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QATAR: A HUB FOR REINSURANCE?
October, 2014
 

Thomas Bicknell, Senior Associate, from Al Tamimi & Co identifies and elaborates upon the factors responsible for establishing Qatar as a regional hub for reinsurance. 

Since the Qatar Financial Centre (QFC) altered its strategy by designating reinsurance and captive insurance as two of its core markets, considerable progress has been made towards Qatar becoming a leading market for reinsurance in the MENA region. In 2011, Qatar replaced Dubai as the Middle East centre of choice in the Global Financial Centres Index and won Global Investor magazine’s “Best Financial Centre Award” in the Middle East. 


Recently, the Global Financial Centres Index again ranked Qatar as the top financial centre in the GCC. However, strong competition from within the region as well as the Asia-Pacific means Qatar must continue to innovate and grow if it is to achieve a regional reinsurance hub status. 

Consolidation of regulatory oversight: 

On 2 December 2012, His Highness Sheikh Hamad bin Khalifa Al Thani, the Emir of the State of Qatar enacted The Law of the Qatar Central Bank and the Regulation of Financial Institutions (Law No. 13 of 2012). The law helped to consolidate the regulatory oversight of Qatar’s financial market by placing the Qatar Financial Markets Authority (QFMA) and the Qatar Financial Centre Regulatory Authority (QFCRA) under the jurisdiction of the Qatar Central Bank (QCB) (the respective onshore and offshore jurisdictions of the QFMA and the QFCRA remained intact however). The QCB also assumed responsibility for the licensing of insurance market participants, a role, which was previously held by the Ministry of Business and Trade (MBT). 


Thomas Bicknell, Senior Associate, Al Tamimi & Co 

 

Following on from their consolidation, in December 2013, the QCB, QFMA and QFCRA launched the Strategic Plan for Financial Sector Regulation. 

The Strategic Plan: 

The Strategic Plan aimed to promote sustainable competition and develop compulsory insurance lines for certain risks as well as provide guidance to the insurance industry in respect of market growth. The Strategic Plan clarified that, in developing regulation, the QCB must ensure alignment with the Insurance Core Principles (ICP) of the International Association of Insurance Supervisors (IAIS). The Strategic Plan also called for consistency between the regimes of the QCB and the QFCRA, as well as with the wider GCC region and with international best practice. 

Attractive domestic and regional market: 

Central to the growth of any reinsurance regime is opportunity. To persuade international reinsurers to set up in Qatar, numerous industry-friendly policies must be in place. However, it is arguable that none are more important than the growth opportunities presented by the local markets. 

 

Growth in insurance and reinsurance premiums throughout the GCC has consistently out-stripped Gross Domestic Product (GDP) year on year. Of the individual GCC states, Qatar has shown enviable growth, with a Compound Annual Growth Rate (CAGR) for premiums at 17.9 percent between 2006 and 2012. Furthermore, insurance penetration levels tend to be less than a third of the global average and economic growth throughout the region remains stable. Of particular consequence for reinsurers, the Qatar National Vision 2030 has given rise to approximately USD 200 billion worth of construction and infrastructure projects, creating demand for insurance cover that outstrips the capacity of local insurers. 

 

Strategic location: 

Qatar’s location allows it to bridge the time gap between the financial markets of the West and East. Furthermore, Qatar offers a convenient crossroad for international air and sea routes between the Asia-Pacific and Europe. The ability for international reinsurers to establish themselves in Qatar in order to conduct business offshore, in the East and West, as well as the wider GCC region, presents a strong growth opportunity for the Qatari market. Indeed, geographic parallels exist between the locations of Qatar and Singapore, with the latter’s offshore reinsurance business proving a cornerstone of its insurance market. 

 

Portfolio diversification: 

Establishing offices in Qatar not only provides an entrance to a growing market, but it also represents an effective means of portfolio diversification for reinsurers. In recent years, financial markets have been rocked to the core in the West whilst at the same time the Asia-Pacific has seen a run of natural catastrophes. These events have led reinsurers to look to other markets to provide them with a much needed counter-weight to their existing risk exposures. 

 

Political and financial stability: 

Political and financial stability have been hallmarks of the GCC’s recent economic growth with natural catastrophes being rare to non-existent. With the long-term planning of Qatar’s 2030 Vision, which is a part of the nation’s economic and social fabric, there is strong reason for reinsurers to believe in the continuation of the current stable environment. 

Market constitution: 

No insurance hub exists and operates in vacuum, being away from the wider financial market. Whilst still requiring its own unique regime, prudential regulation and oversight, the insurance sector must be coordinated with the development of effective regulation for the capitalisation of the wider financial market. Qatar must continue to align its regime with international best practice and in particular ensure appropriate levels of consolidation and cooperation are in place in respect of market oversight and industry awareness. The recent restructure of the QFMA and QFCRA to sit under the authority of the QCB is a clear move in the right direction. 

Insurers and reinsurers rely on the cross-pollination of talent and expertise between the various financial sectors. As Qatar’s insurance market grows, so too will the demand for asset management with insurers being some of the largest institutional investors in the financial market. In order to establish itself as an effective hub for insurers and reinsurers, Qatar will need to be able to offer financial management services of the scale and sophistication offered by its rivals both in the GCC and in the wider region. Support services such as actuarial, legal and accounting expertise as well as IT, logistics, transportation and infrastructure must also be of a level to match those of other more established markets. 

Qatar Financial Centre 

 

Centre of excellence: 

Finally, in order to increase its standing amongst its peers in the international financial market, Qatar should continue to take steps to establish itself as a centre of excellence for the MENA region. Recently, Qatar, through the QFCA, looks to have taken the lead in promoting industry awareness by either producing or commissioning key publications on the MENA and Asia insurance and reinsurance markets. 

 

Active and engaged industry bodies that push for regulatory progress and encourage training and development of industry professionals should also be further encouraged. Qatar is also a first mover in the region with its development of a disputes resolution centre to focus on insurance claims. 

 

Establishment of the QICDRC

A central part of any insurance regime is an efficient disputes resolution forum that allows for certainty of process and adjudication. Indeed, one of the key aspects of the growth of Dubai’s financial centre has been the success of the Dubai International Financial Centre (DIFC) court and arbitration centre. Whilst Qatar established its own disputes centre, the Qatar International Court and Dispute Resolution Centre (QICDRC), in 2009, plans are underway to establish an insurance-specific disputes centre. The centre would focus on high-value insurance and reinsurance claims and would be the first of its kind in the GCC. In developing the project, the QICDRC has actively engaged with insurance industry leaders to understand what the preferences are for such a disputes process. Once established, the insurance-specific disputes centre will serve as a key means for Qatar to distinguish itself from the financial free zones of the GCC as well as reiterate its commitment to focus on reinsurance. 

 

Conclusion: 

The development of the financial services industry is a key factor in encouraging diversity in Qatar’s economy. By focusing on reinsurance, Qatar is able to take advantage of the low insurance penetration rates endemic in the region, create much-needed insurance capacity for its pipeline of infrastructure projects and harness its geographic position between the European and Asian markets. The regulatory regime of the QFC, based on international best practice, combined with the steps towards regulatory consolidation and cooperation will further allow Qatar to compete effectively with rival insurance hubs in the region. Indeed, it does not seem necessary for Qatar to diverge materially from its current path. Instead, Qatar should maintain its momentum in terms of market growth, continue to align its regime with industry best practice and develop new initiatives to differentiate itself from its regional rivals. 

 

Qatar Central Bank 

 
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