Insurers in Qatar once again showed strong financial performance in 2014, and with the supply of large projects generated by the nation’s hosting of the 2022 FIFA World Cup, the industry is well positioned to make further gains. In the meantime, a process of reform that aims to streamline the regulatory regime continues apace, while the ongoing implementation of a new health insurance scheme for nationals and expatriates marks another important milestone.

MARKET STRUCTURE: Qatar’s insurance sector is made up of a vibrant mix of local, regional and international firms – 27 in total, according to Alpen Capital – which operate in two distinct regulatory environments: those within the Qatar Financial Centre (QFC) and those that operate outside its jurisdiction. All financial institutions, including firms within the QFC, must be licensed by the Qatar Central Bank (QCB), the primary regulator of financial institutions operating in Qatar.

The QFC is a manifestation of Qatar’s drive to broaden its economic base away from hydrocarbons activity, and was established to act as a hub for a broad range of financial services. Companies operating within its jurisdiction are subject to a legal, regulatory, tax and business environment distinct from the national laws and regulations, and as a result benefit from an array of incentives, such as an exemption from Qatarisation quotas, 100% foreign ownership, 100% repatriation of profits and a competitive 10% corporate tax rate on locally sourced profits. The fact that insurers based in the QFC are able to compete for on-shore business in the wider market has made it a popular destination for foreign insurers, and international giants including AXA, Allianz, Chartis and Mitsui Sumitomo have opted to set up shop there.

By 2014 the QFC was home to 18 insurers and eight insurance intermediaries, but in terms of gross written premiums (GWPs) it is the national firms operating outside the QFC that claim the lion’s share – the largest is Qatar Insurance Company (QIC), which has a market share of around 40%. Four more general insurers make up what might be described as Qatar’s “Big Five”: Qatar General Insurance and Reinsurance Company (QGIRC), Doha Insurance Company (DIC), Al Khaleej Takaful Group and Qatar Islamic Insurance Company (QIIC).

Between them, they offer a broad spectrum of insurance lines to businesses and individuals, including marine, engineering, property, motor, medical, casualty and personal insurance. The market also includes a small number of foreign insurers that have set up operations outside the QFC, such as Libano-Suisse, Arabia Insurance, Arab Orient, Capital Insurance Brokers and the National Insurance Company of Egypt.

In addition to Qatar’s stand-alone insurers, a number of captive insurers (those established to insure risks emanating from their parent group) also exist. The largest of these is Al Koot Insurance and Reinsurance Company, although since its initial public offering the firm is no longer a Qatar Petroleum subsidiary and thus not strictly speaking a captive. Establishing Qatar as a centre for captive insurance is a key part of the growth strategy being deployed by the QFC authorities.

TAKAFUL: Qatar has also been playing a part in the global development of takaful, or sharia-compliant insurance. According to EY, global takaful premiums showed a compound annual growth rate of 22% between 2007 and 2011, and 14% between 2012 and 2014. In the GCC, this upward trajectory continues: gross takaful contributions are forecast to reach $8.9bn in 2014, up from $7.9bn in 2013. While the cooperative model that Saudi Arabia’s insurers follow accounts for around 77% of regional takaful premiums, Qatar’s players have been gradually increasing their market share, making the country the third-largest takaful market in the region behind Saudi Arabia and the UAE. In 2009 an estimated $136m was taken in premiums by Qatar’s takaful providers, a figure that grew to reach $384m in 2014. Three of the Big Five, QIIC, General Takaful and Al Khaleej, play a leading role in the segment, while the remainder of the nation’s Islamic insurance business is largely accounted for by a further two firms: Doha Insurance’s Doha Takaful and Daman Islamic Insurance Company, known as Beema (see Islamic Financial Services chapter).

REGULATION: The question of how Qatar’s rapidly developing insurance sector is regulated has, in recent years, become one of the main concerns of the industry. In 2012 the Regulation of Financial Institutions Law replaced legislation on the supervision and control of insurers that had been in place since 1966. The new law establishes the QCB as the regulator for the entire financial services industry, such as banks, financial services firms, insurers – including those licensed by the QFC Regulatory Authority (QFCRA) – as well as the stock exchange. As a result, the QCB has acquired responsibility for the licensing and supervision of all insurers, reinsurers and intermediaries, a development that has been cautiously welcomed.

The move has been widely interpreted as a step towards establishing a harmonised regulatory structure across the industry, but to date the QCB has made no attempt to interfere with the already established, bifocal regulatory system. Therefore, the five national insurers that operate outside of the QFC’s jurisdiction do so under the same basis as before the new legislation, when they were directly supervised by the Ministry of Economy and Commerce and – as listed firms on the exchange – the Qatar Financial Markets Authority. As national companies, they continue to enjoy the right to lead-underwrite government-sponsored project risks, and are granted a degree of protection from competition in that the government has decided not to issue new insurance licences since the mid-2000s.

The insurers based in the QFC, meanwhile, continue to be overseen by a tripartite structure. The Qatar Financial Centre Authority (QFCA) is primarily responsible for investment promotion and commercial strategy. The QFCRA develops and administers the regulatory framework, grants licences and oversees financial services business conducted within the QFC, and answers to the Council of Ministers. 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.

While the incentives offered under QFC regulations are similar to those seen in the financial centres of other regional jurisdictions, the ability of insurers operating within its framework to pursue business in the domestic market distinguishes it from its counterparts. The QFC also differs from some other financial centres in that it has no physical boundary, and firms are free to establish themselves outside the QFC buildings in Doha and still operate under its jurisdiction.

NEW RULES: Since its inception in 2005, the regulations governing insurers in the QFC have undergone several changes. In October 2013 the QFCRA issued new rules for insurers under its jurisdiction, amending the 2006 rules by which they were governed. On January 1, 2015 these came into effect, introducing changes across a wide range of insurance-related activities. For example, under the new regime, insurers must provide a detailed risk management strategy to the regulator, meet more stringent capital adequacy rules, adopt a consistent valuation process for assets and liabilities, provide details of the consolidated financial position of any group that the insurer forms part of and, on the investment side, hold supporting assets of a value at least equivalent to its insurance liabilities. While the new regulations only apply to QFC members, they are of interest to the wider sector: given the scarcity of regulation of non-QFC firms, any future harmonisation of the two regimes is likely to see the wholesale adoption of the QFC’s regulatory infrastructure. In addition, one of the most significant changes slated for 2015 is the introduction of the QCB’s insurance rulebook, expected to have a major impact on the sector.

NON-LIFE DOMINATES: The Qatari market is similar to others in the Gulf in that it is dominated by the non-life segment. According to the most recent aggregate data, Qatar’s premiums totalled $1.3bn in 2012, with $1.24bn for non-life and $58m for life. In the same year, its insurance penetration rate was 0.63%. Low penetration rates mean there is ample room for growth in both non-life and life, although the structure of the economy suggests that the former will continue to account for the majority of insurance contributions for some time. The hydrocarbons activity that underpins the economy is the principal generator of premiums in non-life, and the bulk of this business goes to the relatively small number of large domestic players based outside the QFC, such as QIC and Al Koot. However, the smaller insurance companies and those based within the QFC benefit from the range of associated risks that Qatar’s natural gas production and liquefied natural gas (LNG) shipments produce.

According to Alpen, life insurance accounted for 5% of premiums in 2012, and only began to emerge as an identifiable contributor to GDP in 2009. Since that time, its development has slowed somewhat, although momentum is expected to return to the life segment with the increasing focus placed on takaful and the expected extension of mandatory health insurance to expatriates (who make up 80% of the population).

RELIANCE ON REINSURANCE: Another characteristic that Qatar shares with its regional neighbours is that, thanks to the predominance of commercial lines and a shortage of expertise, most primary insurers rely heavily on reinsurers in order to cover risk. According to Alpen, many insurers retain less than 10% of their business and in some cases cede all of their premiums. This figure compares unfavourably with more developed markets, such as the UK, where average retention rates run in the region of 80%. Due to the limited size of the market, reinsurance has traditionally been an area in which Qatari firms have looked abroad to access. Similarly, Qatari insurers moving into reinsurance have focused on external markets to develop business: QIC recently established Qatar Re (Q-Re) as a means to diversify from its core portfolio and, although its headquarters remain in Doha and it intends to conduct business in the region, it has established branch offices in Zurich and Bermuda and a representative office in London in a bid to secure international portfolios.

However, while cession rates across the industry remain high, there are signs that this is changing. As Qatar’s insurance sector evolves, local expertise is strengthened and its business mix expands to include alternative lines such as health insurance, the amount of retained business is increasing – particularly among larger players. An OBG analysis of the published retention levels of Qatar’s five national insurers shows their aggregate cession rate in 2012 was 47.5% of GWPs. For first-half 2013 this had declined to 37.3% of GWPs, and over first-half 2014 the cession rate fell to 32.1%.

Similar to the broader insurance industry, reinsurance activities in Qatar are expected to expand significantly in the lead-up to 2030, as major infrastructure projects including the Qatar national railway begin to roll out. The segment faces challenges, however, and stakeholders have questioned the domestic industry’s over-reliance on reinsurance support. A glut of low-cost reinsurance products, coupled with the process of inwards facultative reinsurance, have increased the sector’s vulnerability to accumulated risks; achieving the right balance of reinsurance support, while continuing to improve transparency, will be critical for sustainable growth in both segments.

A number of domestic firms currently offer reinsurance services in Qatar, most notably the Qatar General Insurance and Reinsurance Company (QGIR), Qatar Insurance Company (QIC), which established a reinsurance segment, Qatar Re, in 2009, SEIB insurance and Reinsurance, Al Koot Insurance and Reinsurance and Al Khaleej Takaful Group.

With a focus on large-scale energy, engineering and other commercial lines, reinsurance companies have found considerable success in recent years. Qatar RE, for example, reported that gross premiums grew by 55% y-o-y during the first half of 2014 to reach $327m.

Law No. 13 of 2012 saw the QCB assume responsibility for all financial service providers in the country, including insurance and reinsurance companies, setting new requirements for licensure and operation. These regulatory improvements, coupled with an anticipated positive spin-off effect of major infrastructure builds, are expected to lead to the domestic industry, including the reinsurance segment, expanding considerably in the medium term.

The positive effect of infrastructure projects on the reinsurance segment was most recently demonstrated with the April 2014 announcement that Qatar Rail had awarded one of the largest-ever single project tunnelling and rail construction insurance policies, for phase one of the Doha Metro, to a consortium of local insurance companies. Although UK-based Liberty Insurance will act as lead reinsurer, after being appointed the project’s main broker, the consortium will provide the majority of construction risk and third-party liability insurance, with 80% of the total risk retained by domestic companies, demonstrating the growing role of domestic reinsurers in major development projects.

REINSURANCE CHALLENGES: Although the forecast for domestic reinsurance growth is positive, challenges remain, most notably the broader insurance industry’s over-reliance on cheap, readily-available reinsurance coverage. At the same time, the QFC reports that domestic insurers frequently engage in facultative inward reinsurance, in which insurers purchase cover for risks to individual policies which are not covered by their own reinsurance treaties, reducing the market’s transparency and increasing its vulnerability to accumulation risk.

“Excess capacity could jeopardise the (partial) improvements achieved on treaty terms and conditions over the past two years. Although competition is inevitable and here to stay, the reinsurers operating in the region should at least be in a position to maintain these levels of achievements. Everybody knows that current pricing levels will not allow for absorbing a major loss,” Gökhan Aktas, head of foreign inward business at Milli Re, told the QFC in 2015.

According to the QFC’s Middle East and North Africa Insurance Barometer 2014 report, Qatar has the highest reinsurance cession rates among GCC countries, with rates standing at 57% in 2014, compared to the GCC average of 46%. Reducing this over-reliance on reinsurance activities, most likely through reinsurance premium increases, will be essential for steady long-term growth in both insurance and reinsurance activities.

JOINING FORCES: Qatari insurers have shown a willingness to join forces to capture an increasing share of the premiums that are emanating from the major infrastructure projects under way. A number of insurers have come together under the National Insurance Consortium (NIC) to bid for selected projects that would be beyond their individual capacity, and in 2014 they landed one of the largest ever tunnelling and rail construction policies from Qatar Rail. The six-member consortium (led by QIC, along with QGIRC, Al Khaleej, DIC, QIIC and Al Koot) will provide third-party liability and construction all risks insurance to phase one of the Doha Metro project. Maurizio Colautti, deputy insurance CEO at QGIRC, told OBG, “The NIC has helped to increase the capacity in the domestic market, so that the capacity in Qatar is now significant. Although the NIC agreement was aimed at insurance for projects for the 2022 FIFA World Cup, it may also be extended to cover projects for the development of the country.”

LINES & DISTRIBUTION: Given the structure of the economy, energy, marine and construction risks are the most significant business lines. Qatari insurers also benefit from several compulsory lines, the most notable of which is third-party motor insurance – a low-margin, competitive segment in which the government controls the premium price. Turning a profit from motor polices is a challenging proposition for most insurers. “The premium for third-party motor insurance is one of the industry’s biggest challenges,” Colautti told OBG. “It was last adjusted in 2010, and that came into effect in 2011. But there are more cars on the road, and as a result, there are more accidents. We have also seen inflation on spare parts; therefore, we have to balance the amount of compulsory third-party insurance we take with the returns on comprehensive policies, which are not priced by the government.” Under Qatar’s new regulations, the decision to adjust third-party premiums rests with the QCB. Qatar does not have compulsory insurance written into mortgage law, and the adoption thereof would be widely welcomed by the industry.

HEALTH COVER: Health insurance has not traditionally accounted for a significant share of premiums, largely due to the subsidisation of care. However, the introduction of mandatory health insurance could see the segment play a larger part in premium growth. Having started with a first phase that covered Qatari women, the National Health Insurance Scheme, known as Seha and operated by the National Health Insurance Company (NHIC), was extended to all Qataris in 2014, with mandatory coverage for expats postponed until the end of 2016. Through Seha, Qatar plans to move from a system of subsidised care for nationals and expats to one in which the government pays for nationals’ health care, while employers (or sponsors) cover premiums for foreigners. However, the long-term outlook for Qatari insurers remains unclear (see analysis). There are many issues to resolve, including NHIC reports of system abuse and lower oil prices that call into question the programme’s financial sustainability. Insurers have likewise voiced complaints. “If the NHIC is looked at through the perspective of the 2030 vision, it should be complementary to the private sector in every sense and not a replacement. Otherwise, it will dry up the market and force private health insurers out of the market,” Elias Chedid, the COO and deputy CEO of SEIB Insurance, told OBG. “Ultimately, while you will see short-term benefits from a single insurer, in the long term it runs the risk of complacency, underpinned by a lack of innovation due to lack of competition. However, this risk can be mitigated by strengthening the role of private health insurers in order to foster innovation and drive creativity towards a successful health care system,” Chedid added.

DISTRIBUTION: In terms of distribution, direct channels are the dominant sales method, as brokers account for just 25% of written premiums. However, brokerage is a growing distribution channel, with most major businesses turning to them. Traditionally, some brokers have been licensed by the Ministry of Economy and Commerce, while those operating under the QFC were overseen by the QFCRA. The anticipated merger of these regulatory regimes may see QFCRA regulations adopted across the whole sector – a development that is likely to challenge some brokers. As such, mergers are a medium-term possibility. The adoption of bancassurance has been modest to date, but insurers and banks have shown more interest in recent years. In 2011, for example, Allianz Takaful began a partnership with Barwa Bank to sell products through its windows, and in April 2013 Qatar National Bank announced it would launch a new product that combines a savings plan and insurance cover, to be distributed by MetLife Alico.

PERFORMANCE: Qatar’s insurance industry appears to be in a transition period, subject to a regulatory regime that is in the process of fundamental alteration, gearing up to accommodate the health care system changes. However, the robust nature of the economy – built on substantial gas reserves – has enabled the sector to put in strong performances. Recent years have seen it expand in line with the wider economy, and an OBG analysis of Qatar’s top five insurers shows this growth trajectory has been sustained over the past year. Aggregate GWPs for the first half of 2014 expanded by 41.7% year-on-year to reach nearly QR4.2bn ($1.15bn), while Qatar’s top insurers saw an equally impressive expansion of 54.3% over the same period.

OUTLOOK: The future of the industry rests on the strong fundamentals of Qatar’s economy. More recently, the pipeline of large, state-driven projects has been given additional impetus by Qatar’s successful bid to host the 2022 FIFA World Cup. But even without these factors, the market could expect organic expansion: in recent years Qatar has seen the fastest population growth in the GCC, more than doubling from 614,000 to 1.7m over 2000-10. Moreover, 85-90% of Qataris are 15 to 64, above the 70-80% GCC average. Both these factors will help the market expand for years to come.