Sailing ahead: An expanding maritime sector means more business for insurers

A major part of the sultanate’s ongoing economic development efforts hinges on a series of key port projects that are set to see significant new investment in the coming years. These initiatives imply new potential for several of Oman’s robust insurance lines of business – from construction and engineering, to marine and hull. Meanwhile, recent improvements in offshore security are also noteworthy as they help secure the business of insurers and reinsurers in the maritime segment.

Well Positioned

Oman has a highly strategic maritime position. Its northern territory on the Musandam Peninsula lies along the southern entrance to the Strait of Hormuz and the Gulf, and much of the sultanate’s territory runs long the coast of the Arabian Sea. To the south, Oman also enjoys close proximity to the major sea lanes emerging from the Red Sea, including the Suez Canal.

Unease over the perceived risks of much of the world’s oil supply moving through the narrow Strait of Hormuz across from Iran has led several Gulf states to begin constructing oil and gas pipelines that run directly to the Arabian Sea, rather than into the Gulf. This has further enhanced Oman’s position as a gateway to the sea. With this in mind, and given the growing importance of maritime traffic as the economies of GCC countries and regional neighbours expand, the sultanate is making efforts to boost maritime facilities by offering state-of-the-art ports and dry-docks to attract the growing waterways traffic (see Transportation chapter).

Port Developments

The sultanate aims to encourage economic diversification away from the oil and gas industry by developing a value-added engineering and construction sector, a strategy that dovetails with marine development. One example is Duqm Port, located on the coast of central Oman halfway between Muscat and Salalah. Duqm, which only recently was a sleepy fishing village, is set to become one of the region’s most important centres for ship repair and shipbuilding, as well as a landing spot for the Omani and regional oil industries. In 2010 the Port of Duqm Company (PDC) – a 50/50 joint venture between Consortium Antwerp Port and the Omani government – was created to establish and run a new facility. In 2011 one of the port’s most important participants, the Oman Drydock Company (ODC), had its soft operations opening, and by the third quarter of 2012, it had serviced its 100th ship.

Indeed, the pace of port development in Oman has been impressive, with the PDC just one example of several port construction projects in the pipeline.

Big Welcome

In January 2011, the minister for national economy announced the sultanate’s eighth five-year plan, with some OR30bn ($78.2bn) in total investment earmarked for 2011-15. Of this, about OR502m ($1.3bn) was set aside for seaports. The Port of Salalah is one recipient of the funds and is located in the far-south Governorate of Dhofar. The Salalah Port now sees over 3000 vessel calls per year with direct connections to 54 other ports, but the next stage of its development, running up to 2014, should see cargo capacity increase to over 20m tonnes per annum. Additionally, a new liquid bulk facility is set to handle over 6m tonnes per year. The quay length is also expected to rise to 3130 metres, with a construction of a new breakwater being tendered out in 2012-13, increasing port security by reducing the impact of the annual Khareef monsoon.

Further north, the Port of Sohar is being developed to take on the commercial and industrial traffic currently entering the Port of Sultan Qaboos (PSQ) in Muscat. This will be a major shift, leaving PSQ to handle more liner traffic. At the same time, the port of Sur is set to see its role as a hub for liquefied natural gas (LNG) exports boosted.

For insurers and reinsurers, these are positive industry developments as well. Indeed, marine insurance is already seen as a profitable business in Oman, with further increases expected on the back of these changes. As such, projects increasing Oman’s profile in the international shipping industry come as a welcome boost for a segment that has experienced some pressure recently following the global economic downturn. A 2012 report by the UK-based Datamonitor suggested that weak maritime revenues are putting the pressure on insurers to keep maritime premiums down. The international index of shipping costs, the Baltic Dry Index, has fallen dramatically since the 2008 crisis, from as high as 11,440 points in May 2008 to just 647 in February 2012.

Risky Rewards

Despite challenges in the global industry, Omani insurers who spoke with OBG suggested that the local segment was doing well. One reason contributing to the strong performance is the wider regional security situation in the region related to the Strait of Hormuz and the Gulf of Oman, where piracy began to increase during the late 2000s.

While the risk remains, as 2012 wore on, the likelihood of closures to maritime traffic in the Strait were generally thought to be falling. This assessment comes from the Joint War Committee in London, whose recommendations are taken on board by major international maritime insurers, such as underwriters from Lloyds of London and International Underwriting Association companies. In October 2012 the committee reduced the risk level in the straits, saying that the threat of closure was unlikely in the near future.

At the same time, major international initiatives to combat piracy have had a marked effect on security in the waters off Somalia. Oman has played a key role in these efforts. In 2011 some 439 pirate attacks occurred worldwide, with the Gulf of Aden among the most troubled spots. Estimates put the cost of piracy to shipping lines at some $7bn that year.

A combination of economic and political factors led Somalia and its surrounding waters to be a major hotspot of modern piracy, capturing much global attention. However, in the first half of 2012, the number of pirate attacks globally fell to 177, from 266 during the same period in 2011. Guards on ships and better international response mechanisms have been largely responsible for the improvement.

As one of the signatories of the Djibouti Code of Conduct on piracy, Oman has worked closely with the International Maritime Organisation (IMO) to address piracy. At sea, this has meant close collaboration between the Royal Oman Navy and NATO, EU Naval Force and Combined Maritime Forces (CMF). Ships from the Port of Salalah have been particularly active, helping to free an Omani-flagged dhow in June 2012 in what the commander of NATO’s Operation Ocean Shield anti-piracy programme called a classic example of successful international cooperation.

Seizing Gains

Much remains to be done to ensure ongoing security, yet the trend in attacks seems to be clearly on the decline. As such, Oman’s push into further maritime development may come at a good time in terms of regional risks, although insurers continue to monitor developments. At the same time, many of the risks presented are insured by global players, rather than local outfits, with giants such as Lloyds dominating the marine risk business. This is especially true regarding war risk, where a number of insurers, such as GAREX, have also specialised.

Growth of a ship repair, refit and refurbishment industry is also an opportunity to expand in the fiercely competitive market. This involves insurance of engineering and construction, as well as hull, cargo and crew insurance, and a variety of marine-related areas. Effective pricing and necessary expertise are key, as in lines of business like infrastructure construction, which are also seeing a boost from the seaport developments. Local insurers have also been involved at the smaller end of the market as well, serving vessels in the offshore oil and gas support sector. However, the development of larger ports requires an upgrade in offerings. Taking advantage of this poses great rewards and is an important step in developing local ports as international hubs.


You have reached the limit of premium articles you can view for free. 

Choose from the options below to purchase print or digital editions of our Reports. You can also purchase a website subscription giving you unlimited access to all of our Reports online for 12 months.

If you have already purchased this Report or have a website subscription, please login to continue.

The Report: Oman 2013

Insurance chapter from The Report: Oman 2013

Cover of The Report: Oman 2013

The Report

This article is from the Insurance chapter of The Report: Oman 2013. Explore other chapters from this report.

Covid-19 Economic Impact Assessments

Stay updated on how some of the world’s most promising markets are being affected by the Covid-19 pandemic, and what actions governments and private businesses are taking to mitigate challenges and ensure their long-term growth story continues.

Register now and also receive a complimentary 2-month licence to the OBG Research Terminal.

Register Here×

Product successfully added to shopping cart