RIYADH, 17 November 2006 — NCCI, the Kingdom’s biggest company in the growing insurance market, has signed an agreement with Munich Re, the largest re-insurer in the world, to provide energy insurance coverage up to $100 million.
According to Ali Al-Subaihin, NCCI’s CEO, who revealed details of the deal yesterday, the company will provide coverage for the oil production, gas, minerals, electricity and other related industries. He said the agreement covers construction, energy equipment, pipes, and other essential assets of these industries. Energy insurance also provides compensation for expenses, lost production, business interruption, extra expenses, and losses resulting from leaks, pollution, drilling, and other liabilities as well as the construction and maintenance risks involved.
His comments came during an energy forum organized by NCCI in Dammam and attended by experts from some of the largest companies in the Kingdom, including the representatives from Saudi Aramco, Saudi Basic Industries Corp. (SABIC), National Company for Construction, the Arabian Petroleum Investments Company, and the Arabian Drilling Company, besides insurance and reinsurance brokers working here.
Highlighting the significance of the agreement, the NCCI chief said it protects the insurers against the risks to which the energy industry is exposed. The losses of these industries average at $3 billion to $4 billion annually.
“The year 2005 is considered one of the gravest in losses in the history of these industries where losses reached $15 billion, as a result of hurricane Rita and Katrina in the United States, compared with premiums averaging at $2 billion-$3 billion annually,” Al-Subaihin said.
Experts believe that international insurance companies can absorb these losses and the inherent risks involved, since they have net technical reserves of $187 billion. At the forefront of these companies is Munich Re with a balance of $65 billion.
They point out that the Middle East energy market, especially in the Kingdom, is the most attractive in the world because it incurs the fewest losses among the industry. The losses of the energy industry in the Middle East average at $130 million annually as against $ 1.36 billion annually in the United States. The Middle East is, therefore, considered to be a low-risk area.
International re-insurance companies see a great market potential in the Kingdom, which owns 22 percent of the world’s proven oil reserves and exports an average of 10 million barrels per day. It also has many oil and gas production projects in the pipeline, besides many petrochemical projects.
According to a study conducted by the Institute of Banking on the Saudi insurance market, the total energy insurance premiums reached SR173 million in 2003. This figure is expected to have doubled during the last three years. According to Ton van Everdink of Munich Re, the forum was intended to highlight new developments in the industry and the importance of re-insurance, in addition to expressing to key clients in Saudi Arabia the depth of the relationship between Munich Re and NCCI.
Explaining the benefits of reinsurance, Everdink observed that reinsurance has manifold benefits. It serves as an instrument of risk management, financing and service instrument. Also, re-insurance covers the insured assets and protects the insured party’s earning power. Transferring the risk from NCCI to Munich Re secures NCCI as a reliable capital source to the insured, enhances development potential and provides new security technologies. It also cushions the impact of fluctuation and extraordinary losses for NCCI and reduces the probability of financial imbalance.
Jonathan Lyne, the energy director at RFIB Group, stated that under the agreement, the group will support insurance companies with their clients and contribute to the success of the agreement in achieving its main objective-to serve Saudi energy companies and protect Saudi economic interests. Lyne added: “Our main objective is to provide technical support to the concerned insurance parties in this agreement and make sure that it is put into maximum effect where it will serve all parties. Our success in concluding this agreement in the Saudi market will be a big motivator to develop further and introduce larger limits of coverage.”
