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Sink or swim: Gulf Re’s CEO, Michael Gertsch

Sink or swim: Gulf Re’s CEO, Michael Gertsch

Insurance regulators outside of DIFC aren’t doing enough, says Gertsch, adding that overcapacity in the industry won’t be resolved until the existence of companies come under threat.

July 17, 2011 11:57 by

Q: There have been concerns of overcapacity in the industry. What’s your take on it?

There is over capacity in this market. Normally this would not be an issue but in the region the only thing that counts is growth and not necessarily profit.

Pricing is deteriorating while underlying deductibles are reducing and loss ratios are going up.  If pricing is going down and loss ratios are going up we will get to a point where it is not economical any more.  This is what a lot of people don’t actually realise right now.  The insurance companies can still do this because the reinsurance companies allow it but if you look at the actual margin that a reinsurer has on any treaty in this region particularly in the UAE, it is so tiny that if you add the management expenses that a reinsurance company has on top of that its not profitable anymore.  Insurers and reinsurers need to work together because losses will come in the future.

Q: So, how can this be rectified?

Unfortunately, I think that nothing will change until some companies are badly hurt.  Currently some companies are releasing reserves to pay dividends.  This can’t go on as the shareholders will at some point ask what is happening to the capital that they are investing.  Our industry will only change when there is a major crisis.  We are in a crisis but it’s not life threatening right now.  In the next 12 to 24 months, we will see reinsurers pulling out because the margin is not there anymore and then it will be really difficult for local insurance companies to continue focusing on growth targets.

Q: What makes Gulf Re different from the other reinsurers?

The difference between us and other companies is that we are not working anywhere else in the world.  Gulf Re only focuses on the six GGC states, half of our shareholders are the six GCC states.  We focus on this region so for us continuity is very, very important.  We are growing slower than the market and we do this deliberately because we see the environment that we are in we don’t think it’s the right time to grow aggressively. The only reason we can do this is because our shareholders are completely on board, they are not looking for a massive growth right now.  It’s also the way we have staffed the company, we have brought specialists in from large international reinsurance companies from all over the world. They have the international mind set which is also why we are still declining the vast majority of the business as we believe it will save us a lot of money in the long run.

Q: There have been reports that growth is set to increase in the next 12 to 24 months.  How is this possible?

What everyone is trying is to do is write more business or bigger lines in order to keep the volume up. But if prices are coming down by 10 – 15 per cent and you want to keep the volume you have to write a lot more business.  If you take medical out of the equation, the market is growing by under 10 per cent per year.  If you look at the projections individual companies have, everyone projects to grow more than 10 per cent or 15 per cent so you have a disconnect between what the companies want to do and what the market really gives. In a situation like this you have to steal someone else’s business.  To do this you have to reduce rates and it becomes a vicious cycle.

This article was originally published in Policy July/August 2011.

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