Arab Insurance Group (Arig) is planning to distribute a dividend for the first time in five years, after profits increased by 88 per cent during 1994 to reach $12.6 million. The board is to recommend an 8 per cent dividend, which will account for most of this year’s profits. The company is also planning to diversify its activities in the Middle East market.
The group reported good results from its UK subsidiary. ‘The strong reinsurance performance of the group has been supported by an excellent level of profitability achieved by Arig’s London-based business, contributing 19 per cent of the group’s net profit in only its third full year of operations,’ Arig’s general manager of reinsurance, Loay al-Naqib, said in a statement.
However, the group says profits for 1994 would have been better if the firm’s investment income had not been affected by unfavourable financial conditions in the international markets during the year. Investment income fell by almost 50 per cent in 1994 to $20.4 million.
In 1993, the group retained profits of $6.7 million in order to boost reserves, says Bader al-Wahidi, general manager of investments. However, Arig’s reserves are now in a healthy position to resume dividend payments, and prospects for the insurance market this year are good, he says. ‘We have a pretty good idea of profits for 1995 – and they will be substantial,’ he adds.
‘Insurance rates are firmer now, after all the losses insurance companies incurred between 1989-92,’ Al-Wahidi says. However, insurance rates could come under pressure by 1996, as capacity in the insurance market starts to catch up with demand.
Al-Wahidi says Arig is seeking to develop new business in the Middle East beyond its core activity of reinsurance. ‘We want to develop the Middle East insurance industry by increasing awareness and by bringing new products not prevalent in the region,’ he says. This will include promoting personal insurance products, such as house, life and health insurance policies.
‘As markets open up, Arig will try to position itself in the Middle East to become the regional insurance company,’ he says. The strategy will include setting up partnerships with local companies in the region, who do not have the capital required for extensive marketing operations.
Arig also announced changes to its accounting procedures for 1994, to bring it into line with the prevailing practice in the US and among European firms, and also with regulations being introduced in the UK. Accounting for insurance business will now be on a one-year basis rather than three years, so that operating costs will be related to underwriting results of the same financial year, says Al-Wahidi.