Dhabi National Insurance (ADNIC). For the past 10-15 years there were 4 companies in Abu Dhabi and about 15 companies in the UAE which makes a total of about 19 local companies. But presently, the total number of companies in UAE is 62 and about 170 brokers and this big number makes the market very crowded. Presently, we are suffering from tough competition because the market is very small and congested with a big number of companies and brokers but the old top five companies like Al Ain Ahlia Insurance have built a sound base since 20 years when the market was very good and the government was supporting the companies in Abu Dhabi. I am confident that Al Ain Ahlia Insurance will remain in the leading position and our target is to compete on service and not on rates. Our partners and customers trust us and expect us to offer them an added value service and we in turn trust them.
BL: What are your comments on the UAE insurance industry and what’s its future?
Hamadeh: As I mentioned earlier, UAE is a small market with around 62 companies including the thirty three national companies. Now, the future is promising, but we have really a problem with competition. The insurance authority is looking into this problem and even they are thinking of introducing a minimum rate but I don’t think this solution will work out because companies have to work wisely and look at the risk rate. Another solution is to enforce mergers among the companies though in this part of the world it’s not easy to implement merges because we cannot be neutral and forget about our ego and also maybe the money is available. Accordingly, that conglomerate mergers, on average, do not work. Another good idea would be to increase the capital. Presently, the required capital is Dirham 100 million which is easy to implement. In my opinion, it should be at least Dirham 150 - 200 million and maybe this will press companies to merge or leave the market. I think the future of the old companies is better than that of the new companies. Obviously, the market in Abu Dhabi is a little bit better and a little bit controlled. We still have good results and we can offer good dividend to our shareholders.
BL: How do you compare Abu Dhabi and Dubai markets with the rest of the GCC countries?
Hamadeh: I think Abu Dhabi is maybe a little bit better because it is an oil producer and most of the projects are in Abu Dhabi though the market is open. Compared to Dubai, Dubai’s market is more competitive; too many insurers are present in DIFC and the capacity is easily available to the direct insurers, because of that I think they are easily offering very low rates. Now, the rates are terrible in the market; this is what’s happening in Dubai which reflects negatively on Abu Dhabi, Sharjah and the whole Emirates and the GCC market. We are in a bad position and rates are below the technical level, because of that we hear now the reinsurers complaining and putting strict terms and conditions.
BL: Is the year 2013 a challenging year, but is it a hopeful Year?
Hamadeh: Everybody is talking well and usually I am optimistic in my life. In my view, I’m not optimistic at all with the competition in the area especially in UAE and maybe in the GCC. I think we will suffer more from big claims and the reinsurers are now very strict with their treaties. I think we’ll find ourselves covered with lower rated companies and this is risky. The insurance companies should take care of their business and industry and go back to the technical level of rates and rate risks accurately.
BL: Are the regional companies ready to insure nuclear projects?
Hamadeh: We don’t have that experience because this is a new project in the area. I’m proud to say that we issued the first policy in UAE and we expect four more projects. I think we’ll benefit from those projects because all our water is coming from the sea and consequently the cost of electricity will be less and it’s safe. I hope they will take care because of what happened in Japan. We have to open our eyes and take better care.
It’s very risky and that is why we need to cover ourselves. Maybe, there are a limited number of reinsurers in the world who are specialists in these risks. I don’t think we can retain anything on that line like the satellite and maybe our companies are not yet ready. We can issue policies, but I think we have to be covered 100%, we can’t retain because this is a huge risk.
BL: How do you compare the total premiums of the region with that of the West?
Hamadeh: Not only with the West, if you want to compare it with Israel; our premiums are nothing. The premiums of the whole Arab countries are less than 1%, because we are not spending on insurance like the USA. You can’t walk or move in USA unless you have at least liability insurance, but for us in the Arab world, I think the priority is not the insurance, maybe it is the bread, and also the limited income of people do not encourage them to insure. Because of that, most of our insurance is compulsory. Accordingly, in UAE the highest spend on insurance is $170. I think Israel’s premium is more than 10 times what is in the whole Arab area.
BL: What are your comment on the motor insurance and the medical insurance? And what’s the difference?
Hamadeh: First of all, the medical insurance is more risky than the motor insurance; the pricing is very low compared to the rest of the world because again the competition makes the rates low. Also, there’s no control on the abuse which sometimes reaches 40 to 50%. This is terrible abuse because there’s no police report and no court decisions in all health claims. Also, there is abuse by doctors, providers, pharmacies, clients and patients. The motor is a little bit controlled because there are police reports and courts. Yes, there’s abuse but in the lower level, but both of them are risky for the insurance companies and this is reflected negatively on the companies’ financial results.
BL: What’s the solution to the abuse in the medical insurance? What should governments or companies do?
Hamadeh: Governments set up e-committees. I think some companies escaped from health insurance while other companies are doing just health insurance, they are at risk and most of the losses in the market are caused by the health insurance, the motor insurance and the low rates and high risk. For example, the liability for third party in the motor insurance is unlimited but the premium is limited and this is a big problem. There is no logic between the premium and the risk.
BL: What about life insurance?
Hamadeh: Life insurance is good, but the UAE citizens don’t go for life insurance. Sometimes poor people insure their life to get something for their families. Additionally, some people think that life insurance is not allowed in Islam. Maybe, the expats in UAE insure with foreign companies. However, life insurance premium is not a big premium; I believe that it should be at least 10 times what we have in our region if we compare it to other countries.
BL: What were the 2012 results of Al Ain Ahlia Insurance Company and how do you compare it to the previous year?
Hamadeh: We are happy that our results are very good and it’s about the same as 2011, we maintained the profitability results in 2012.
BL: How do you see the 2013 for Al Ain Ahlia Insurance Company and what are the new plans?
Hamadeh: We are optimistic; the year 2013 should be a good year because the government is spending on new projects and especially on the oil and gas projects. Nevertheless, I’m worried about competition which might have a negative impact on our performance even if we make more premiums, and this will affect our technical results. Consequently, if we maintain same results, we’ll be okay. Definitely, we are not at risk. In general, our position is good and our shareholders are happy, they still get 30% dividend and before that time we offered them 75%. Though the year 2008 was the worst year for the region due to the global financial crisis, Al Ain Ahlia Insurance Company distributed 100% cash dividend to its shareholders and this was the highest distribution in the Middle East. We were happy because we have great assets owned by the company which we built over 38 years and we are proud of our achievements, but still the concern is there, because we care for our future engagements.
BL: Do you plan to increase the capital?
Hamadeh: Presently, our capital is 50% more than the regulator’s requirement which is Dirham 100 million but our paid up capital is Dirham 150 million. Yes, we are looking into new investment projects; we are now shareholders in a new company in Erbil, Kurdistan which is called Al Ain International Insurance. This is the first project for Al Ain Ahlia Insurance Company outside UAE. Our rating agencies push us to expand abroad and by the way Al Ain Ahlia Insurance still has the rating by Moody’s as A3, we still have A level for the past 4 consecutive years.
Technically, we can insure any risk anywhere within our treaties, and our treaties cover the Middle East and North Africa. We prefer to give priority to the Arab area in the Middle East. I’m against opening insurance companies abroad, but because we have business in Kurdistan since 7-8 years with one big client on the energy side, we felt that it’s not nice to insure projects in Kurdistan while we don’t have an office there to serve our clients.
Al Ain Ahlia Insurance Company owns 20% of Al Ain International Insurance and our Iraqi partners own 35% and Abu Dhabi investors own 45%. There are only few small insurance companies in Erbil but in the future we will operate in Iraq because Kurdistan is part of Iraq. We hope that the situation will be stable, and then we’ll go to Bagdad because we are licensed in Iraq.
BL: How do you see Jordan’s insurance industry?
Hamadeh: Again, Jordan is a small market with a big number of companies, but the risk in Jordan is very limited. But probably Jordan might face problems with the reinsurers due earthquake risk. Some reinsurers expect earthquakes to take place in Jordan in the future and that is why rates are going up now especially in property and fire. Jordan has to allocate a certain percentage to cover the earthquake risk and I hope they can do something like what the Turkish market did by creating a pool or a fund to face any problem if earthquake takes place.
BL: How do you see the global economy?
Hamadeh: The global economy is doing well, and I hope we’ll not suffer a lot from any future financial crisis. The real risk is the currencies, if any problem happens and the international system collapses, and then there will be a big problem.
