The regional insurance landscape is going through transformational change in a number of respects. This was the underlying message of the 6th annual MultaQa Qatar conference 2012 held at the Ritz Carlton Doha from 11-13 March.
Ritz Carlton Doha, venue of MultaQa Qatar
Qatar’s burgeoning infrastructure development leading up to 2022 and beyond – a $68 billion transportation budget comprising rail, road and sea, the $13 million new Doha International Airport, mega-projects such as Lusail City and West Bay, and the hotel and stadium infrastructure leading up to the FIFA World Cup- all promise to provide a huge boost to Qatar’s insurance sector for the foreseeable future. This is in addition to the country’s many ongoing large-scale gas projects.
Qatar’s fast-growing insurance demand was reflected in a change of venue for the event to the Ritz Carlton this year – considered a more conducive atmosphere to meet, network, and make use of its numerous business centre services.
The 2012 event, organised by the Qatar Financial Centre Authority (QFCA) and Global Reinsurance, attracted more than 400 insurance professionals, regionally and internationally. Comprising presentations, panel discussions and clinics, the main focus was on emerging insurance/reinsurance developments in light of global economic, political and environmental developments.
Facing change
Jose Ribeiro, director international markets, Lloyd’s of London, looked at some of the emerging economies set to play an increasing role within the insurance landscape.
Citing IMF figures, he reported that by 2015 China’s GDP based on Purchasing Power Parity (PPP) is forecast to reach $16.8 trillion – fast approaching the $18.2 trillion US market.
Brazil’s insurance sector will have caught up with the UK and India’s slice of the market will be twice as large as Germany’s.
As Emmanuel Clarke, chief executive of PartnerRe Global pointed out, natural disasters hit the reinsurance sector hard last year and have earned reinsurers the accolade of ‘shock absorbers’. “2011 was an exceptional year for the reinsurance industry,” he said.
“It was an unprecedented year for natural catastrophes – what we call a ‘black swan’ year.” Most of these catastrophes, occurring in what he described as ‘noncat zones, pose the question of whether the industry has assessed the issue of diversification well enough.
Robert Hartwig, president, Insurance Information Institute, feels this could be an ongoing trend into the future. “It is the first year ever that we can actually attribute a significant reduction in global GDP to natural catastrophes,” he said at the conference, comparing the effect to a $10 dollar per barrel oil price increase.
Equally, he noted, disaster brings its own opportunity in generating a new level of interest from the previously uninsured.
Opportunities and challenges
H.E. Yousef Hussain Kamal, Qatar’s minister of finance & economy and QFC chairman also picked up on the issue of underinsurance. He highlighted a general lack of awareness in the Middle East, largely because regional governments have historically absorbed risk. This traditional role is eroding throughout the region however, he observed, reaffirming the Qatar government’s intention to initiate nationwide health insurance coverage.
“This will (also) boost demand for health insurance in Qatar,” he concluded.
Another opportunity discussed was a QFC drive to develop Qatar as a regional centre for captive insurance. In July last year, QFC issued new regulatory frameworks – the Captive Insurance Business Rules 2011 (CAPI) and Insurance Mediation Business Rules 2011 (IMEB).
The new frameworks are aimed at further developing the captive insurance sector.
They are based on developing more flexible captive insurance processes and a more current risk-based model for setting minimum capital requirements.
In terms of challenges, Dr Robert P. Hartwig, president, Insurance Information Institute, identified what he feels are the five largest threats to the global economy – and likewise the insurance sector. First, was a possible armed conflict in the Middle East, the disruption of oil markets and setbacks to an already-fragile global economy. Second were the rising oil prices we have seen over recent years – even in the absence of an armed conflict.
Third he highlighted the spreading sovereign debt concerns across Europe, fourth, a ‘hard landing’ of the Chinese economy and fifth – echoing Emmanuel Clarke – the record pace of mega-catastrophe trends. Natural disasters trimmed 0.5% off global GDP in 2011, Hartwig reported.
Regulation, regulation, regulation
One major issue within the Qatar insurance market has been the two very different approaches to regulation between the state and more recently QFC (see the Legal Clinic in this issue for a more in-depth discussion on this topic). There has been an increasing call from some quarters to unify regulation across the wider GCC which would help regional insurance companies do business more widely across borders.
Ian Sangster, CEO, Q-Re, reinforced his view that regulations need to be centralised as self-regulation has proven ineffective. “We want to embrace regulation and consider it an opportunity to raise our game,” he remarked. Dr Michael Bitzer, CEO added that regulators and insurers share the same main objectives of strengthening customer confidence, promoting prudent management and ensuring long-term sustainability.
Not everyone was so enthusiastic. “I now spend vast amounts of my time on regulation and I’d rather spend more time running the business,” said Charles Dupplin, CEO, Hiscox Bermuda. “Despite the challenges of the financial crisis in 2008 and an unprecedented series of natural catastrophes in 2011, no insurer has failed and the industry remains strongly capitalised. The industry weathered the storm whereas a significant number of banks had to be bailed out by their governments.”
Heather Goodhew, COO, Aspen Re, considered the implications of heightened organisational complexity in today’s business climate. She also highlighted the dire consequences of potentially ill-fated underwriting which very often accompanies moves into emerging markets lacking in risk models and reliable market data.
As Farid Chedid, CEO, SEIB Insurance remarked, “We cannot expect the GCC to unify regulations in the next decade. It took Europe more than fifty years and two world wars to do the same thing.”
For Michael Ryan, deputy chief executive, Qatar Financial Centre Regulatory Authority, the issue of regulation revolves mainly around listening to the needs of clients. “We need a more open and constructive dialogue with firms on the micro issues they encounter and (to) build a meaningful consultation process with industry as those principles become rules.”
Into the future
Dr Robert Hartwig, president and economist of New York-based Insurance Information Institute, believes emerging markets will continue to grow at three to four times the rate of advanced economies, whose own share of global GDP is set to fall to below 50 percent in the near future.
“I expect the Middle Eastern economies to continue to expand disproportionately, as demand for oil and gas is likely to rise under any scenario,” he says.
“If you look out the window, there are all sorts of construction sites (in Qatar) – billions or trillions of dollars worth,” agrees Emmanuel Clarke of PartnerRe Global. “These construction projects need insurance and reinsurance. By creating development they bring wealth to people (who also) have assets they like to insure.
With the infrastructure and penetration of personal lines, this is a really dynamic area.” On the other hand, believes Yassir Albaharna, CEO, Arig, limited growth in personal lines remains a challenge in the regional marketplace, unless stimulated by government action such as compulsory insurance requirements. Other challenges he identified were low retention levels – despite an abundance of capital in local insurance markets – and the industry’s struggle to attract indigenous talent. Finally he commented on Takaful insurance: “A niche segment which needs to get its act together and start targeting uninsured segments of the market.”
As Clarke added: “In the short-term, (the challenge) is the level of rates and making sure profitability levels are sustainable.
There is a growing amount of dollar capacity stationed here (in Qatar), so greater supply than demand. But there is a lot of risk out there, and the size of it is just enormous. When there is no loss, it is fine. But this area has to be sustainable long-term.”
On a closing comment from Manfred Seitz, managing director of Berkshire Hathaway Group’s international reinsurance division and interviewed at the event, what have reinsurers learnt from the catastrophes of 2011? “I think the big lesson was that scenarios not on your radar screen (do) happen and can accumulate over the year,” he commented. “All the catastrophes are what I call class C catastrophes, which are not the ones reinsurers would normally expect. We have to watch out for that, we have to ask for proper prices and we have to watch the aggregation of loss.”
His Excellency Yousef Hussain Kamal Minister of Economy and Finance of Qatar
Shashank Srivastava Acting CEO, QFC
L to R . Akshay Randeva, Shashank
Srivastava and Dr. Kai -Uwe Schanz
Shashank Srivastava, Acting CEO QFC, in conversation with a delegate at Multaqa Qatar 2012
Justin Balcombe, Principal & MENA Insurance Leader at Ernst & Young
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