Flying high in the Persian Gulf
Skyscrapers in the Gulf region are continually breaking new records. So is economic growth. Talanx strengthened its position on the local market in 2013 – because there is real demand for experience, quality and proximity to customers.
It’s a quarter to five in Manama, the capital of Bahrain – time for a short break. Chittadath Viswaprasad stands at the window of his office on the 16th floor of Al Zamil Tower, sipping a cup of green tea and letting his gaze wander. The Persian Gulf sparkles in the background as the sun sets. Fishing boats are leaving the harbour, as they have done since time immemorial. In the foreground a new chapter in the small kingdom’s history has long begun. The 240-metre towers of the Bahrain World Trade Center soar into the sky above the capital like two gigantic sails. An artificial peninsula stretches into the sea behind them, where work on the next generation of skyscrapers is busily underway. Bahrain’s economy is growing, and with it the island itself.
Viswaprasad is Managing Director of HDI-Gerling Industrie Versicherung AG in Bahrain. The 53-year-old, whose colleagues simply call him “Prasad”, loves Manama Bay for its mixture of tradition and progress. Yet when he allows his gaze to roam over the view from the window, his thoughts are often far beyond the horizon.
In Saudi Arabia, for example, where the company supports one of the largest dairy farms in the region with 15% of the sum insured and in Jeddah, where the first spadeful of earth was recently turned for construction of the largest skyscraper in the world. The “Kingdom Tower” is expected to be completed in 2018 – height: 1,007 metres, cost: USD 1.2 billion. HDI-Gerling industrial insurance and Hannover Re together cover 12.6% of the sum insured. Or in Kuwait, where a petrochemical plant is under construction, cost: EUR 8 billion, 3% of which is reinsured by HDI-Gerling industrial insurance. These mega projects illustrate this Talanx Group company’s successful start on the Arabian Peninsula. The Bahrain branch began operating in December 2012. A year later, its premium volume already stands at EUR 8.2 million.
Part of Talanx’s strategy is to take its divisions, such as Industrial Lines in this case, into new regions and cooperate with Group companies that already have a local presence in order to benefit from synergies. One of the reasons for HDI-Gerling industrial insurance’s quick launch in the Gulf region can be found a few floors below the offices shared by Prasad and his team of seven in the Al Zamil Tower. Hannover Retakaful, which has been active in the region since 2006, has its head office there. “We didn’t even have a bank account when we moved into our offices,” Prasad says. “Our colleagues supported us with help and advice on many issues during the hectic initial phase.” What began as neighbourly help has now blossomed into fruitful cooperation between two equal partners. There is very little competition between the two sister companies – at least in the Gulf region – as there is rarely any overlap between their areas of business. Hannover Re generates a large proportion of its business through classic reinsurance, known as treaty business – including in the area of life insurance. In contrast, HDI-Gerling focuses on industrial insurance on a larger scale and underwrites risks through facultative reinsurance. A recent example of cooperation: the “Kingdom Tower” project in Saudi Arabia where HDI-Gerling and Hannover Re are both involved. “We were able to make use of synergies,” says Prasad. He says they want to make their cooperation even more effective in future, “so that one plus one makes three.”
VEGETABLES AND GOLD JEWELLERY
- In the shadow of Manama’s modern business district lies the souk, the market district
- In the sprawling labyrinth of streets and alleys, you can buy everything from dried fruit to television sets
- Chai and coca cola, kaftans and jeans, shishas and sunglasses: at the souk, Oriental and Western culture can be found side by side
The decision to open an HDI-Gerling branch in Bahrain was significant, as the country has been regarded for many years as the Gulf region’s most important financial centre. Job security and – unlike in Dubai – moderate living costs are attracting workers from all over the world. Furthermore, different religions and cultures exist amicably side by side. The Al-Fatih mosque, one of the world’s largest Muslim places of prayer, offers space for 7,000 worshippers. However, secular life is just as present in the streets as religious life.
The proportion of residents not originally from the country is nearly 50%. “There’s an atmosphere of tolerance,” says Prasad, who was born in India and has lived in Bahrain since 2003. Liberal market laws, consistent regulatory law, a lack of complicated bureaucracy and an education system that produces large numbers of highly qualified local workers: there are many reasons why Bahrain is a suitable location for companies wanting to become active in the region.
The markets are growing. It is estimated that the six states of the Gulf Cooperation Council (GCC), Bahrain, Saudi Arabia, Kuwait, Qatar, the United Arab Emirates and Oman, achieved gross domestic product of around USD 1.5 trillion in 2013. Assuming that current growth rates continue, this could rise to over USD 2 trillion in ten years. This is more or less the current gross domestic product of Brazil – with a population less than a quarter of the size. At the same time, the boom is an indicator of a fundamental change.
The oil that is the basis of the region’s wealth will not keep flowing forever. Considerable sums have therefore been poured for some time into a radical reorganisation of the economy, away from oil and gas towards manufacturing, financial services and tourism. The transition has been supported by massive investment in infrastructure. In the Emirate of Abu Dhabi, for example, an eco-city is being created that will be supplied entirely with renewable energy. A rail track of 2,200 kilometres will connect all six GCC countries from 2018. Roads, underground railways, universities, hospitals, electricity and water supplies – the journal “Middle East Economic Digest” anticipates construction projects worth a total of USD 2 trillion in the GCC states.
“Where growth is accelerating at this rate, it needs to be looked at by experienced insurers,” SAYS PRASAD
“Where growth is accelerating at this rate, it needs to be looked at by experienced insurers,” says Prasad. “Whether it’s fire, marine, machinery damage or delays with construction projects, we’ll calculate each risk down to the last detail.” This strategy is particularly important in the GCC countries, where the majority of all construction insurance policies are reinsured. This is because very few local primary insurers have the expertise required for a reliable assessment of the complex risks involved in such mega projects. The local direct insurers approach insurers like HDI Gerling for proper evaluation of risk, setting up of terms and for providing continuous risk management services during the life cycle of the construction phase. This helps to reduce the possibility of fortuitous incidents and to mitigate the extent of loss if an unfortunate accident does take place and thus minimise the economic loss.
MANHATTAN OF THE EAST
The Al-Zamil-Tower won the Aga Khan Award for Architecture in 2007 for its blend of traditional and modern design.
HDI-Gerling industrial insurance is ideally placed to fulfil the role of lead underwriter to ensure discipline in the GCC countries’ insurance market, as the company has the power of a global corporation that is not seeking business at any price. “We discuss risks with customers,” Prasad explains. The aim is to detect and close any gaps in security that could be lurking to avoid untoward accidents. This is possible in Bahrain because HDI-Gerling industrial insurance can offer local expertise backed by experts. For example, there’s Kuppuswamy Ravi, the 64-year-old risk engineer who has worked in insurance for 40 years in India and south-western Asia and has a broad and diverse network in all six GCC states.
Ravi’s observations on various risk exposures are translated into figures – which risk at what price? – by his colleague Shanmugasundaram Selvaraj in the Bahrain office. Selvaraj, a 58-year-old underwriter, has three decades of experience in industrial insurance. “When the two of them are with me, we have over 100 years’ professional experience in my office,” grins Prasad. He knows that even that is sometimes not enough. “In those cases, we seek advice from colleagues all over the world.” Over 150 risk specialists work for HDI-Gerling industrial insurance worldwide.
»We discuss risks with customers.« SAYS PRASAD
It is now dark. Prasad shuts down his computer. The construction sites in Bahrain Bay are already still. Tomorrow morning they will resume their work, and Prasad and his team will be needed again. And beyond the horizon, the construction of the “Kingdom Tower” in Saudi Arabia is once again breaking all records. The foundations have been dug up to 110 metres deep. When it is completed, the tower will encompass 530,000 square metres of space on 167 floors. 59 lifts, including five “double deckers” that serve two floors at a time, will accelerate to ten metres per second. The time taken to go from the first floor to the top floor will be one minute and 40 seconds. This is new territory for both engineers and insurers. Prasad sees it with experienced eyes: “One lot build a tower a kilometre high. The others assess the risk of a tool falling from the 167th floor,” he says. “Both are just a question of correct calculation.”
Facultative reinsurance –
underwriting individual risks
Whether it’s the 632-metre “Shanghai Tower”, the 828-metre “Burj Khalifa” in Dubai or the “Kingdom Tower” currently under construction in Jeddah in Saudi Arabia and the first to pass the kilometre mark, some construction projects are not only beyond the capacity of an insurance policy, but also exceed the volume of risk that an individual reinsurer is prepared to bear.
This is where facultative reinsurance comes in. Unlike obligatory reinsurance, where a reinsurer takes on large portfolios from a primary insurer without being able to examine them in detail, facultative reinsurance allows individual risks to be negotiated. The reinsurer decides whether to cover a risk and under what conditions. Close and trusting collaboration between the policyholder, primary insurer and reinsurer is vital to prevent protracted negotiations from delaying an agreement.