Rewarding potential: The market looks set to expand as many areas are earmarked for future development

A highly competitive sector, insurance in Qatar has seen impressive growth in recent years, both in terms of premiums and in the number of active insurers. With the latter divided between firms based inside the Qatar Financial Centre (QFC) and companies based outside, a third category of brokers, who may have no physical presence in the country at all, has also recently added to the competitive heat. The prize is a share of a market with relatively low penetration rates in a country that has strong economic growth and a programme of infrastructure and oil and gas developments that may see $130bn invested over the next three years. It is also a market where a youthful population enjoys the highest per capita income in the world. With such robust economic foundations, Qatar remains highly attractive to both local and international insurers.

OVERSIGHT: Responsibility for regulating the sector is currently divided, with companies based in the QFC subject to the QFC Authority (QFCA) and its QFC Regulatory Authority (QFCRA). Outside the centre, the Ministry of Business and Trade is the regulator, while the activities of the Qatar Central Bank (QCB), which oversees the banking and financial markets, also have an impact on insurers. Given this regulatory range, in March 2012 the minister of economy and finance, Yousef Hussein Kamal, announced that plans were under way to establish a high-level regulator for the industry as a whole. This would also involve finalising the legal structure: placing all insurers under the same regulatory framework. The move was announced in the context of greater integration of financial sector authorities.

COME TOGETHER: For some years, debate has continued as to whether to bring together the regulatory functions of the QCB with those of the QFCA and the Qatar Financial Markets Authority. Doing so would be a step toward creating a single body that would then be able to remove opportunities for regulatory arbitrage. This, in turn, would lead to greater financial stability, as the activities of financial institutions active in more than one market could be monitored by a single body, rather than by three. Momentum on this reform does seem to be gathering pace. In 2011 Islamic and non-Islamic banking operations were separated, with conventional banks forced to close their Islamic windows, while a central credit bureau has also been established (see Banking chapter). Currently, the bureau has a remit limited to the banking sector, however, there are plans to expand its responsibilities to other sectors, including insurance, in the near future.

In March 2012 the governor of the QCB was also appointed as chair of the QFCRA, a move seen by some in the financial services sector as the beginning of harmonisation between the two regulatory bodies. On the industry side, there is currently no sector-wide insurance association or other trade body representing the interests of market players. This may soon change, however, with widespread recognition among insurers that such a body would support sector expansion, via educational and promotional campaigns, while also lobbying for the sector’s interests with the government.

Many foreign insurers are also currently active in Qatar, with the QFC providing a home for most of them. The QFC has been actively encouraging insurers to set up operations in the centre, as part of an overall strategy to develop Qatar as a financial services centre. Companies inside the centre can be 100% foreign owned, are not bound by national promotion policies (such as the requirement to employ a certain percentage of Qatari nationals), and have a strict, global standard regulatory authority overseeing them. They can also engage in retail business, giving access to the local market – unlike many other regional financial centres.

TAKAFUL & CONVENTIONAL: In terms of insurance firms, there are five Islamic insurance ( takaful) providers outside the QFC – the Qatar Islamic Insurance Company (QIIC), Al Khaleej Takaful Group, Doha Solidarity, Daman Islamic Insurance Company (Beema) and General Takaful (see Islamic Financial Services chapter). There are also a number of conventional insurers, including the Qatar Insurance Company (QIC), Qatar General Insurance and Reinsurance Company (QGIRC) and the Doha Insurance Company. QIIC, Al Khaleej, QGIRC, QIC and Doha Insurance are listed on the Qatar Exchange (QE).

REGULATIONS: Under the country’s insurance law, being based outside the QFC brings restrictions on foreign entities, including the stipulation that, in the majority of cases, they cannot be 100% foreign owned. Yet there are also advantages to being outside – principally that people and corporations must insure property within Qatar through a national insurer. The various restrictions on regulation, however, have meant that international companies within the QFC conducting retail business in the country have concentrated their Qatari business in areas such as health, motor, engineering, marine and life. Big contracts with public institutions and government-linked companies tend to go to the nationals. Indeed, there is some discussion in the market of a possible formalisation of this via a new insurance law that would reserve government and semi-government projects for national insurers.

Some international companies do conduct business outside the QFC though, with these including Libano-Suisse, Arabia Insurance, Arab Orient, Capital Insurance Brokers and the National Insurance Company of Egypt. Inside the QFC, insurers include Zurich Insurance, the American Life Insurance Company, MedGulf Allianz Takaful, Marsh and AXA. There are also a number of captives in the market, the largest being Al Koot, which is the insurance arm of Qatar Petroleum (QP). The QFC is also directing its efforts towards developing the captives market by attracting captives to Qatar.

RESULTS & PROSPECTS: The year 2011 was generally not a good one for insurers globally, following a string of natural disasters – from the Japanese tsunami to floods in South-east Asia. This did have some impact on some of Qatar’s local insurers that have overseas exposure, with the sector overall seeing a general slowdown in net profit growth. The cumulative net profit of the five QE-listed insurers rose 5.17% in 2011, having increased around 7% in 2010, according to QE data.

Another among the QE-listed companies, QIC faced challenges in 2011, but still saw positive net profit growth 0.32%, though this was significantly lower than that experienced in 2010’s (9.04%).

QIC was not the only insurer to experience a decline in net profit growth year-on-year (y-o-y). QIIC, which had seen an expansion of 43.19% in 2010, was down by 4.65% in 2011. Other firms experienced growth, albeit at a slower rate. Doha Insurance grew 13.58% in 2010, but 8.53% in 2011. Al Khaleej, on the other hand, saw profits up 12.89% in 2011, after a rise of 7.13% in 2010. Total assets for the listed companies reached approximately QR14.93bn ($4.1bn), with two outfits – QIC and QGIRC – accounting for 81% of this. At year-end 2011, QIC had QR7.78bn ($2.14bn) in assets – 52.1% of the total; QGRIC QR4.28bn ($1.18bn), or 28.69%; Doha Insurance QR1.31bn ($359.73m), or 8.78%; Al Khaleej QR920m ($252.63m), or 6.16%; and QIIC had QR640m ($175.74m), or 4.27%. QGRIC saw the highest rate of profit growth, however, rising from a 12.25% contraction in 2010 to 42.29% expansion in 2011.

PREMIUM CLAIMS: Gross premiums for the five QE-listed companies also expanded, by 7.19% y-o-y, with cumulative gross premiums totalling QR3.76bn ($1.03bn). QIC, QIIC and Doha Insurance all showed above average gross premium growth of 10.68%, 17.62% and 13.37%, respectively. This equated to QR2.38bn ($653.55m), QR210m (57.66m) and QR420m ($115.33) for the top listed firms. Al Khaleej and QGRIC, on the other hand, saw declines in gross premiums, of 4.02% and 9.11%, respectively, leaving the first with QR270m ($74.14) and the second with QR470m ($129.06m). Net claims were also up for most insurers. The QIIC experienced the largest increase, of 27.16%, while QIC saw net claims rise 11.74% and Doha Insurance 8.07%. QGRIC’s net claims, meanwhile, fell by 9.01%. However, the value of both premiums and claims that were passed over to reinsurers did decrease for some, producing ratios of reinsurance claims to total claims of 48% for QGRIC, down from 63% in 2010, and 14% for QIIC, down from 19%. The ratios for QIC and Doha Insurance, on the other hand, both rose from 46% to 47% and 31% to 91%, respectively. Within the QFC, at end-2011 there were some 24 insurance companies registered. There are also brokers based outside Qatar which do business in the country – sometimes as part of an international contract with a company that has a presence in Qatar, and sometimes directly with Qatari customers. This has raised concerns among many Qatar-based companies, both inside the QFC and outside, over the degree of consumer protection that can be given by companies without a presence on the ground.

REINSURANCE: Reinsurance has traditionally been an area in which Qatari companies have gone outside the country to access. The GCC in general has very high cession rates – the percentage of the total premium that goes to reinsurers – due to a generally low level of capital among Gulf insurers. In 2011, however, for some insurers, the cession rates began to come down y-o-y, demonstrating the increasing maturity of the local market. Between 2010 and 2011, for QIC, the rate of total gross premiums ceded to reinsurers fell from 46% to 42%; for QIIC it dropped from 30% to 26%; and for Doha Insurance, from 88% to 77%. Al Khaleej and QGRIC both saw increases, however, from 58% to 61% and 55% to 66%, respectively. These are still high rates, with the Qatari authorities and sector players keen to see more reinsurance staying within the Gulf in future. The QFC is set to take the lead, with the QFCA attempting to establish Qatar as the region’s centre for reinsurance.

LIFE & NON-LIFE: In terms of the split between life and non-life, the latter accounts for the vast majority of the sector, although the former is expanding rapidly. Full figures for 2011 were unavailable at the time of writing, but according to research by Alpen Capital, in 2010 total premiums in life amounted to some $60m, while in non-life, they were around $933m. This would mean roughly 6% of premiums were from life and 94% from non-life. According to figures released by the QFCA in March 2012, life showed a compound annual growth rate (CAGR) of 25% in premiums over the five years leading to end-2011, while non-life premiums grew at a CAGR of 20%. Going by Alpen Capital figures and assuming average growth on the year, a total premium value of around $75m for life, and $1.12bn for non-life is possible in 2011. Most revenue comes from marine, at 34.5% in 2009, slightly ahead of energy, at 29.3%. Property then accounted for 23.2%, casualty 7.1%, aviation 3.6%, and accident and health 2.3%.

Conventional insurance companies have dominated the market for life, as sharia-compliant versions have yet to find a major market in Qatar. Yet, in the longer term, the increasing acceptance of Islamic insurance may well lead to wider acceptance of life insurance in general among Qataris. Life insurance has, historically, been a more substantial line among international insurance firms, particularly those based in the QFC (see Islamic Financial Services chapter). Some sector players believe that because demand for life segment offerings is still a relatively new market, international players are more able to sustain the initial losses involved than local players. At the same time, the relative infancy of the business means that human resources are an issue in the life segment due to the more complex nature of many products and the labour-intensive way in which they are sold. In terms of lines of business.

EXPANDING THE MARKET: Overall, the penetration rate for insurance of any kind remains quite low, at approximately 0.89%, according to the QFCA. This means there is enormous potential for growth, particularly given a number of outstanding factors.

The first of these is demographics. In recent years Qatar has shown the fastest population growth in the GCC – the number of people in the country more than doubled from 614,000 to 1.7m between 2000 and 2010, according to the Arab Monetary Fund. Furthermore, 85-90% of all Qataris fall into the 15-to 64-year-old demographic, above the 70-80% GCC average. This means a naturally expanding market for some years to come. These citizens also now enjoy the highest per capita income of any country in the world, at purchasing power parity, a title held since 2010, when Qatar surpassed Luxembourg and achieved $88,559 per capita, per annum. This figure is widely thought likely to exceed $100,000 in 2011-12, as the country continues to experience high GDP growth – 16.6% in 2010 and likely around 18.8% in 2011, according to the IMF. The government also plans to bring some large new investment to bear in the next few years. According to the minister of finance, speaking in 2011, some $ 160bn170bn is due to be spent in the next 10 years under these plans. This will mainly go on infrastructure and oil and gas projects, with $130bn of planned expenditure up to the end of 2015. At the high-profile end are preparations for the World Cup, which Qatar is hosting in 2022. Another reason to expect growth is that there are very few compulsory insurance rules in Qatar. Third-party motor liability and professional liability for engineers are the only two categories currently obligatory, far fewer than in many other countries. It is expected that the next few years will see more categories added to this list – the most widely anticipated being mandatory health insurance for Qataris and expatriates (see analysis).

LINES OF BUSINESS: In the past few years, marine has been among the largest lines in terms of share of premiums, with this largely tied to the oil and gas industry. The development of liquefied natural gas (LNG) and the need to transport it has led to the construction of 345-metre Q-Max sea tankers – the largest LNG carriers in the world – which will need to be insured. Owned and operated by the Qatar Gas Transport Company (Nakilat), these have dominated premiums in the marine sector. The future also looks promising for cargo insurance, given the investment plans currently under way for infrastructure and oil and gas development. As Qatar has a dearth of indigenous suppliers for many materials, marine transport will be the preferred option for bulk importers. Energy, meanwhile, continues to take a major share of premiums, despite the moratorium on further gas field development now in place. Currently, most new projects are in the onshore facilities for gas products. QP is also expanding overseas, providing more opportunities for its captive, Al Koot.

Indeed, Al Koot, which is owned by Gulf International Services, had an exceptional year in 2011, with full-year premiums and net commission income up 14.5% y-o-y, to a record QR550.3m ($151.11m), according to company statements. Full-year revenue rose 27.4% to QR118.3m ($32.49m), while management fees and reinsurance commissions increased 11.9% to QR4m ($1.1m). Driving growth were improvements in two areas – premium inflation and growth in sums insured within the energy business, and a large expansion in Al Koot’s medical line. Medical and health are two areas many insurers see as the likely high-growth areas in the years to come (see analysis). The motor insurance market, meanwhile, continues to be highly competitive, with some in the sector citing price variation of as much as 30% between insurers. Profitability had also been under pressure from an extended period in which third-party premiums and accident liability were held at the same level by the Ministry of Interior. These levels were revised upwards in 2010. Take-up of personal insurance remains low, however, with much room for expansion in home, accident and fire policies.

DISTRIBUTION: In terms of distribution channels, non-life is mainly sold by brokers or direct sales, with many insurers also selling general insurance products at banks. The period ahead is likely to see the bank channel expand, particularly for life products. Up to now, several insurers have taken the bancassurance route: In 2011 Allianz Takaful began a partnership with Barwa Bank in Qatar to promote and sell its Islamic insurance products through the bank’s windows. QIC also sells products via bancassurance, and the years ahead are expected to see this distribution channel take on ever greater significance.

HUMAN RESOURCES: Finding qualified staff remains one of the biggest challenges for the sector. With a high density of companies, competition for employees is very high. Moreover, for firms that are based outside the QFC, Qatarisation policies mean that a quota of local staff must be employed. Thus, there is a need to develop local talent, which will improve customer services and the market as a whole. Qatar does have a major commitment to developing its education and training sector, however, and many are hopeful that the next few years will see a greater impact from this on the pool of expertise.

OUTLOOK: The sector is expected to remain competitive, within an increasingly regulated market. Moves to establish both an industry regulator and a financial market regulator will begin to take hold, and the array of projects will keep insurers busy in the years ahead. Additionally, a new health law could also radically expand the market. Thus, while competition is strong and the penetration rate for products currently low, the future holds profitable rewards.