Calls for setting up national reinsurance JV revive

@conradprabhu -

With the Sultanate of Oman set to host the next edition of the General Arab Insurance Federation’s (GAIF) biennial conference in 2024, there are renewed calls for the Omani government to play its part as a partner with the private sector in positioning the sector for stronger and sustainable growth for the future.

According to insurance sector experts, the need for a central reinsurance institution formed by the government in partnership with the private sector will be among a host of issues that will take centre stage in the intervening period leading up to the prestigious conference.

“The local insurance industry, with the support and assistance of the Oman Chamber of Commerce and Industry (OCCI), hopes to work closely with the Omani authorities in facilitating the establishment of a centralised national reinsurance company as an initiative of the government with the support of private sector players — local and international'', said Murtadha M J Ibrahim al Jamalani, Chairman of OCCI's Finance & Insurance Committee. “This is imperative to the goal of suitably preparing the insurance industry, as well as the national economy, for catastrophes — both natural and man-made.”

Al Jamalani was in Oran, Algeria recently as part of Oman’s delegation at the 2022 edition of GAIF. The delegation, comprising officials from the Capital Market Authority (CMA), OCCI and Oman Insurance Association, has successfully lobbied the Federation to support Oman’s bid to host the 2024 edition.

“By the grace of the Almighty, we succeeded in persuading the majority of GAIF members to accept our offer to host the 34th conference in Muscat in 2024'', Al Jamalani said. “In fact, we first made the offer in 2018, but when the pandemic broke out, the 33rd edition scheduled in 2020 in Algeria was pushed back to 2022. We took the opportunity to remind the Federation of our standing offer and, despite some competition from rival venues, the final decision went in Oman’s favour.”

Referring to the need for a state-backed reinsurance entity in the Sultanate of Oman, the official cited examples of government-led reinsurance institutions operating in countries, such as, India, Iran and Algeria.

“There are a number of successful examples of state-led reinsurance corporations that provide a useful model for the Omani government to choose from. On the one hand, state-backing will attract international players as partners, bringing with them foreign investment into the country. On the other hand, the outflow of insurance premium is limited when the reinsurer is partly government-owned. So I hope the Omani government will consider taking the lead in setting up a majority state-owned national reinsurance company, together with private partners.”

Another key matter that will attract a lot of attention in the lead-up to the 2024 GAIF Conference in Muscat is Risk Management, according to Al Jamalani. He explained: “Private insurers need to suitably amp up their risk management capabilities going forward. When they insure businesses and their operations, they need to have the requisite knowledge and capabilities to identify and assess the risks their clients face and accordingly provide them with insurance coverage. Risk management is a discipline that insurance firms must be conversant with.”

Significantly, major reinsurance companies are averse to offering competitive business terms and conditions to the markets due to two key factors: Adverse claims experience and low retention of risk, says the veteran insurance industry representative.

The nature of the topography and landscape of our country, with a lengthy seafront that is exposed to extreme weather events, contributes to an unbalance insurance portfolio that does not easily appeal to international reinsurance players. Consequently, the centralisation of reinsurance locally becomes key, he stressed.

Furthermore, with the government playing the role of both producer and consumer — across multiple sectors, notably Oil & Gas, Mining, Agriculture, Fisheries and Water Resources, Health, Tourism, Aviation & Maritime Transport, Logistics, Housing & Infrastructure, and so — its large portfolio of high-value assets and infrastructure must be suitably safeguarded against disasters. A centralised reinsurance entity can play a part in mitigating the cost burden on the government if these assets are damaged in any calamity. In the event, the proposed centralised reinsurance entity becomes the captive reinsurer for the nation — one buyer for reinsurance protection or retrocession protection, a feasibility study report shall be prepared accordingly, he added.