In recent years Qatar’s insurance sector has expanded swiftly, on the back of government spending, economic development and steadily increasing awareness of the benefits of coverage among the nation’s rapidly growing population.
Between 2005 and the end of 2015 the industry posted a compound annual growth rate (CAGR) of 21%, according to data from Moody’s. By the end of 2014 Qatar was the third-largest insurance market in the region, accounting for around 10% of premiums written in the GCC. Given that insurance growth tends to track overall economic growth and that Qatar’s economy is largely driven by the state, the recent jump in insurance activity will likely continue at least until 2022, when Qatar is scheduled to host the FIFA World Cup.
Indeed, according to forecasts by Alpen Capital, the market is expected to increase at a CAGR of 17.8% from 2014 to 2020, which would make it the fastest-growing insurance sector in the GCC by current estimates. “There is a huge amount of potential still across a number of segments, from engineering to fire and safety to various retail products,” Elias Chedid, the COO and deputy CEO of SEIB Insurance and Reinsurance, a local firm, told OBG in November 2015. “Given recent regulatory changes and Qatar’s ongoing population growth, we are optimistic about the future.”
That said, the local insurance industry faces a variety of key challenges. The sector is unique in the region in that it is effectively divided into two separate segments. Five so-called national firms – which tend to cover most government projects – are regulated by the Qatar Central Bank (QCB), while most of the remaining underwriters operate under the auspices of the independent Qatar Financial Centre Regulatory Authority (QFCRA). Disparities between the regulations developed and enforced by these two authorities are a cause for concern in the industry. The QCB recently introduced a new draft insurance regulatory framework, which was expected to bring Qatar’s five national coverage providers more in line with QFCRA regulations, though at the time of press the legislation had yet to finalised.
Another key challenge is the lack of a central insurance statistics database, which makes it difficult for firms to track long-term trends and run business analytics. More fundamentally, Qatar’s insurance penetration rate remains low – at around 1% as of late 2015, according to Moody’s – which is both a challenge and an opportunity. This would put per capita spending on insurance at just $979. Moody’s went on to report that insurance premiums in Qatar account for 1% of the country’s gross GDP, while the global average is 6%. “The correlation of written premiums in the market over the past five years in relation to population growth is problematic, given the substantial increase in the number of residents and the relatively low increase in premium growth in the industry,” Chedid told OBG.
The QCB, the QFCRA and the companies that make up the insurance sector are working to address these and other obstacles to ongoing expansion. Most local players are positive about the industry’s prospects, despite a broader economic tightening in Qatar due to the decline in oil and gas prices in recent years.
In the run-up to declaring independence from the UK in 1971, Qatar’s leaders set out to establish a fully fledged insurance industry, in an effort to protect the state’s rapidly expanding assets. Founded in March 1964 by royal decree, Qatar Insurance Company (QIC) was the first firm to underwrite risk in the country. Today it boasts a market share of around 40%, according to Alpen Capital. For the following decade QIC had a domestic monopoly. In 1978 Al Khaleej Takaful Group (AKTG) was launched, followed a year later by Qatar General Insurance and Reinsurance Company (QGIRC). These firms brought competition to the market for the first time.
Beginning in the 1990s, a slew of new firms came onto the market, attracted by Qatar’s rapid economic growth. Key players that opened their doors during this period include Qatar Islamic Insurance Company (QIIC, 1995) and Doha Insurance Company (DIC, 1999), while SEIB Insurance and Reinsurance Company (SEIB), which is today a major operator, was established in 2009.
Oversight & Regulation
Qatar’s 31 insurance companies have experienced a series of major regulatory changes in recent years. Under Law No. 13 of 2012, known as the QCB Law, the central bank became the primary regulator of all financial institutions operating in the country. Prior to the introduction of the law, Qatar’s five national companies were licensed and regulated by the Ministry of Economy and Commerce and, in their capacity as listed companies on the Qatar Stock Exchange (QSE), by the Qatar Financial Markets Authority (QFMA). Today oversight for this group has shifted to the QCB. Another 17 insurers and reinsurers are registered with the QFC. Additionally, Qatar is home to a handful of standalone coverage providers and captive insurance companies, the latter of which are attached to parent client companies. Since 2012 the QCB has served as an umbrella regulator over the entire sector, though it has direct oversight only over the non-QFC-registered players. “The regulatory situation in the insurance [sector] has gone unresolved – and there has therefore been some confusion – since the introduction of the 2012 law,” Abdulaziz Nasser Al Ansari, the QCB’s executive director for supervision and control for insurance, told OBG in late 2015. “The new draft insurance regulations were designed to address this confusion.”
In 2015 the central bank issued a draft implementing regulations for the insurance sector, which effectively “covers both prudential and business conduct requirements for insurers in Qatar (outside the QFC),” according to a report issued by UK-based law firm Pinsent Masons, which operates an office in Qatar. The new guidelines, which are expected to be implemented in final form before the end of 2016, will clarify a variety of issues, including licensing requirements for insurers, reinsurers and other industry players; and reporting and risk management requirements.
The regulations are an important component of a recent drive to harmonise Qatar’s financial regulatory environment, which has been divided since the establishment of the QFC in 2005. Indeed, the QCB law is complemented by Law No. 8 of 2012, (QFMA Law), which aims to bring the nation’s capital markets regulation under the jurisdiction of the QCB. Broadly speaking, these efforts are meant to facilitate increased cooperation and alignment between Qatar’s existing financial regulatory agencies, including the QCB, the QFCRA and the QFMA.
Insurance firms registered with the QFC have also seen regulatory changes in recent years. In October 2013 the QFCRA introduced a new, comprehensive insurance framework, which came into effect at the beginning of 2015.
With the objective of shoring up the QFC’s insurance industry, the legislation included requirements to improve risk management practices, implement more stringent capital adequacy and valuation controls, and improve reporting procedures. The introduction of the QCB’s new insurance regulatory framework in 2016 will likely strengthen these requirements further. Additionally, according to the QCB, the new rulebook has the potential to result in a round of mergers and acquisitions in the market. “The new central bank regulations are similar to the QFC’s 2013 rules, in that they impose capital and management demands on insurance firms,” Al Ansari told OBG. “This could result in consolidation, as smaller firms might have trouble meeting the new requirements.”
According to a statement made by Yousuf Mohamed Al Jaida, CEO of the QFC, to Qatari daily The Peninsula, in 2015 Qatar’s insurance premiums accounted for 1% of GDP, or $2bn. Al Jaida went on to state that insurance premiums have grown at a 7% CAGR since 2011.
These numbers differ, however, from those produced in a report by Alpen Capital. According to Alpen, in 2014 Qatar’s insurance companies pulled in gross written premiums (GWPs) worth $2.2bn, up from $2bn in 2013, $1.3bn in 2012, $1.1bn in 2011 and around $900m in 2010, and the sector’s overall CAGR from 2010 to 2014 was 22.4%.
Despite this rapid growth, insurance penetration in the country was just 1.01% at the end of 2014 – the lowest rate in the region – up from 0.95% in 2013 and 0.67% in 2012, according to Alpen. Insurance penetration is a measurement of GWPs as a percentage of a country’s GDP. With this in mind, Qatar’s low penetration rate can be attributed in part to its historically small insurance base, and in part to the rapid rate of GDP growth in the country over the past decade. Moody’s also noted in its report that “underwriting profitability for the top six players increased marginally in 2015”. The average combined ratio, a measurement of claims and costs as a proportion of premiums, improved to 97% in 2015, up 1% over 2014.
The jump in GWPs over the past five years took place almost entirely in non-life business lines, according to Alpen’s data. Indeed, in 2014 non-life coverage brought in $2.1bn in premiums, while life products accounted for just $0.1bn.
This pattern has held true each year since 2010. Life insurance penetration has been steady since 2011, at around 0.3%, while life insurance density – a measure of GWPs per capita – declined slightly, from $37 in 2010 to $29 in 2014. Non-life insurance density, meanwhile, nearly doubled over the same period, from $558 in 2010 to $948 as of the end of 2014, according to Alpen Capital.
Qatar’s five national insurers, which together accounted for more than 60% of total sector GWPs in 2014, are listed on the QSE. In 2015 the QSE All-Share Insurance index, which is made up of all five players, boasted a market capitalisation of QR22.1bn ($6.1bn), which represented 4% of the bourse’s total market cap of QR553.2bn ($151.8bn). The listed insurance firms grew moderately in value over the course of the year, starting 2015 with a market capitalisation of QR21.9bn ($6bn). In terms of trading activity, meanwhile, insurance firms are relatively inactive.
According to data from the stock exchange, in 2015 the traded volume of insurance equities accounted for just 1.9% of the QSE’s total trade volume (see Capital Markets chapter).
Qatar is currently the fastest-growing national insurance market in what is widely considered to be one of the fastest-growing insurance regions in the world, the GCC.
According to Alpen Capital, regional GWPs hit $22.2bn in 2014, which represented a CAGR of 13.8% since 2010, when premiums came in at $13.3bn. The two largest markets in the region – Saudi Arabia and the UAE – together accounted for upwards of 70% of total GWPs in 2014.
The rapid expansion of Qatar’s insurance industry, however, has resulted in the country taking a steadily expanding share of the regional market, equal to around 10% in 2014, up from 7.5% in 2010, for example. Similarly, Qatar’s 2014 insurance penetration rate of 1% was down slightly on a GCC average of 1.4%, which in turn was considerably below a global average of 6.3% and an emerging markets average of 2.7%, according to Alpen. Given that insurance market growth has outpaced GDP growth in Qatar and across the GCC in recent years, regional penetration rates are expected to rise for the foreseeable future.
Taking these and other factors into account, Alpen’s high and low bounds for the CAGR of the GCC’s insurance sector as a whole for the period 2014-20 were 18.7% and 14.1%, respectively.
Given the domestic economy’s reliance on hydrocarbons-related revenues and government projects, it is not surprising that energy and construction insurance have dominated the non-life segment in terms of GWPs in recent years in Qatar. These segments are served primarily by the five national underwriters – QIC, DIC, QGIRC, AKTG and QIIC.
Given their long-standing operations in the country and their non-QFC status, these firms tend to be favoured for government contracts. This situation has caused concern among insurers operating within the relatively strict operating environment of the QFC. “In general QFC companies have been much more strictly regulated than firms operating under the country’s various other regulatory regimes,” Chedid told OBG. “The QCB’s new rulebook, which is in line with international standards, should bring the two groups closer to a level playing field, and will hopefully reduce confusion about who is qualified to insure major stateled construction projects, for example.”
Given the relatively small size of the industry, no individual insurer – national or otherwise – has the capacity to cover project risk on the scale of many of the large-scale infrastructure initiatives currently being carried out in Qatar.
Consequently, in recent years local insurers have come together to form consortia, effectively pooling their risk capacity in an effort to provide coverage for a number of major projects. In April 2014, for example, Qatar Rail, the state-run firm set up to develop the country’s new rail network, awarded the largest insurance contract ever issued in Qatar to a seven-member consortium of national firms plus a number of QFC-registered and international support firms. Core consortium members included QIC, DIC, QGIRC, AKTG, QIIC, SEIB and Al Koot Insurance and Reinsurance Company, the latter of which used to be a fully captive insurance provider for the state-owned energy giant Qatar Petroleum until it was spun off as a semi-independent underwriter in 2008.
Third-party liability (TPL) motor insurance is compulsory in Qatar. As such, the segment is one of the largest non-life lines in the country. Motor policies account for a considerable percentage of GWPs at most of the nation’s insurance companies. That said, TPL premium rates are set by the government, and competition for motor customers is intense. Due to underpricing, the segment is a loss leader at some companies. Most underwriters work to make up for losses on TPL coverage by issuing comprehensive motor policies, which are not compulsory or state-controlled and are, consequently, profitable.
Life & Health
As in many other Gulf countries, life insurance accounts for a very small percentage of GWPs issued in Qatar, with penetration hovering at around 0.03% since 2011, according to Alpen. Given the state’s long commitment to social spending, and the fact that as of 2014 Qatar was the wealthiest country in the world on a per capita basis, with an average annual per capita income of approximately $100,000, life insurance, which is marketed primarily as an investment product in much of the rest of the world, has yet to catch on among the general population. Currently life products are offered almost exclusively by a handful of large international firms operating from the QFC.
Islamic tenets prohibiting certain types of financial transactions have also negatively impacted the local life insurance business, though a recent turn to sharia-compliant products has the potential to jump-start activity in the segment.
Takaful (Islamic insurance) has taken off in Qatar in recent years, as it has across the region and, indeed, around the world since the mid-2000s. Two of the top five underwriters – QIIC and AKTG – are fully sharia-compliant.
According to EY as of 2014 Qatar was the third-largest takaful market in the GCC, and the country’s share has been growing in recent years (see Islamic Financial Services chapter).
The health care market, meanwhile, has undergone a number of major changes in recent years. Traditionally the state has provided medical services free of charge at government-run facilities. In 2013, however, the authorities launched a compulsory medical insurance programme called Seha (“health” in Arabic), which was designed to provide compulsory cover for Qataris and expatriates alike, with the state covering the bill for nationals. Employers were to be required to pay for coverage for all expatriate employees.
The programme was managed by the National Health Insurance Company (NHIC), a purpose-formed firm that was established in 2013. Stages 1 and 2 were launched in 2013 and 2014, and covered all Qatari citizens. However, Stage 3, which was supposed to cover expatriates and launch in 2016, never came to fruition. In December 2015 the government announced that Seha had been suspended, and that the NHIC would cease operations at the end of the year.
The cancellation of the programme was unexpected. According to the official state news service, Qatar News Agency, the decision to put Seha on hold was made by the country’s cabinet, which “decided instead to rely on private insurance companies with experience in the field to provide health insurance services.” Indeed, at time of press the Ministry of Public Health, Qatar’s health sector regulator, was working with the insurance industry to source medical coverage for Qatari nationals from private providers. The cancellation of Seha – which had long been called for by the private sector – bodes well for growth in health GWPs in the coming years.
Like many of its GCC neighbours, due to lack of capacity – both in terms of human resources and capital – Qatar’s insurance industry cedes a considerable percentage of GWPs to the reinsurance sector. According to Alpen Capital, many local underwriters retain less than 10% of written premiums, with the rest being dispersed to reinsurers in the Middle East, Asia and Europe. Cession rates have jumped in recent years as a result of the industry-wide focus on project and construction insurance, which requires high levels of risk coverage. For lower-risk products, such as motor and health policies, many firms retain upwards of 50% of GWPs. As such, increased uptake in the medical segment in the coming years could push up local retention rates.
Increased reliance on reinsurance in recent years has prompted some local companies to set up reinsurance entities of their own. In 2009, for example, QIC launched Qatar Reinsurance, which in 2014 was named the largest reinsurer in the Middle East and North Africa by international ratings agency AM Best. However, Qatar Re redomiciled to Bermuda in 2015, and therefore is no longer considered a MENA-based reinsurer.
Qatar Re brought in GWPs of $535.9m in 2014. In 2015, meanwhile, the company reported some $1.16bn in premiums. Other companies that are still involved in reinsurance in Qatar include SEIB and QCIRC, among others.
Taking into account the sector’s positive performance in recent years, the QCB’s efforts to level the playing field with a new insurance rulebook and the state’s continued infrastructure development in the run up to the 2022 FIFA World Cup, Qatar’s insurance sector is widely expected to continue to see rapid growth for the foreseeable future. According to the QFC’s 2015 “MENA Insurance Barometer”, an annual publication, Qatar’s economy is expected to continue to grow at a faster rate than all other GCC countries up to 2019 on the back of government spending, which bodes well for local underwriters, most of which rely to some degree or another on government business, either directly or indirectly.
“The market is very strong, and we think that the new regulatory framework will only make it stronger,” said Al Ansari. “There is a good chance that as management practices improve, more companies will retain more risk, which is good for the market, and for the economy as a whole.”