Khaled K. Abu Nahel, Chief Operating Officer–Non Life operations was one of the prominent speakers at "The 4th Damascus insurance Forum". He spoke in technical details about the state of the insurance industry and how it will be affected by the global economic crisis and its impact on the insurance industry in the Arab world.
There were several speeches on the causes of the crisis, its impact and the regulatory reflections to such a crisis. "My contribution was about how the crisis affected the internal environment of each insurance company, rather than taking the macro side. As an insurance company, we are concerned in how to manage our company to cope to the impact of the market. Abu Nahel also spoke about how the revenue accounts and the balance sheet of each company reflects its inner work and prospects.
Abu Nahel spoke in details about the state of the insurance industry and how it will be affected by the global economic crisis: "We will not only witness a recession but a crisis in the way we operate. Therefore, we need to adjust ourselves to a new contracted environment. On the premiums side, there are some companies who are reducing their forecast because of defaults or bankruptcies, therefore the insurance premiums will be lowered as a result. Meanwhile, the reduction in export and import activities will also negatively affect the premium income. But I think that the insurance companies, with the competition and instructions from the board of directors and shareholders, will try to generate more premiums income and diversify from traditional insurance to new insurance, whether new entities are offering new products or offering existing products to new customers. This will ultimately lead to growth but who knows how the growth will materialize? And will it be enough to offset the losses in the market? On the claim side, we have many companies that are facing financial difficulties and there are additional moral hazards. Therefore, the number of claims will increase." The lower activity in the market will pressure prices to go down, in general and this will affect the size of the claim payment. But again, it is very hard to estimate how much this will affect the overall loss ratio. "As insurance companies, we have to do our technical job competently and save in costs in order to achieve technical profitability, which is the key of our industry, especially with a market like this and the increased uncertainty the investment side," he added. There is also a risk that we need to keep in mind, which is the collection risk. There will be some defaults and cancelations from insured customers and this is a problem usually faced during hard economic crisis, as people feel that there is a liquidity problem so they stop making payments.
An insurance company without investment cannot grow by itself; they have to invest the money in order to grow efficiently. Before the start of the financial crisis there were several challenges faced in the region, therefore we had to enhance our training needs and work on our technical capabilities, our management and our human resources in order to be able to manage the company towards growth. Regarding risk management, it is an important function in any company as it is a way to estimate or forecast the risks it is facing in order to find the best method to control and mange these risks, whether they are operational, investment or even management risks. "Additionally, there is the problem of linking our currency to only one foreign currency, like the U.S dollar. Therefore, the diversification of currencies is of paramount importance especially in times of crisis. At the end, we have to control our expenses, instead of looking at the number of people we employ we have to focus on competence and raise our overall efficiency."
One of the participants asked about the excess liquidity in several insurance companies, and my answer was that on the underwriting side we must be more focused than before on the risk assessment, which constitutes 80 to 90% of the underwriting process. "Therefore, we need to understand what we are writing, we have to go through risk assessment and this requires technical competence and capabilities, in view of the competition as well. However, our markets are driven by competition and not by proper rating. Additionally, I explained that on the investment side it is part of risk management for a company to decide how to invest and how to diversify its investments." The investment risks should be manageable and controllable. And if the company has an excess equity this could possibly means that the company needs to reconsider its structure again by overhauling its capital and creating new subsidiaries in different areas to invest this liquidity rather keeping it stashed away which can be considered a burden to the company, as they fail to satisfy their board of directors and shareholders. Therefore, it is part of risk management how they will utilize and invest this excess capital. Furthermore, insurance companies do not have to win each risk they write or consider. Therefore, if a company assists a risk better than their competitors they should go for it and compete.
Abu Nahel then shed some light on the nature of Trust International Insurance Co. (Cyprus) Ltd.-(Amman Regional Office) operations in Jordan and, saying "our operations in Jordan are like a management office rather than a real insurance operation. Our operations there has not been affected neither positively or negatively by the current crisis, we are only a management office, with which we provide support to our company’s direct operations. Even in the Arab market, people are being more cautious and afraid and adopting a wait and see position. But there is no serious impact on Jordan or any other major insurance company in our area.
There could be some companies that are more affected than others especially that they have been involved in the financial insurance but they are not significantly present in our region and they are mostly reinsured. Nevertheless, most companies will feel a negative reevaluation on the investment side. That is why we need to focus on our core business and wait for the business environment to enhance."
Finally, Abu Nahel shared some the conclusion and benefits of such insurance conferences, saying "I think discussing the impact of the financial crisis on our market is very important as it will help us better grasp the unusual uncertainties that we could face and it will help us apply better regulatory rules and corporate governance that could be part of the solution. Moreover, we have to adjust ourselves to the new realities of the market that were changed by the crisis," he concluded.
