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ECONOMIC RECOVERY FUELS QATAR’S INSURANCE MARKET REBOUND
June, 2014
 

Mahesh Mistry, Director, Analytics, A.M. Best, presents a snapshot of Qatar’s growing insurance market. 

The insurance market in Qatar has grown at a steady rate in recent years and is expected to continue to outpace most of its neighbours. Strong economic development tied to infrastructure expenditure remains a key driver of insurance demand in a market that remains dominated by the country’s top five insurers with an almost exclusive concentration on non-life lines. 


Like the other members of the Gulf Cooperation Council (Bahrain, Kuwait, Oman, Saudi Arabia and the United Arab Emirates), Qatar has an insurance market that is dominated by motor and medical lines, along with commercial lines related to energy, property and engineering. It is expected that over the next five years, Qatar will be well-positioned to outpace most GCC markets. 

 

Mahesh Mistry, director, analytics, A.M. Best 

 

Despite the backdrop of both regional instability and depressed financial markets, it is forecasted that the Qatari insurance market is likely to grow by more than five percent. 

As the third largest insurance market in the GCC after the UAE and Saudi Arabia, Qatar saw Gross Premiums Written (GPW) reach USD 1.3 billion in 2012 from USD 1.0 billion the previous year. Qatar’s insurance market has grown from approximately QAR 2.5 billion in 2006 at an annual compound growth rate of about ten percent from 2006 to 2011. 

Recent developments: 

The planned introduction of compulsory medical healthcare is one of the most significant drivers of growth. The Supreme Council of Health (SCH) through the National Health Insurance Company (NHIC) is finalising its preparations prior to implementing the second stage of a national health insurance plan, which will see health insurance coverage expand to include all Qatari nationals for their basic health related needs. Based on the experience of other GCC countries such as Saudi Arabia, mandatory health insurance is expected to prompt significant growth in the young private health insurance sector. 

Medical & Motor lines: 

The importance of medical insurance is higher in the GCC than in other developed markets, comprising 34 percent of non-life premiums, which is far greater than the seven percent level in developed markets. Medical healthcare has seen material growth in recent years, although Qatar’s medical market is considerably smaller than the larger markets of the UAE and Saudi Arabia. Compulsory healthcare coverage should provide opportunities to Qatari insurers, although a prudent underwriting approach will be needed to write this product profitably. Despite the limited number of companies offering healthcare products, underwriting can still be challenging given the increasing competition and high level of medical claims inflation. 

 

The importance of motor insurance will increase in Qatar (as in other GCC markets) as the market goes through a period of re-pricing and as more uninsured vehicles join the insured population. 

A characteristic of Qatari insurers and others within the GCC is that medical and motor lines account for about 59 percent of non-life premium. Unfortunately, for most GCC companies, these two product lines are underperforming, producing either unprofitable or marginal results. These market dynamics raise questions about the current and future financial performance of insurance companies in the GCC

Non-life lines: 

Non-life business lines will continue to dominate in Qatar for the foreseeable future. While growth in Qatar will remain higher than in developed markets, it will be at lower levels than in the recent past, with a substantial portion of the premiums continuing to originate from motor and medical insurance. Companies will have to focus on profitability rather than top-line growth. 

Enablers of growth: 

As with most of Qatar’s neighbours, revenue generated from energy commodities is its key economic growth driver. While most GCC countries benefit from vast oil reserves, Qatar is uniquely positioned with the world’s largest Liquefied Natural Gas (LNG) reserves. Energy prices are currently above government forecasts, which enable infrastructure development and demand for insurance. Furthermore, the Qatari government is continuing to spend its capital on building infrastructure in an attempt to diversify the country’s economic base away from the energy sector. 

Qatar’s economy has experienced very rapid growth over the past few years, with GDP increasing by 16.7 percent in 2010, 13 percent in 2011, and 6.3 percent in 2012. Growth will have moderated to 6.1 percent in 2013, although spending on infrastructure is anticipated to continue, especially in light of the continued preparations for the 2022 FIFA World Cup Qatar. 

Top five players: 

A recent report by the Qatar Financial Centre Regulatory Authority (QFCRA), ‘The Insurance Industry in Qatar,analyses Qatar’s insurance market mainly by focusing on five listed Qatari insurers: Qatar Insurance Company (QIC), Doha Insurance Company (DIC), Qatar General Insurance and Reinsurance Company (QGI), Al Khaleej Takaful Group (AKH) and Qatar Islamic Insurance Company (QIIC). 

According to the analysis, those insurers mainly underwrote non-life business and that accounted for nearly 70 percent of Qatar’s gross and net written premiums in 2012. To illustrate the dominance of QIC in the Qatari market, the market share of the top five falls to 44 percent if QIC is stripped of its subsidiaries in the Qatar Financial Centre (QFC). Combined gross premiums for the top five insurers were USD 1.1 billion in 2012, demonstrating an increase of seven percent from 2011. The top five insurers have total market capitalisation of about USD 3.7 billion. 

Other firms writing insurance include private firms, which are licensed under the QFC and are regulated by the QFCRA, as well as other non-listed entities, which are licensed in Qatar. 17 insurers are authorised in the QFC including limited liability companies, with three subsidiaries of QIC and branches of international groups and six additional entities, which are licensed in Qatar that are not subsidiaries of the five listed insurers. Including subsidiaries of a parent group entity, there are 26 entities, including one captive insurer, operating in Qatar. 


Qatar Insurance Company 

Insurance penetration: 

According to the QFCRA, insurance penetration rate in Qatar (Gross Premiums Written as a percentage of Gross Domestic Product) is currently about one percent, one of the lowest among GCC countries and is significantly below the rates of mature insurance markets. According to Swiss Re’s Sigma report World Insurance in 2012, the aggregate worldwide insurance penetration rate in 2012 was 6.5 percent. Taiwan was the world leader in 2012 with an aggregate penetration rate of 18.19 percent. In the Middle East, Qatar’s 2012 aggregate penetration rate was 0.63 percent. The UAE had an aggregate penetration rate of 1.98 percent and in Saudi Arabia, it was 0.76 percent. 

Market dynamics: 

Subsequent to the introduction of the QFC in 2005, there has been an influx of market participants including regional insurers seeking to expand along with international players. Further, the Qatari market has demonstrated a greater presence for brokers. This is gradually changing the market dynamics, with increased competition and wider distribution networks. 

The main market participants still have considerable strength, although their market share has been gradually declining. 

QIC is the dominant player in the Qatari insurance market with a market share of more than 40 percent, and is one of the biggest insurers in the GCC by market value. QIC engages in conventional insurance, reinsurance, real estate and financial advisory services, and owns 25 percent of Beema, a local privately-held insurer that underwrites Takaful business including general, medical and life insurance. A.M. Best recently affirmed the financial strength rating of A (Excellent) and issuer credit rating of “a” of QIC and its main subsidiaries: QIC International (QICI) and Q-Re. The ratings for QIC reflect its excellent prospective risk-adjusted capitalisation supported by strong financial flexibility, robust underwriting performance and strong business diversification. Offsetting rating factors are QIC’s concentration in Qatari equities and the execution risk associated with the expansion of Q-Re. 


QIC had strengthened its risk-adjusted capitalisation in 2013 following a successful rights issue raising shareholders’ equity by QAR 392 million (USD 108 million). QIC demonstrated a robust track record of underwriting profitability, producing a group-wide combined ratio below 86 percent over the last five years. 

QIC’s investment portfolio is actively managed internally, generating an average return of 8.2 percent over the last five years. However, its profile is concentrated in Qatari equity and bond assets, creating volatility in QIC’s capital position and overall operating performance. 

It was forecasted that in 2013, rapid expansion at Q-Re was expected to increase premium revenue by up to 33 percent; however, the reinsurer’s performance was under strain and below expectations with the reported loss ratio standing at 88 percent as of the third quarter of 2013. QIC’s planned expansion will require stronger risk management capabilities to manage its diverse operations. While an experienced new management team is in place at Q-Re, there remains material execution risk. 

QGIR, the second-largest listed insurer, is mainly engaged in motor, energy and engineering. Motor represented about 75 percent of the company’s net premium income in 2012. While Qatar is its main market, QGIR has a presence in Dubai as well. QGIR also owns General Takaful, a domestic subsidiary focused on Takaful. General Takaful wrote QAR 152.8 million in gross contributions for 2012. 

A.M. Best recently upgraded the financial strength rating to A- (Excellent) from B++ (Good) and issuer credit rating to “a-” from “bbb+” of QGIR, reflecting QGIR’s strong risk-adjusted capitalisation, sound track record of operating performance and enhanced risk management capabilities. An offsetting rating factor is the company’s high concentration in Qatari real estate and equity assets. 

 

QGIR’s prospective risk-adjusted capitalisation is expected to remain strong and supportive of the company’s projected growth over the medium term. Capital requirements are driven by QGIR’s investment risk, with over 80 percent of its portfolio held in real estate and quoted equities at year-end 2013. However, QGIR has sufficient shareholders’ equity to absorb this concentrated investment profile and has proven its ability to prudently manage its exposures. QGIR’s investment profile may be a source of future volatility to both its capital position and its operating results. Furthermore, the company has sound technical performance with its combined ratio expected to be maintained at approximately 95 percent for 2013. 

QGIR’s profile is enhanced by its Shari’a compliant subsidiary, General Takaful Company S.P.C., which is expected to generate gross contributions in excess of QAR 200 million in 2013. 

The third-largest (and newest) listed insurer, Doha Insurance Co., has a market share of nearly eight percent. Engineering and aviation lines are its core underwriting businesses in terms of GPW, followed by motor and property. According to the QFCRA report, DIC is also engaged in Takaful business through its branch, Doha Takaful, and also has operations in Yemen through a minority stake in a Yemeni insurer. DIC has the lowest risk retention capacity in the group with reinsurance cessions exceeding 70 percent of GPW for industrial classes, although retention rates are above 90 percent for motor insurance. 

AKH and QIIC exclusively operate Sharia’h compliant business. They are the smallest insurers amongst top five with an aggregate market share of about eight percent. “AKH appears to show relatively weak underwriting performance with combined ratios persistently above 100 percent over the period considered, while QIIC consistently achieved some of the highest profit margins in the group due to robust underwriting activities,” said the QFCRA in its report. 

 
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