Arig returned to the black in 2003, for the first time in four turbulent years. The group posted profits of $7.6 million - no mean feat given that losses in 1999 reached $98 million. Shares, which hit a low of $0.30 in 2001, were trading at $0.87 on 16 June 2004.

The key to the turnaround has been to refocus the group's operations on core competencies, shedding alien exposure and subsidiaries. 'Essentially, Arig's strategy is to concentrate on what we are best at, which is Middle East reinsurance, rather than entering volatile, untested markets or trying to be a player on the global scene, as was tried a few years ago,' says Udo Krueger, Arig's chief executive since 2001. 'And we have substantially delivered on the plan, despite the occasional spillover from legacies of the past.'

From the beginning, divestment of six retail subsidiaries was a high priority. However, in 2000/01, they were hardly more attractive to new potential owners than they were to Arig. 'First we had to work on making each of them profitable,' says Krueger. 'And we succeeded. In the end, they were sold because retail doesn't fit in with our business plan, not because they were a financial burden.' Sale of a stake in Bahrain's Al-Ahlia Insurance Company to Dubai-based DAMAC Group in May proved the point. The 39.4 per cent stake was offered on an all-or-nothing basis on the Bahrain Stock Exchange. Not only did it attract strong investor interest, it also netted Arig a $5.1 million windfall profit. In Jordan, Arig's shares were bought by a group of investors led by the subsidiary's chairman. Subsidiaries contributed $3.7 million to the group's 2003 profit.

With the Tunisian and Lebanese operations also having left the nest, only a 75 per cent stake in Egypt's Arab Misr Insurance Group and a 67 per cent share of Morocco's CNIA Assurance remain under Arig's wing. 'We have had expressions of interest from a number of parties and are in negotiations with potential buyers,' says Krueger. And to complete the strategic repositioning, the group is in the final stages of a solvency arrangement for Arig UK, which ceased underwriting in 1999.

For four years, any talk of Arig has always centred on the need to clear up past mistakes. With a plus sign back at the bottom of the income statement and a streamlined portfolio, future growth is back on the agenda. Middle East insurance markets are evolving swiftly and Arig is settling in to enjoy the ride. 'Since 2001, international reinsurers have been leaving the region because, in times of economic downturn, companies reallocate capital to strategic markets and the Middle East is not considered as such,' says Krueger. 'So for us it has been a very successful period as premiums have hardened.'

Regulatory developments are putting lucrative new opportunities on the horizon. Arig's eyes - like those of most in the regional industry - are firmly fixed on the passage of Saudi Arabia's new insurance law and the chance of entry to the region's biggest market.

While penetration is good in Bahrain, Kuwait and the UAE, the GCC reinsurance business is too immature to provide Arig's bedrock. A significant share of the group's business is domiciled outside the GCC, particularly Turkey, Iran and North Africa. Promising opportunities are being evaluated in the Commonwealth of Independent States and sub-Saharan Africa. It was present in southern Asia, but operations were discontinued because of regulatory demands that insurers hold an investment grade credit rating. As with other reinsurers in the GCC, Arig is currently unrated, but not for long. 'We are undergoing the ratings assessment process with a view to obtaining an investment grade rating, allowing us to enter new markets,' says Krueger.

Innovation in geographical coverage is coupled with product diversification. 'Life and medical reinsurance are promising areas, particularly as compulsory health insurance comes into force across the Gulf,' says Krueger. 'We are also in discussions with shareholders on how to take greater advantage of the burgeoning market for takaful products, which will in turn create a rapid increase in demand for Islamic reinsurance products.'

Arig has emerged from a painful period of global turbulence, bruised but very much alive. The chief executive is confident that 2004 will be a profitable year. And with the business refocused around key strengths and the Middle East insurance market growing fast, the skies ahead are looking clearer.

Clare Dunkley