Expecting expansion: All the signs point to substantial growth in the coming year

Benefitting from the nation’s rapid development and buoyant economy, Qatar’s insurance sector has become the third largest in the GCC region in terms of written premiums. The sector is home to a range of domestic giants and international players that enjoy a choice of regulatory frameworks, and insurers are now gearing up to capitalise on the raft of infrastructure projects expected to arise from the National Development Strategy 2011-16 and Qatar’s hosting of the 2022 FIFA World Cup. Regulatory reform became one of the most significant issues in 2013, as the Qatar Central Bank (QCB) stepped up to play a larger part in the governance of the sector and the much-anticipated mandatory health insurance scheme began to be implemented. Both developments have been welcomed by the industry, and underpin much of the optimism currently surrounding the sector.

Market Structure

There are currently 22 insurance companies operating in Qatar, according to the QCB’s 2012 annual report. The market is divided into two segments: those operating within the Qatar Financial Centre (QFC) and those outside its jurisdiction. The latter represent the bulk of the industry in terms of gross written premiums (GWPs), and are dominated by five national companies: Qatar Insurance Company (QIC), Qatar General Insurance and Reinsurance Company (QGIR), Doha Insurance Company (DIC), Al Khaleej and Qatar Islamic Insurance Company (QIIC). Of these, QIC, established by emiri decree in 1964, claims a market share in excess of 50%, and in this respect occupies a preeminent position in the industry comparable to that enjoyed by Qatar National Bank (QNB) in the banking sector. All five are general insurers, offering marine, engineering, property, motor, medical, casualty and personal insurance.

A small number of foreign companies – such as Libano-Suisse, Arabia Insurance, Arab Orient, Capital Insurance Brokers and the National Insurance Company of Egypt – operate alongside the national giants outside of the QFC, but the majority of international players have chosen to take advantage of the QFC’s accommodating regulations, which allow for 100% foreign ownership and exemption from the Qatarisation quotas by which the government aims to boost the number of nationals working in the private sector. Foreign insurers operating out of the QFC include Zurich Insurance, the American Life Insurance Company, MedGulf Allianz Takaful, Marsh and AXA.

There are also a number of captive insurance firms in the market – those established to insure risks emanating from their parent group. The largest is Al Koot, the insurance arm of Qatar Petroleum (QP), although since its initial public offering the firm is no longer a QP subsidiary and therefore not strictly speaking a captive. “I think in this regard our structure is unique in the world. We are both a captive and also listed on the stock exchange as part of the GIS Holding Company,” Yahya Al Noury, assistant manager at Al Koot, told OBG. QP continues to deal with Al Koot as a subsidiary by agreement, and QP Group still accounts for most of its business. In March 2013 Qatar’s former minister of finance, Yousef Hussain Kamal, announced Al Koot will be transformed into a reinsurance company, but details have yet to be announced. Meanwhile, the QFC has adopted a strategy directed at further developing the captive market.

Takaful

Qatar has been home to an Islamic insurance ( takaful) sector since 1995, when QIIC was established. As with other GCC jurisdictions, the nation has seen rapid expansion of sharia-compliant insurance activity over recent years: between 2005 and 2009 takaful contributions saw a compound annual growth rate of 41%, according to Ernst & Young. Two of the national “big five” insurers, QIIC and Al Khaleej, play a leading role in the segment, while the remainder of the nation’s takaful business is largely accounted for by three other companies, all of which are operating outside the jurisdiction of the QFC: Doha Solidarity, Daman Islamic Insurance Company (Beema) and General Takaful (see Islamic Financial Services chapter).

Regulation

The activities of companies operating beyond the jurisdiction of the QFC were, until the beginning of 2013, subject to the provisions of a 1966 insurance law and supervised by the Ministry of Economy and Commerce. Under this regime the five national insurers, all listed on the Qatar Exchange, had the right to lead-underwrite government-sponsored project risks, and enjoyed some protection from competition after the government decided not to issue new insurance licences in the mid-2000s.

In 2005 a parallel regulatory regime based on international best practice was established with the creation of the QFC to provide the basis of a financial zone capable of meeting the needs of the expanding economy. Insurance companies operating from within the QFC, therefore, were granted access to the domestic market and enjoyed a number of new privileges, such as 100% foreign ownership, full repatriation of profits, tax holidays for limited periods and low taxation thereafter, and the ability to provide services in all currencies (including the Qatari riyal).

While the incentives offered under the QFC’s regulatory regime are similar to those seen in the financial centres of other regional jurisdictions such as Dubai and Bahrain, the ability for all insurers operating within its framework to pursue retail business in the domestic market sets it out from some of its counterparts in the GCC. The QFC also differs from other financial centres in that it has no physical boundary, and companies are free to establish themselves in premises outside the QFC’s Doha site.

The QFC is governed by a tripartite structure: the Qatar Financial Centre Authority is primarily responsible for investment promotion and commercial strategy; the Qatar Financial Centre Regulatory Authority (QFCRA) develops and administers the regulatory framework, grants licences and oversees financial services businesses conducted within the QFC, and answers directly to the Council of Ministers; and the Qatar International Court and Dispute Resolution Centre, an arbitration body, determines civil disputes that fall within its jurisdiction, which are enforceable against the parties. In 2006 the QFCRA implemented a prudential regime for insurers that incorporated a number of rules relating to minimum capital requirements (higher than those applicable to firms operating outside its jurisdiction), the measurement of assets and liabilities, review of risk management, takaful operations and actuarial reporting standards.

The QFCRA has made a number of changes to its regulations since then and in 2013 undertook a consultation process to update the entire regulatory regime for insurance and reinsurance businesses, with a particular focus on capital adequacy, enterprise risk management, valuation and investments, and insurance groups. The new rules were announced on October 28, 2013 and will come into force on January 1, 2015. The QFCRA will spend the intervening year supporting insurers to transition to the new framework, which adheres to international best practices.

Reform

Changes to the regulatory landscape have been one of the key developments in the sector in recent years. The Law of the Central Bank and the Regulation of Financial Institutions, enacted in late 2012, superseded the 1966 law on the supervision and control of insurance firms and is the culmination of a process of reform that began half a decade ago. The law places the authority for the QFCRA and the Qatar Financial Markets Authority (QFMA) with the QCB, which will now regulate banks, financial services companies, insurance firms, including those licensed by the QFCRA, and the nation’s stock exchange.

Although the new law does not establish a single regulator – the QFCRA and QFMA will continue to operate as separate authorities – it has been widely seen as a step towards one, and it has a number of implications for the industry. The QCB has acquired responsibility for the licensing and supervision of all insurers, reinsurance firms and intermediaries, a development which has been cautiously welcomed. “Better regulation will be better for the industry. Now we are waiting for the implementation of these regulations,” Bassam Hussein, the CEO of DIC, told OBG.

Market Characteristics

While the exploitation of hydrocarbons is central to Qatar’s economy, the insurance business derived from the energy sector is mostly absorbed by a number of the larger domestic players, such as QIC and Al Koot, as well as international insurers and reinsurers. However, the domestic industry benefits from the range of associated risks which Qatar’s gas production and liquefied natural gas (LNG) shipments generate.

Like many GCC insurance markets, the industry in Qatar is dominated by non-life lines. Life provided a minimal contribution to GWPs prior to 2009, and despite modest growth since it remains of limited interest. “There is very little life insurance at present; the market is almost non-existent,” Hussein told OBG.

This is reflected in Qatar’s penetration rates: in 2012 non-life penetration stood at 0.7%, while life peaked at 0.1% in 2009 before falling to 0.0% in 2011, according to data from Alpen Capital. Insurance density for life was $31.50 in 2012, the second-lowest measure in the region. However, insurance density of $675.40 in non-life mitigated the modest performance of the life segment, and was the second highest in the region for the year.

Another market characteristic Qatar shares with its neighbours is a high cession rate. Insurers in the GCC ceded around 40% of their non-life premiums to reinsurers in 2011, according to Alpen Capital, compared to a rate of 18.5% for the UK in the same year. In 2012 Qatar’s five national insurers ceded QR1.88bn ($515m) of total GWPs of QR3.96bn ($1.08bn) – or 48% – a relatively high rate even by regional standards. Due to the limited size of the market, Qatari firms have traditionally looked outside the country to access reinsurance services. Similarly, domestic insurers moving into reinsurance have focused on external markets to develop business: QIC recently established Q Re as a means of diversifying from its core portfolio, and although its headquarters will remain in Doha, it is establishing branch offices in Zurich and Bermuda as well as a representative office in London.

Performance

The sector has grown on the back of a booming economy fuelled by the nation’s hydrocarbons reserves. Qatar’s North Field is the world’s largest non-associated gas field, and since the first export shipment of LNG to Japan in 1996, government-driven infrastructure projects have provided a steady flow of opportunities for local and international insurers. While Saudi Arabia and the UAE remain dominant in the GCC market, recent years have seen Qatar’s insurance industry play a larger part: in 2006 GWPs in Qatar were smaller than those of Kuwait, according to Alpen Capital, but by 2012 the nation’s expanding economy had driven total premiums up to around $1.3bn, overtaking Kuwait and establishing the country as the third-largest insurance market in the GCC.

Between 2008 and 2012, the domestic insurance segment expanded at an annual average rate of 11.3%, and the promise of more infrastructure development outlined in Qatar National Vision 2030, the anticipated boost from the 2022 FIFA World Cup and its associated projects, a new mandatory health insurance scheme and an increasing population all combine to drive the continued growth of the industry.

While the bulk of the projects connected to the World Cup had not yet reached the implementation stage in 2013, Qatar’s big insurers, with the exception of DIC, all posted a rise in profits for 2012, with QIIC topping the list with a 29.5% gain over the previous year. Aggregate GWPs for the five insurers increased from QR3.76bn ($1.03bn) in 2011 to QR3.96bn ($1.08bn) in 2012 – a rise of 5.3%. However, while the technical results remained robust in 2012, regional unrest took its toll on investment, and aggregate investment income for Qatar’s national insurers declined 5.1% from QR744.5m ($204m) in 2011 to QR706.3m ($193m) in 2012.

Local Players

In 2013 QGIR reported the highest net profits at QR2.13bn ($583.4m), which signalled a major hike up from QR175.5m ($48.06m) in 2012. The firm also reported a 51% increase in total assets, from QR4.71bn ($1.3bn) in 2012 to QR7.12bn ($1.96bn) in 2013. QGIR’s net claims rose from QR129m ($35.3m) in 2012 to QR141.1m ($38.6m) in 2013, along with gross premiums which grew by almost 12% from QR500.18m ($136.9m) to QR560.2m ($153.4m) in the same period.

QIC reported the second-highest net profit at QR778.3m ($213.17m), a 25.6% increase over QR619.6m ($169.7m) in 2012. Total assets also grew by 40.6% from QR8.25bn ($2.26bn) in 2012 to QR11.6bn ($3.17bn) in 2013. The firm reported that net claims rose from QR1.08m ($295,812) in 2012 to QR1.33m ($364,287) in 2013 and gross premiums jumped from QR2.5bn ($684.75m) to QR3.5bn ($958.6m) in the same period.

At QR70.89m ($19.4m) in 2013, QIIC had the third-highest net profits. The firm also reported total assets of QR741.23m ($203.02m), a 9.1% increase over QR678.87m ($185.9m) in 2012. During the same period, net claims rose from QR92.4m ($25.3m) to QR90.13m ($24.6m) and gross contributions from QR206.5m ($56.5m) to QR212.33m ($58.1m).

DIC saw net profits grow by 18.9% from QR57.77m ($15.8m) in 2012 to QR68.7m ($18.8m) in 2013, while total assets increased by 9.1% from QR171.4m ($46.9m) to QR187.15m ($51.2m) in the same period. The firm also reported growth in net claims from QR61.36m ($16.8m) to QR64.36m ($17.6m) and gross premiums from QR468.8m ($128.4m) in QR516.67m ($141.5m). Al Khaleej had not yet reported year-end figures for 2013 as of February 2014; however, in the third quarter of 2013 the company saw a 47.9% year-on-year decrease in profits from QR63.2m ($17.3m) in September 2012 to QR32.9m ($9.01m) in the same month in 2013. During the same period, total assets decreased from QR998.1m ($273.3m) to QR996.8m ($273.02m), while gross premiums grew from QR213.4m ($58.4m) to QR229.76m ($62.9m) LINES & DISTRIBUTION: Due to the structure of Qatar’s hydrocarbons-driven economy, energy, marine and construction risks represent the most significant lines in the sector. Qatari insurers also benefit from a number of compulsory lines, the most notable of which is third-party motor, a low-margin, competitive segment in which the government controls the premium price. Some marine activity, such as ownership of luxury yachts, also falls into the compulsory insurance category, but until recently this represented the limit of mandatory coverage. Unlike some neighbours, Qatar does not have compulsory insurance written into a mortgage law, and the adoption of such a provision would be widely welcomed by the industry.

Health insurance has not traditionally accounted for a significant slice of premiums, largely as a result of the government’s generous subsidisation of health care. However, with the introduction of mandatory health insurance in 2013, the segment is likely to play a larger part in future premium growth (see analysis). Until the impact of this scheme is felt, health insurance remains for the most part the preserve of expats.

Direct channels are the most significant distribution method for insurance products in Qatar, with brokers accounting for around 25% of the premiums written. Adoption of bancassurance in the country has been modest to date, but insurance companies and banks have recently shown more interest in working together to promote each other’s products. In 2011, for example, Allianz Takaful began a partnership with Barwa Bank in Qatar to sell its takaful products through the bank’s windows, and in April 2013 QNB announced that it will launch a new bancassurance product that combines a savings plan and insurance cover, and will be distributed through MetLife Alico.

Health

In the summer of 2013, the sector received a fillip with the introduction of a mandatory health insurance scheme that will gradually incorporate both the national and expatriate populations. The scheme is to be administered by the newly created National Health Insurance Company, mandated by Emiri Decree No. 7 of 2013, and is the result of a lengthy planning process undertaken by the Supreme Council of Health (SCH). A steering committee consisting of stakeholders such as insurance providers, health care institutions, the Council of Ministers, the Ministry of Finance, SCH and the Ministry of Interior was first formed to create a framework for the scheme’s development, followed by a more detailed planning stage to establish core principles such as the programme’s structure, functions and governance, and the interrelation between different sectors and stakeholders. A costing exercise was also carried to address all the services that will be available under the scheme. Fees will be applied under a diagnosis-related groups (DRG) model – a bundle-payment system that is generally preferred over more traditional itemised billing. “DRG, as opposed to itemised billing, encourages competitiveness and efficiency as there is no incentive to overprescribe services, and it is in the interest of the providers to give the minimum needed. Some of the foreign jurisdictions we looked at during the planning phase had imported their DRG prices from abroad. In many cases this didn’t work well, so we established our own,” Dr Faleh Mohamed Hussain Ali, assistant secretary-general at the SCH, told OBG.

Implementation

The successful start of the scheme in 2013 has answered many concerns raised by interested parties during its planning process, and the SCH’s decision to implement the scheme in stages grants it room to address issues in a timely manner. The first stage launched in July 2013 covers Qatari women aged 12 and above for maternity care, obstetrics, gynaecology and related health care services. By the first quarter of 2014, the SCH intends to open up the system to Qatari nationals, a task that will be greatly aided by a national identification card scheme that will allow citizens to be verified and automatically enrolled. By early 2015 the scheme will be opened up to white-collar non-nationals, while visitors to Qatar will be required to pay a health insurance fee, probably at the time of purchasing their visa. The scheme is expected to be fully implemented by the end of 2015, including visitors and foreign workers.

As the scheme expands, so too will the roster of approved care providers. The provider network for Stage 1 includes the public HMC Women’s Hospital and three private facilities: Doha Clinic Hospital, Al Ahli Hospital and Al Emadi Hospital. In time, more public and private institutions will be incorporated into the programme, providing they prove themselves able to meet the prerequisites established by the SCH.

From the insurance provision perspective, the law outlines a generous basic package that covers services similar to those enjoyed by holders of health cards, with the exception of non-reconstructive cosmetic surgery and some high-end dental services. The premiums and benefits of the basic package will be reviewed on an annual basis by the SCH. Insurance firms are free to create supplemental packages, which they may price themselves. “In Saudi Arabia the ultimate driver of insurance and higher penetration rates was mandatory health and motor cover. So we welcome the new scheme, although we are still not sure how exactly the mechanism will work,” said Hussein. “In the long term, the primary advantage will be in raising the awareness of insurance. Shorter-term opportunities are all about getting the big accounts. For us it provides a means of expanding our medical insurance business, which currently represents only around 5% of our portfolio. Individual accounts are less interesting due to their lower margins.” esting due to their lower margins.”

Outlook

There is room for expansion of insurance in the short term. Most industry observers anticipate substantial rises in GWPs in the coming years, with the QFC estimating that aggregate premiums will reach a total of $1.9bn by 2015. Qatar’s ambitious development strategy and infrastructure projects in preparation for the 2022 FIFA World Cup are key drivers of expected growth, but even without these the market can expect organic expansion: in recent years the country has posted the fastest population growth in the GCC – the number of people topped 2m for the first time in September 2013, according to figures from the Ministry of Development Planning and Statistics, with population growth expected to continue throughout 2014. Moreover, 85-90% of Qataris fall into the 15-64-year-old demographic, above the 70-80% GCC average, which means a naturally growing market.