Regional situation yet to impact insurance premiums

Dubai: Any hikes in insurance premium coverage due to the Middle East situation have so far been confined to the direct conflict zones, according to industry sources. What this means is that Gulf economies are being spared the cascading effect such hikes would otherwise have on a range of costs across an economy, such as those on imported goods as well as those related to construction project expenses.

“For the GCC countries, we see no specific impact at this stage,” said Philippe Rocard, CEO of AXA Corporate Solutions, an entity which provides the big-ticket risk covers. “We do not see reasons to do so [effect raises in the premium] at this stage.

“The conflict is not a regional one and we shall continue supporting our current customers in GCC property and construction Risks, including our risk engineering services.

“Capacities will remain strong for the GCC countries in which AXA Group is already present. Large P&C [property and casualty] is a potentially volatile segment so a disciplined selection of risks and underwriting is paramount.”

Other industry sources confirm that marine cargo and war risk premiums for the region have not seen any revision. In many ways, this is a reflection of the “land-locked” nature of the conflict and that this has not disrupted movements on the sea. “It’s very much a land fight and the global insurance industry has factored it in accordingly in setting premiums,” said Mustafa Vazayil, Managing Director at Gargash Insurance Services.

Any sharp upward movement in marine cargo premiums can have a sizable impact on local inflationary costs, ranging from food commodities to building materials. For economies working their way back from the recession years, higher import bills would be the last thing they need. (If higher insurance premiums do not jolt the inflationary boat, GCC economies can chart a more stable course, more so in the midst of a firming up dollar.)

Land transit risks

Where insurance-specific premiums have gone up is in the intra-region shipments of goods via road networks. Syria was, more or less, already out of bounds, but more parts of Iraq are now getting affected.

“The land transit risks will continue and insurers will have to decide on the extent of risk cover they want to impose on a case-by-case basis,” said Vazayil.

The UAE was recently assigned an ‘A3’ rating on credit insurance by Coface. [The assessments are based on the “average payment incident level presented by companies in a country in connection with their short term trading transactions]”.

“The UAE economy remains solid on the back of both the hydrocarbon sector and the non-hydrocarbon sector,” said Seltem Iyigun, Economist for the Mena at Coface. “The diversification policy constitutes an important pillar of the economic performance as it reduces the dependence on oil and supports the real sector.

“The business environment is improving and the actions taken to increase the transparency within the economy are crucial to reduce the risks in the corporate sector.”

But Coface notes that the debt burden of the “entire public sector in Dubai is still heavy with significant amounts coming due in the next few years, around $40 billion between 2015 and 2017”. But some deals are starting to come through where debtors have managed to strike accords restructuring the payback periods.