06 March 2011

Rich rush for insurance cover amid Middle East turmoil

Rich rush for insurance cover amid Middle East turmoil :
Underwriters expect cost of insurance premiums to soar
Lenders insist on insurance against political violence
Insurers have been inundated with requests for cover from wealthy individuals, oil traders and multinationals in North Africa and the Middle East amid fears that civil unrest will spread further across the region.

Andrew Brooks, chief executive of Ascot Underwriting, a Lloyd's of London insurer, said the company had received 40 enquiries from the region in a morning last week: "Ascot has seen a substantial up-tick for insurance enquiries in the Middle East. Initially, these were mainly from individuals trying to protect their personal assets such as fine art and property in Egypt and Bahrain, but as the unrest has spread into Libya, we have seen oil companies and oil traders enquiring about the availability of insurance products to protect their assets."

He recounted that one person wanted extra cover for an art collection worth $3m (£1.84m) in Cairo while oil traders in Libya fear stocks being seized as the country edges towards civil war. Some oil and gas companies are scrambling to get forced abandonment cover for their mobile equipment, such as rigs.

Ascot's chairman, the former MI6 chief Sir Richard Dearlove, said the security situation posed the most severe challenge since 9/11: "The potential for those accustomed to benign market conditions to take losses on a scale not seen since the period after 9/11 will be severe. A shake-up in the [insurance] market, which is overdue, looks imminent."

Underwriters and brokers expect premiums to go up as a result of the turmoil. Stephen Ashwell, head of Global Response at insurer Hiscox, said: "Last week we had a queue from our box at Lloyd's that stretched all the way down Lime Street. I haven't seen such an upsurge in business since 9/11."

He said clients were looking for broader cover that protects them against any eventuality from political violence to war and terrorism. One problem is that reinsurers, the majority of which moved to exclude terrorism from their standard policies after the 9/11 attacks, are now likely to restrict their riots and strikes coverage to minimise their losses.

London is the centre of the global terrorism and political violence insurance market. Hiscox said most of the enquiries were coming from local companies and multinationals operating in Bahrain, but also Egypt and Libya and, interestingly, Saudi Arabia, Dubai and the United Arab Emirates, which have yet to encounter any political unrest. Similarly, Alex Clayton, executive director of brokerage Willis' Global Markets International division, said enquiries from Bahrain had doubled, in particular from hotel and shopping mall operators, and insurance rates are "definitely going up".

"We are seeing more of the banks and financiers who lend money to big oil and infrastructure projects insisting companies have political violence cover in the event a property is attacked."

Clayton said most of Willis' clients have civil commotion cover under their All-Risk insurance policies, but those that don't are rushing to get standalone political violence insurance. He also noted that last year's riots in Thailand were defined as terrorism by the Thai government, so if the Egyptian government decided to go down the same route, some companies would not be covered for terrorism under their All-Risk policies.

Brooks said: "Some insurance companies only look at aggregation on a country-by-country basis, but now all markets will have to look at cross border exposure." He added the situation was highly unpredictable and could easily implode. He drew an analogy with the break-up of the former Yugoslavia and its civil war following the end of the Soviet Union, saying tribal groups could come to the fore, resulting in a "Balkanisation of the Middle East".

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