Qatar: Putting a premium on insurance

As the overall economy continues to pick up steam, Qatar’s insurance sector looks set to benefit greatly, with strong growth and profits predicted for 2012 and beyond. However, for the sector to truly grow, the industry is conscious that it needs to encourage greater uptake of policies.

According to Shashank Srivastava, the acting CEO of the Qatar Financial Centre Authority (QFCA), there is strong potential for expansion in the country’s insurance sector, which posted 12% compounded annual growth in premiums between 2006 and 2010. Premiums for the life insurance segment increased by 58% in this period and by 11% for non-life policies, though overall coverage was still low, said Srivastava, when speaking at a seminar on asset management in late January 2012.

“Despite this growth, penetration rates in Qatar remain low: 0.05% for life and 0.75% for non-life, particularly when compared to the global averages of 3.9% for life and 2.79% for non-life,” he said.

There are a number of reasons for the low penetration rates in Qatar, including the state’s solid social security system that provides for pensions and other support services through the General Retirement and Social Insurance Authority. Another factor contributing to the low pick-up rate for policies in the non-life sector is that, with the exception of automotive and engineers’ professional liability, insurance in other segments is not mandated, though there have been calls for compulsory insurance for property and health, as is the case in some other GCC states.

“The insurance sector in Qatar accounts for less than 1% of GDP,” Farid Chedid, CEO of SEIB Insurance and Reinsurance, told OBG. “This is very low compared to the UAE, for instance, where insurance stands at 2.5% and to the average for emerging markets, which is approximately 6%. This, of course, does mean that this segment will continue to grow due to the very low penetration.”

Akshay Randeva, the QFCA’s head of insurance and reinsurance, believes there will be an increase in policies taken out over the coming years, with growth being driven by Qatar’s rapid economic expansion.

“Qatar’s insurance sector is projected to have the second-highest growth in the GCC region, with insurance premiums forecasted to grow at 12% between 2012 and 2016,” he said in the MENA Insurance Review journal in February. “The GCC has a forecasted average growth of 9% for the same period, a high growth market in itself.”

Indeed, with the economy set to expand by 7% in 2012, and with total investments on infrastructure projects alone projected to be $150bn over the next five years, there are strong growth opportunities for insurers in diverse non-life segments.

“With infrastructure development set to get under way, engineering insurance products are going to be an important driver of growth,” Jamal Abu Nahl, the CEO of Qatar General Insurance and Reinsurance Company (QGIRC), told OBG. “Mandatory health insurance is expected by 2013, [and] this will inevitably further boost the industry.”

Increasingly, Qatar’s banks are recognising the potential presented by the insurance sector, particularly after new banking regulations introduced last year forbade conventional banks to offer sharia-compliant services. With these new regulations now in force, a number of lenders have looked to insurance to fill the earnings gap, with a few banks already seeing results.

In its statement of financial results for 2011, issued on January 25, Commercialbank Qatar said it had delivered a record net profit for the year, up 15% to $517m. While the majority of these earnings came through its core activities, Andrew Stevens, the CEO of the Commercialbank Group, noted the bank’s newly launched insurance operation added to the income flow.

While some of the country’s lenders are seeking to expand into the insurance sector, this move does not seem to have had a negative impact on existing policy writers, with many reporting improved profit margins for 2011. At the beginning of February 2012, the QGIRC announced a 42% jump in net profits for 2011. However, while overall profits hit $46.7m, there was a slight decline in net premiums, which eased by 8% over the year to $51.1m, attributed to a rise in outlays to reinsurers.

Doha Insurance Company (DIC) also reported a solid increase in net profits, up by 9% for 2011 to $18m, according to a statement issued at the end of January. The firm posted a 13% increase in gross written premium types of insurances, while total underwriting revenues rose 4% to $32.28m, with earned insurance premiums rising 4%, though DIC also saw reinsurance costs rise.

As long as they can keep costs in check, and continue to widen their appeal, Qatar’s insurers should enjoy a profitable few years, with the situation likely to improve if the proposed broadening of the compulsory insurance pool is adopted.