A centre of excellence

In April, XL opened a Dubai reinsurance office to support its continued expansion in the region. David Watson, CEO of XL Re Europe, tells Intelligent Insurer how the company plans to become an important part of the emerging MENA landscape.

The opening of a reinsurance office in Dubai earlier this year was a natural step for the XL Group. With a plethora of opportunities emerging in the region, David Watson, international group leader of XL’s reinsurance operations and chief executive officer of XL Re Europe, says that there were several compelling reasons XL decided to invest in establishing a new office in the Middle East.

"Innovation and a tailored approach to reinsurance is in our DNA and this gives us an edge over more traditional reinsurers."

“2014 was exactly the right time for us to open the office in Dubai for a number of reasons,” he says.

“If you look at the mature markets, the reinsurance business is relatively flat. Reinsurance spend in mature markets is in decline or, at best, stable, with very little prospect for significant growth in the near term. Clients are also financially stronger and their needs for reinsurance are reducing.

“All this means that we must look to different markets for growth and particularly markets that are growing.”

Labelling new emerging market platforms as pivotal to the company’s overall growth strategy, Watson explains that the company could have looked to other emerging markets to form its new venture.

Recent developments in MENA, however, combined with the region’s thirst for experienced and innovative reinsurers, convinced the company’s top executives that a Dubai office was the right option at this stage.

“The regulatory environment is beginning to change in the Middle East, and this has put pressure on local companies to increase the level of capital and possibly retain more of their business, which will require a different type of and greater level of reinsurance,” Watson says.

“Also, there is an appetite in MENA for strong reinsurance partnerships, particularly with those reinsurers that have the ability to provide innovative solutions across a broad range of products. Innovation and a tailored approach to reinsurance is in our DNA and this gives us an edge over more traditional reinsurers.”

Adding value

With all lines of business in the market—both personal and commercial—growing at a significantly greater pace than in the mature markets, MENA represents an opportunity for experienced reinsurers such as XL Group.

The company’s new Dubai hub allows access to the Gulf region, east as far as China (including India) and Africa.

While XL Group wasn’t the first, and certainly won’t be the last to form a hub in Dubai, which has experienced a flurry of interest from re/insurers recently, it does have more than 25 years of experience, a strong balance sheet and significant capacity under its belt, putting it, Watson says, in a prime position.

“XL is a results-driven company; the growth of the business will be entirely dependent on our view of profitability. However we do feel the long-term opportunities are good in the region particularly with the investment being made in local infrastructure.

“We are well capitalised, have a broad range of products and a drive for innovation. We like to look at programmes at an embryonic stage where we can add value and input and design products that really make a difference to our clients, as opposed to an off-the-shelf product that’s been in existence for ages.”

With centres of excellence based around the world, XL Group’s Dubai office adds to the reinsurer’s global reach, while combining the local expertise of a handpicked team.

“We have a very respectable local presence, but we also have lines of business experts working globally which gives us a huge advantage,” says Watson.

New opportunities

There are very few lines of business that the company isn’t already involved in. However, while the insurance market is reasonably sophisticated in MENA, the reinsurance sector is less so.

As insurers seek to bring innovation and fresh ideas to their local clients, XL Group views this as an opportunity to showcase its talents.

“There is a demand for new ideas and we’re looking to fill this space,” says Watson. “Regarding the region, there’s less natural catastrophe exposure than we would get in Asia or Latin America, but there is a constant theme in all emerging markets, which is a high demand for global expertise and local knowledge.

“Many of our clients are faced with their own clients going global and therefore they have to offer global solutions. Any reinsurer that wants to be successful needs to address that demand with a high degree of local knowledge and a wealth of global expertise in specific lines of business.

“We are able to provide technical input into their global business with a focus on what’s happening in the region.”

Tightening regulation is now a common challenge for both insurers and reinsurers in mature and developing markets—and MENA is no different. As sanctions continue to be put in place, a strong governance and compliance regime is essential.

“Regulation is becoming much more global,” Watson notes, “and while we’re a long way off global standardisation, the Dubai Financial Services Authority is very professional and seeking to implement a prudent governance regime appropriate to the region.
“

To run this business remotely is very difficult” Watson adds. “You have to be in the region. I have been delighted by the level of support that we’ve received over the last12 months from our clients and producers. We have a quality underwriting team in Dubai and we’re viewing this as a very exciting opportunity.”