The regional reinsurance market saw rampant competition this year, the entry of a lot of new companies and ample capacity which made conditions tough, according to Mohamed El-Dishish, CEO of Al Fajer Re. Founded in 2008, Al Fajer Re, has a paid up capital of KD 50 million ($176.6 million). The company is supported by its institutional investors, the Dubai.
Islamic Investments, part of Dubai Group, and transacts several lines of business on a treaty and facultative basis. Based in Kuwait, the company aims to become a leader in the regional reinsurance sector, and to add services and business lines, according to its CEO. The company recently launched a new subsidiary, Emirates ReTakaful Ltd, based at the Dubai International Financial Center (DIFC) with a paid up capital of $120 million. El-Dishish himself has over 37 years experience in Shari’a compliant insurance & Reinsurance and Islamic finance. He is considered to be one of the world's specialists in takaful insurance providing insurance and reinsurance innovations. In an interview with BUSINESS LIFE, El-Dishish said local reinsurers need to retain some risk and manage that risk well to gain greater credibility. He said the only difference between an Arab and a European reinsurer is that the later has a history and has been around for longer and built up substantial financial reserves.
BL: How would you evaluate the reinsurance business in 2013?
El-Dishish: The reinsurance market this year was really tough because there were a lot of newcomers to the market so we can say it was a soft market with a lot of capacity around so competition was really getting tougher. We’ve had so many floods this year starting from Indonesia, The Philippines, India, and Europe where we had really big floods. Although our core market is the Middle East, but we have a diversified portfolio in Europe, in India and even in China and South East Asia, but we are always careful and we calculate our exposure in each country in relation to our capital. We have to be careful and provide capacity to such CAT (catastrophe) zones. As far as Al Fajer Re is concerned, we are on target with our renewal plan and are doing fine.
BL: Did you meet your objectives for 2013 and what about your forecasted budget?
El-Dishish: Well actually we have achieved our target when we closed our year 2013 because our year ended is March, we have even exceeded our target, we closed with $68 million top line and the budget was $67 million so we just exceeded that and the bottom line and the combined ratio, the combined ratio was about 97 which is below 100 so it was a profitable year for the second year in a row in addition to 2012 and 2013, so we are doing fine.
BL: Were you exposed to the natural hazards that struck the European and Asian markets?
El-Dishish: Yes, we were exposed in Eastern Europe, but it was a calculated risk and in the areas where we have treaties, but our exposure was not a significant one, it was manageable.
BL: As far as you know, are Saudi insurers increasing their premiums to manage the losses they faced this year?
El-Dishish: We have a very close relationship with the Saudi market and they have faced heavy losses, some fires and so on and it makes them really very careful about the technical results. They are becoming profit conscious about not only their top line but also their bottom line. What is helping the Saudi market is that they have a good regulator SAMA (Saudi Arabian Monetary Agency) which is doing a good job monitoring market performance. SAMA is introducing some good measures. The losses the Saudi market faced was due to fires and floods which are uncontrollable, it’s the nature of our business, we are risk takers, but we have to manage the risks and take precautionary measures.
BL:What are your recent plans for re-Takaful, anything new?
El-Dishish: We are in the process of setting up a wholly owned subsidiary to Al Fajer Re called Emirates Re-Takaful Ltd.; it’s going to operate out of the Dubai International Financial Center (DIFC). We applied for a license and got principle approval in late August and incorporated the company in September. We are targeting to get our license to operate by October (2013).
BL: And how much would the new subsidiary’s capital be?
El-Dishish: It will be $120 million paid up. It’s more than we were operating with at Al Fajer Re. Al Fajer Re will be the holding company of Emirates Re-Takaful Ltd.
BL: Why did you decide to set up Emirates Re-Takaful?
El-Dishish: While Al Fajer Re is a well-capitalized company we are a re-Takaful company which means we have to separate participant fund accounts from shareholder funds. The rating agency imposed constraints on the company that we were operating in a market where there is no Takaful law. So, in order to protect the policy holders’ rights and funds we put 50% of capital in a trust for the benefit of participants. The other 50% is not used at all in providing capacity to the market or supporting participant funds, which was not fair to the shareholders and to the company to put in capital that is not utilized. So, what if we incorporate another company in a regulated environment where a Takaful law does exist and the regulator actually looks after the participant fund and the shareholder fund. We discussed this with the regulator and with the rating agencies and they were in agreement. When we selected DIFC to set up a new company, they agreed we could operate there without setting up a trust. DIFC is regulated by the Dubai Financial Services Authority (DFSA), a similar body to the UK’s Financial Service Authority.
BL: How do you see Emirates Re-Takaful supporting Al Fajer Re?
El-Dishish: Emirates Re-Takaful will be the operating arm of Al Fajer Re holding so they are not competing with one another. The whole operation will be at Emirates Re-Takaful with a bigger capital and a bigger capacity. I think it will bring a lot of good results to Al Fajer Re. Both companies are re-Takaful companies but we are writing both conventional as well as Takaful policies. A reason we set up another company with a bigger capital is to improve our rating, our latest rating is B++ stable outlook. Rating agencies rate our capitalization double A.
BL: What distinguishes Arab reinsurers and international reinsurers and why do insurers prefer to reinsure with international companies?
El-Dishish: Reinsurance is a long term relationship and the history of a company matters, you are not dealing with a commodity or with fast food, you have to build reserves over years and years. The traditional or European reinsurer has been in business for much longer than any Arab or regional reinsurer so they have built their reserves and they were dominant in the market so there was no competition. As to why are we creating another regional reinsurer it’s because the world is now very dynamic and if you have problems in one area it will affect other areas. Take Egypt, for example, after 1955 most reinsurers withdrew from the Egyptian market. The insurance industry in Egypt couldn’t find any reinsurer to work with so the Government created Egypt Re in 1957. It has built a history and reserves and I think other Arab countries have learned from this example that they need to have local and national reinsurer to support the market and have their own regional institutions. When you form a company like Emirates Re-Takaful you are not only supporting the market that you work in, you are also attracting in more premiums from other parts of the world and adding to your country’s GDP. Our shareholders are from the GCC so we are committed to this market. But the reason insurers look to European reinsurers instead of Arab ones is because they have been in business longer and they have built good reserve so they are financially strong and accordingly strongly rated.
BL: How do you view risk-taking in reinsurance and insurance?
El-Dishish: Risk-taking is the name of the game because we are risk carriers; we are not risk averse and we are not risk transferors. To be a true reinsurance or insurance company you have to retain some of the risk, you have to manage your risk; you have to advise your client about means and ways to reduce risk by taking preventive measures and making improvements.
BL: What are your plans for 2014 with regards to Al Fajer Re and Emirates Re?
El-Dishish: In 2014 we hope all our renewals will be with Emirates Re-Takaful. We are ready with the infrastructure, and with the rating, which we will have once we get the certificate of incorporation. We will be working throughout the summer to be ready for this coming renewal. We have taken temporary offices at the DIFC in order to finalize the registration (procedures), so all the logistics have been thought through and according to our timetable we should be completely up and running and ready for the January renewal season.
BL: What new markets are you trying to venture into?
El-Dishish: We are looking at Africa; we have some work in North Africa but not in the rest of Africa so we are exploring this market. We withdrew from countries where sanctions exist which we have to comply so we cannot operate there. We are now looking at other African countries in Southern, Eastern and Western Africa, like Zambia, South Africa, Kenya, Morocco, Algeria and Tunisia. We are already in Libya, we had some work there.
BL: Al Fajer Re has proved itself in the market in a short period of time, how do you distinguish yourself among the big reinsurers?
El-Dishish: If we go back in time we see that these big reinsurance companies have been around for quite a long time and when they started they were much smaller than Al Fajer Re is now, but over time they grew. The most important thing is that we should have a clear vision and mission for the company in order to grow and to be among the giants and there is no limit for our ambition. We want to be a regional leader in the re-Takaful and reinsurance market in our region, while at the same time diversifying and supplementing this portfolio by getting more business from other parts of the world by carefully calculating our accumulation and our exposure in this part of the world.
BL: How do reinsurance companies look at retention and how do you manage retention now that you have two giant entities with big capital?
El-Dishish: Retention is part of servicing our capital. If I write a business of $1 million and it’s a good business and I retain for instance 40%, it is different than if I write another piece of business and I retain 20% or 10%. If the business is well written it should give a return to the underwriting company, rather than ceding it to the retrocessioner. You have to increase your retention to be a real risk taker and a credible reinsurer. If I look at the financial statement of a reinsurer and find about 80% of gross written premiums are retroceded it wouldn’t be a real reinsurance company but a brokerage firm. If you reduce your retention you are not servicing your capital by generating a return from it. But if you increase your retention then you will have a return on that money because you are investing it. This return will be translated to return on equity at the end of the year so there is a correlation between increasing retention and increasing return on capital.
BL: How many clients do you have?
El-Dishish: We have around 160 clients spread over 49 countries
BL: What is your ambition and objectives for re-Takaful and Emirates Re-Takaful?
El-Dishish: Our vision for Emirates Re-Takaful is to have a Sharia compliant institution that is a regional leader in the Middle East and North Africa.
