Insurers still wary of Iran as need for foreign capacity grows
Axco Insurance Information Services (Axco) has released its latest country report on Iran, highlighting hesitancy from international brokers and reinsurers, despite the country offering vast opportunity following the removal of US and UN sanctions in January this year.
Iran is the largest non-life insurance market in the Middle East and was the 29th largest market globally in 2014. Non-life market premium income (excluding health business) grew 22.6 percent from 2014-15. Indeed, before sanctions were imposed, economic development led to above-inflation premium growth in 2010-12, although the effects of international sanctions hindered growth in real terms from 2013 onwards.
In June 2010 the UN Security Council imposed sanctions, which included restricting the provision of underwriting services, insurance and reinsurance aimed at Iran’s nuclear programme. Considerably harsher EU sanctions were also imposed and resulted in the supply of (re)insurance capacity from European and US markets effectively ceasing in 2012.
Insurance penetration in the Iranian non-life market is low: in 2014 total market premium was 1.27 percent of GDP with only $69 per capita spent on insurance. By contrast, Israel’s per capita spend on insurance ($690) is 10 times that of Iran’s. At $368bn in 2013, Iran’s GDP is 27 percent greater than Israel’s, valued at $290bn in the same year.
A myriad of challenges await foreigners attempting to enter the market. US primary economic sanctions remain, precluding US companies from re-entering Iran, with the largest bottleneck in future business with Iran likely to be US banks. Last week’s US election result has created further uncertainty around whether or how a Trump administration would “tear up” Obama’s 2015 Iranian nuclear agreement.
Iran is also plagued by high inflation, which in 2013 reached in excess of 39 percent. But by 2015 this had fallen to 13.7 percent and is forecast to fall to 12.5 percent for 2016.
Since 2000, there has been a trend towards regulation and privatisation. State owned and private insurers are in direct competition and private insurers may have a maximum 49 percent foreign shareholding with the correct permissions. There are currently two state owned companies; Bimeh Iran, which held the largest market share at just over 40 percent in 2014, and reinsurer Bimeh Markazi, which enjoys a compulsory cession of 25 percent of non-life business and first refusal on up to 30 percent of all outwards reinsurance.
There are no other restrictions on reinsurance arrangements, although overseas reinsurance capacity was seriously curtailed as a result of recent sanctions. It is thought 16% of gross capacity requirements was placed overseas in 2010, compared to 60 percent a few years prior.
Tim Yeates, Managing Director at Axco, commented: “Iran is attempting to attract foreign business back into its borders, as it stated it will be taking applications for energy projects. However, foreign investment will remain slow if there isn’t the appropriate coverage available for these types of projects. The gap may have to be filled by governments.
“Despite all the challenges Iran has faced over the past few decades, Iran offers huge opportunities, which we see only growing as there is more foreign investment. However, it’s important to understand the risks and challenges that the Iranian market offers.”
Read the November 2016 issue of Business Review Middle East magazine
UK office space slashed as hybrid working looks set to stay
With hybrid predicted to be the working model of the future, and businesses both large and small announcing that WFH will continue for employees into the future, the traditional office space is being re-thought.
Businesses are both questioning how much space they need for a hybrid working future, especially if it means they can potentially save money, and what form that space should take.
UK firms slashing office space
Back as early as February, HSBC – whose real estate footprint currently stretches to around 112 football pitches worldwide – said it would be cutting its post-COVID office space by half globally and by 40% in London over the next few years, as it looks to implementation of a hybrid working model in light of the pandemic.
Lloyds Bank followed suit. Following an internal survey where 77% of employees said they wanted to continue to work for 3+ days a week post-pandemic, the bank announced it was also moving to a hybrid model, and so looking to cut its office space by 20% over the next two years.
In fact, the latest research from consulting firm PwC reveals that a third of organisations surveyed (258 of the UK’s largest companies) believe they will reduce their office footprint by more than 30%.
The findings of PwC’s Occupier Survey indicate there is likely to be a sizeable fall in occupied office space with half of executives surveyed saying that despite taking into account mass vaccinations, employees will continue to work virtually 2-3 days a week.
And companies continue to announce the hybrid working model for their employees. Accountancy firm EY has just announced that its 17,000 employees are moving to a hybrid way of working, WFH for at least two days a week. This follows PwC which in March said workers could stay at home for half the time and KPMG which this month said it would expect employees to only work two days in the office every week.
More collaborative work spaces
However, what’s also clear from PwC’s research is that the role of the office is not going to disappear completely, but instead adapt to a new way of working, with half of all organisations with more than 100 employees saying they have a real estate and workplace strategy that considers the long-term impact of COVID-19.
“We may see an increased demand for flexible space as many businesses operating models may well need that option if holding dead space is to be avoided,” says Angus Johnson, UK Real Estate Leader at PwC UK.
According to the survey, more than three quarters of respondents said they are likely to reconfigure existing office with 43% of financial services firms stating that they are extremely likely to do so as a result of the pandemic.
“It’s also clear that the nature and purpose of office space is going to change. As occupiers seek new, different space to meet their accommodation needs, environmental aspects will be increasingly important. If the real estate sector is to truly succeed as a more dynamic, greener industry it’s imperative that creative thinking comes to the fore.”
And companies are already thinking creatively how they can utilise office space in a hybrid future. So while HSBC is cutting a significant amount of office space, it is not downsizing its prestigious Canary Wharf headquarters, and instead reimagining the space. In April, CEO Noel Quinn announced the firm was embracing an open plan floor, with no designated desks or private offices, and instead using hot-desks in line with the future hybrid working style. “My leadership team and I have moved to a fully open-plan floor of the building in east London with no designated desks,” he said on LinkedIn.
Lloyds also reported it was adapting its office space, so that rather than individual offices, it will have a more collaborative workspace. And just last month, KPMG announced it too was ditching desks and individual offices, and replacing them with meeting rooms and conference halls for a more collaborative workspace.