For several years the insurance sector has undergone major regulatory changes, as the industry positions itself in alignment with international best practices. The sector has been expanding considerably in recent years, often with double-digit growth. Furthermore, penetration rates are still relatively low, meaning there is plenty of room for new products, services and customers.
However, recent economic slowdowns have made the business environment more competitive, causing companies to put a greater focus on lowering costs. At the same time, the maturation of a number of large construction projects has prompted a redeployment of resources by many companies towards operational and liability coverage, which is likely to continue throughout 2018. An expected expansion in health care lines should help offset this (see analysis), alongside the construction and property segments, which continue to grow in the run-up to the 2022 FIFA World Cup.
Strengths
With the world’s largest non-associated natural gas fields and substantial reserves of crude oil and condensates, Qatar has a leading hydrocarbons sector and is one of the largest global exporters of liquefied natural gas. The government has been using revenues from these industries to fund its major infrastructure investment programme, boosting GDP from $7.8bn in 1980 to $125.1bn in 2010 and $164.6bn in 2015. In the third quarter of 2016 nominal GDP rose to QR140.5bn ($38.6bn), while between 2011 and 2015 GDP grew at a compound average growth rate (CAGR) of 4.2%. Qatar now has one of the highest per capita incomes in the world, reaching $129,726 in 2016.
The robust economic activity is also partly related to the growing population, which rose from 223,715 in 1980 to 1.8m in 2010, according to the World Bank. As of June 2017 Qatar had a population of 2.7m, according to the Ministry of Development Planning and Statistics (MDPS). The overwhelming majority of these residents are expatriates, with recent population surveys suggesting that the number of Qatari citizens is around 313,000 (see Economy chapter). Most expatriates are male and have manual construction jobs working on large-scale infrastructure projects, or in the service industries that have developed around them. This demographic breakdown has a considerable influence on consistency in the insurance sector, as most residents in the country are transitory.
Making Plans
Meanwhile, the government’s longterm development plan – Qatar National Vision 2030 and its five-year sub-plans – supports diversification of the economy away from hydrocarbons, with a particular focus on the financial services sector. Insurance is seen as a key pillar of this development, with the establishment of a healthy insurance market assisting capital market growth and banking stability.
Recent years have seen the effects of this strategy: the non-oil share of GDP has risen from 41.9% in 2012 to around 67% in the first quarter of 2017. Additionally, the financial sector’s proportion of the total has climbed steadily. Qatar Central Bank (QCB) figures show finance and insurance activities were responsible for QR33.9bn ($9.3bn) at current prices in 2011, subsequently rising to QR53.1bn ($14.6bn) in 2016. This represented an increase from 5.5% of total GDP to 9.5%. According to MDPS figures, in the fourth quarter of 2016 banking and insurance grew 7.4% year-on-year (y-o-y), and it increased 10.7% over the third quarter of that year.
Sector Growth
Moreover, the insurance sector experienced particularly robust growth. For instance, in terms of total assets, insurers saw an expansion from QR24.4bn ($6.7bn) in 2013 to QR39.7bn ($10.9bn) in 2015, or 62.7% growth over the period. The consolidated balance sheets of insurance companies rose 25.5% between 2013 and 2014 and increased by 29.6% between 2014 and 2015, according to the QCB.
Indeed, double-digit growth has occurred consistently for a number of years, making Qatar the fastest-growing and third-largest insurance market in the GCC. According to Moody’s, the country’s insurance sector grew at a CAGR of 21% over the 2006-16 period. By the end of the first quarter of 2017 total annual insurance premiums had already reached approximately $3bn, or 1.5% of GDP, according to the MENA Insurance Pulse Report 2017. The same report showed that Qatar accounted for 5% of total insurance premiums in the MENA region in 2015, compared to Saudi Arabia’s 18% and the UAE’s 19%, although both of those countries have larger populations than Qatar does.
Penetration rates remain low, indicating substantial potential for growth. “I believe we are getting to the point where general awareness of insurance is increasing, and penetration has risen across the board since 2015,” Jassim Ali A Al Moftah, CEO of Doha Insurance Group, told OBG. “Digitisation is key to moving forward: not only are we creating a more accessible product but it will also enhance Qatar’s competitive advantage.” The Moody’s report estimated an overall penetration rate of just 1% of GDP in Qatar, and put the per capita expenditure on insurance products at $979 in 2015. The Qatar Financial Centre (QFC) estimates that this percentage is slightly higher at 1.5% of GDP, but both estimates are still considerably below the global average of 6%.
Oversight
The QFC is a key component of the country’s diversification strategy, and it has already successfully attracted a host of international companies. The QFC allows 100% foreign ownership within the zone, in contrast to the 49% limit on foreign ownership for companies operating outside of the QFC. The centre also offers unlimited repatriation of profits, no restrictions on currencies used for trading and only 10% corporate tax on locally derived profits. Companies in the QFC are also exempt from “Qatarisation”, a policy that mandates a certain percentage of a company’s employees must be Qatari nationals. Therefore, QFC-based companies have the advantage of being able to bring in overseas expertise without restriction.
The QFC has resulted in a divided insurance sector; some companies are registered with the QFC and operate from within it, while other companies are subject to standard Qatari regulations. In 2016 there were 31 insurance companies active in Qatar, with 17 of these operating within the QFC. The QFC-based companies have had more success in leveraging particular strengths in reinsurance and captive insurance due to their international linkages to multinational corporations and the global reinsurance market.
QFC-registered companies are overseen by the QFC Regulatory Authority (QFCRA), whereas those operating domestically had been under the remit of the Ministry of Economy and Commerce (MEC) until 2012 when authority was shifted to the QCB. This change was part of an overall effort to improve and expand the framework of financial regulation while also promoting financial stability. The QCB thus acquired responsibility not only for banking and financial services companies, but also for insurance companies. Since then the QCB has issued a steady stream of new regulations for the insurance sector, with insurers and their regulators currently engaged in a transitional period as these are implemented. Additionally, the QCB has established an insurance supervision and control unit, which regularly works with specialists from the QFCRA.
Capital Rules
Of all the new regulations from the QCB, one of the most important came at the end of March 2016, when it issued new rules on capital. Listed insurers were required to have capital of more than QR100m ($27.5m) above their risk-based capital (RBC) requirement, while unlisted insurers must simply have capital greater than their RBC. Branches of insurance companies were required to deposit QR35m ($9.6m) with a bank that is QCB-licensed and is publicly traded on the Qatar Stock Exchange (QSE). This move was an important shift towards using RBC to assess insurers, bringing regulations more in line with international best practices. At the same time, the QCB issued new limits on risky asset classes and concentration risk.
The QCB told OBG that the sector had achieved 100% compliance with the new capital requirement as of March 2017. Most firms had little difficulty in meeting the challenge, as their capital was already more than sufficient. In line with the Commercial Companies Law, the QCB also stipulates that companies with share capital worth more than the legal reserve amount keep a security, with 60-70% reported compliance on this.
Rules & Regulations
In addition, the QCB is updating the licences of insurance companies from those issued by the MEC to new QCB licences, a process which was due to be complete by end-2017, according to the QCB. Draft regulations on the licensing and conduct of actuaries, brokers, insurance consultants, loss adjusters and intermediaries were also sent out for consultation from key industry players in 2016. The QCB reported that this process would be finalised by September 2017, with the resulting regulations in place in early 2018.
These coming regulations, along with the new rules on capital and solvency, are likely to be widely welcomed, because the previous statues leave brokers largely unregulated, which poses risks for the sector as a whole. The draft proposals include restrictions on brokers from engaging in any activity they are not registered for in the commercial directory, and requirements that brokerage firms issue feasibility studies and financial statements. Insurance companies will only be allowed to work with licensed brokers, with some 30 firms believed to already be meeting the new criteria.
The outcome should be a much more professional and regulated set of insurance intermediaries for companies to work with, and the QCB will have shifted the sector closer to its goal of being in full compliance with international standards. Furthermore, steps to improve the solvency regime include better alignment with standards such as Solvency II and the Insurance Core Principles of the International Association of Insurance Supervisors. While this still may be some way off, the QCB’s actions are a helpful step towards this goal.
While insurers and brokers based at the QFC do not require QCB licences, the QFCRA does regularly communicate with the QCB regarding new applicants. Islamic insurers have additional requirements, with the QFCRA providing an Islamic Finance Rulebook to ensure compliance. The QCB regulations, meanwhile, apply to all conventional, takaful (Islamic insurance) and retakaful companies that operate in Qatar.
To bring the country in line with international requirements, in April 2017 the QCB issued measures to combat crime, money laundering and international terrorism, with some 25 articles listed. The change in policy now requires the classification of clients, evaluations of operations, and mandates the keeping of documents and registries, as well as a host of other procedures.
Main Players
Of the locally registered insurers, five are currently listed on the QSE, with these firms collectively accounting for 39% of non-life business in 2015. This excludes Al Koot Insurance and Reinsurance, which was formerly the captive insurance arm of the state-run Qatar Petroleum (QP), but was purchased by Gulf International Services in 2008. Despite this, Al Koot has remained active within the bounds of QP and is therefore generally excluded from calculations of the wider insurance sector. The QSE five are: Qatar Insurance Company (QIC), Qatar General Insurance and Reinsurance Company (QGIRC), Qatar Islamic Insurance Company (QIIC), Doha Insurance and Al Khaleej Takaful Insurance (KTG). These firms had a combined market capitalisation of QR26.5bn ($7.3bn) in March 2017.
QIC was by far the largest in March 2017, with a market capitalisation of QR20.4bn ($5.6bn), 77% of the top-five total. QIC reported strong results for 2016, with record gross written premiums (GWP) of $2.72bn, up 19% over 2015. However, consolidated net profit moderated from $292m in 2015 to $289m in 2016, with underwriting results down 9% to $232m. According to a company statement, this was due to a higher-than-normal number of large loss events. Indeed, profits rose in 2017, reaching QR308.3m ($84.7m) by end-September.
Qatar, like other GCC states, generally has few natural catastrophes, since it is outside tectonic zones, and has low rates of rainfall. However, rain can cause damage when it does occur, as structures and infrastructure are often poorly equipped to withstand heavy downpours.
Expanding Business
QIC has significantly expanded overseas in recent years, with some 70% of the group’s overall GWP now coming from abroad. This business includes two reinsurance and speciality insurance subsidiaries: Qatar Re and Antares. The former – ranked 35th-best reinsurer in the world by international ratings agency AM Best in 2015 – relocated to Bermuda in 2016 to gain closer access to the US market and to benefit from the jurisdiction’s Solvency II equivalence. The reinsurer now has branches in Dubai, Zurich and Singapore, in addition to a representative office in London and a services company in Doha.
Specialist insurer Antares, meanwhile, has developed a string of general insurance lines globally. Its European division, QIC Europe, is based in Malta, providing it with prime access to the European Economic Area. In terms of upcoming expansions, in late 2016 QIC announced that it was considering entering the Irish motor insurance market via a new joint venture with Padraig and Seamus Lynch, owners of Chill Insurance.
QIC also has Q Life and Medical (QLM) in its portfolio, with this incorporated in the QFC. Established in 2011, QLM is a subsidiary of QIC, which holds the highest rating of any insurer in the GCC, with a stable “A” outlook rating from Standard & Poor’s. QLM received the same rating based on a parental guarantee from the QIC.
Next In Line
The second largest by market capitalisation is the QGIRC – comprising Qatar General Insurance Company, General Takaful Company, Qatar General Holding Company, the General Mozoon Real Estate Company, World Trade Centre Qatar, General Company for Water and Beverages, and Orientals Enterprises – with QR3.7bn ($1bn) in March 2017. QGIRC’s net profits were down in 2016, falling to QR219.3m ($60.2m) from QR925.7m ($254.2m) in 2015. Its GWP, including that from the company’s takaful business, was QR838m ($230.1m) at the end of 2016, down from QR859m ($235.9m) in 2015. Total equity, however, rose by 2% to QR6.4bn ($1.8bn), and there was an increase in total assets to QR9.6bn ($2.64bn), up from QR9.4bn ($2.58bn) the year before. Real estate is a major part of the QGIRC portfolio, with investment income rising from QR231m ($63.4m) in 2015 to QR264m ($72.5m) in 2016.
The third largest by market capitalisation is QIIC, with just over QR1bn ($274.6m) in March 2017. As a takaful-only firm, QIIC has a different governance structure than conventional insurers, with a QCB-mandated sharia-compliant three-member administrative board. This enterprise shares risk, with shareholders and policyholders both receiving benefits, a model which has been remarkably successful. “QIIC has managed to maintain a unique level of surplus distribution to policyholders every year right from the very first year of its operations and has been declaring 20% surplus consistently since 2009,” Muhamed Ashraf Siddiqui, executive manager of risk management for QIIC in Doha, told OBG.
The company generated a net profit of QR50m ($13.7m) during the first nine months of 2016, with GWP growing 2.5% y-o-y to QR225m ($61.8m). AM Best reaffirmed its “B++” financial strength rating for the insurer in February 2017, citing as a primary motivation the fact that it had an excellent track record in its operating performance and technical profitability, achieving a five-year average combined ratio of 80%.
Other Players
The fourth-largest listed insurer by market capitalisation is Doha Insurance, with QR905m ($248.5m) in March 2017 and reported total GWP of QR515.5m ($141.6m) for 2016, up from QR494m ($135.7m) the year before. Profits, conversely, were down from QR110.9m ($30.5m) in 2015 to QR72.2m ($19.8m) in 2016, although in the first quarter of 2017 net profit rose y-o-y from QR22.4m ($6.2m) to QR27.4m ($7.5m). Doha Insurance also operates Doha Takaful, which conducts Islamic insurance business.
In March 2017 the insurer announced plans to convert into a fully sharia-compliant company following a particularly successful year for Doha Takaful. This was prompted by QCB disallowing insurance firms from having takaful windows. In 2016 the Islamic insurer reported a surplus of QR770,000 ($211,000), after a loss of QR784,000 ($215,000) the year before. The move to sharia compliance is also part of an overall restructuring, under which Doha Insurance Company rebranded as Doha Insurance Group.
The fifth-largest listed insurer, KTG, had a market capitalisation of QR511m ($140.3m) in March 2017 and recorded gross contributions of QR310.4m ($85.2m) in 2016, down from QR333m ($91.5m) in 2015. Net profits also fell, from QR43.4m ($11.9m) in FY 2014/15 to QR13.3m ($3.6m) in FY 2015/16. Other non-listed active insurers in the country include Seib Insurance and Reinsurance, Axa Gulf Qatar and MedGulf Allianz Takaful, which is now known as AWP and is no longer a takaful firm. Operating in the QFC are QLM, Takaful International and AIG, as well as Arabia Insurance, Libano Suisse and Oman Insurance Company.
Economic Challenges
In general, 2016 was a challenging year for insurers, largely due to external factors. Like other countries in the GCC, the Qatari economy has been affected by the global decline in oil and gas prices since 2014. This has not only led to a tightening of belts among hydrocarbons companies but has also squeezed government income streams. With public expenditure being the main driver of economic activity, businesses across the board have struggled. The fact that insurers remained profitable throughout this period is testament to their resilience.
Furthermore, the economic blockade imposed on Qatar has created a challenging environment in 2017 for the economy in general, with all of the top-five insurers except QGIRC registering lower market capitalisation in December 2017 than earlier in the year.
Lines Of Business
As in most countries, motor dominates the personal non-life sector. The segment has seen strong growth in the number of policies issued as population and car ownership levels have expanded. Along with increased road use, Qatar has also seen a rising number of accidents. A recent study by the Qatar Road Safety Studies Centre found that the total number of road accidents grew approximately five-fold between 1996 and 2013, from 44,077 to 290,829. Both the population and the number of vehicles on the road have similarly continued to climb.
The governmental Traffic Department has taken action, introducing a five-zone plan in March 2017 that will focus on accident black spots, while private companies have also launched road safety awareness campaigns. These efforts may be having some success, as February 2017 saw the number of accidents fall 14.2% month-on-month, although the number of newly registered vehicles also declined by 13.7% compared to January 2017 and 24.6% compared to February 2016. Lower car sales may be a result of the economic downturn, as companies downsize and higher-salaried expatriates leave, though the year ahead has been forecast to see a rise in car sales across the GCC, with Alpen Capital recently predicting a 1.8% CAGR in new passenger car numbers for Qatar over the 2015-20 period.
For the personal segment, motor accounts for around 25% of non-life business, as third-party liability (TPL) coverage is compulsory in the country. In early 2017 the QCB issued two new circulars affecting this, further defining the rights of customers and insurance companies in the event of accidents. These were developed in coordination with the Traffic Department and cover issues such as procedures for insurers that wish to reinvestigate an accident, or what should be done if the driver had an expired licence. In the event of disputes, QCB-licensed experts must also assess damage. At the same time, the employees of insurers handling a case must also be identified on all the relevant documents in order to establish clear responsibility.
The motor segment suffers from the typical constraints, such as strong competition pushing down premiums and inflated repair bills. This has led to calls from industry players for the QCB to set minimum premiums for different lines of business, although as of April 2017, no such regulations had been advanced. Specifically, insurers told OBG that within the sector TPL is considered too low, making this largely unprofitable.
Construction & Property
Other major sources of business in recent years have been construction and property. In the lead-up to the 2022 FIFA World Cup, Qatar is spending around $500m per week on capital projects such as stadiums, training camps and athlete villages, as well as infrastructure developments, including roads, hospitals and transport hubs. This is likely to continue at least through 2020, according to officials.
Indeed, property and construction are largely driving growth in other lines of business as well, such as motor and medical. Furthermore, the booming construction sector has long employed a large number of people and boost incomes. The QFCA estimated in 2014 that in corporate non-life insurance, property and construction accounted for around 70% of premiums.
The scale of infrastructure projects under way has also led to the emergence of joint ventures between local insurers to cover valuable construction works. A recent example is the formation of the National Insurance Consortium (NIC) between Al Khaleej Takaful, Al Koot, Doha, QGIRC, QIC and QIIC. In March 2017 NIC won 80% of an insurance contract for capital works related to the construction of seven of the likely eight World Cup stadia. The remaining 20% went to France’s SCOR Global P&C. According to the contract awarder, the Supreme Committee for Delivery and Legacy, assigning local contracts is part of a policy to use the World Cup to develop the local market. NIC also won contracts with Qatar Rail, the developers of the Doha Metro, and Ashghal, the country’s public works department.
In other lines, insurers report that the economic downturn has left growth at a relatively modest level. Energy contracts have been particularly affected by low oil and gas prices, as many projects have consequently been suspended. However, news of Qatar lifting its moratorium on new exploitation of the giant North Field natural gas reserves in early 2017 raised hope that new contracts would be issued (see Energy chapter).
Life
The most nascent line of insurance continues to be life. QLM, for example, has 83-84% of its business in medical and the rest in life, and life is proving to have one of the strongest growth curves. Historically, one of the main constraints on the development of this segment has been the prevalence of captive insurers within large government-related and multinational outfits, which are natural markets for life and medical insurance. This was changed in early 2015, with non-core business in corporations such as QP being opened up to external players. Most life business remains term life within group life products, along with speciality policies, worked out with the country’s banks.
The life sector has also been affected by the recent downturn, but a reduction in pricing is helping to retain customers. Indeed, some companies now offset a loss of 7-8% from lower premiums with higher overall growth targets in order to maintain double-digit expansion.
Outlook
In the year ahead growth is set to remain strong for the sector overall. However, given the current state of economic uncertainty, companies that keep tight control over costs and claims will likely win out. The increasing regulation of the market may also – in the medium to long term – lead to some consolidation, which should strengthen the sector as a whole.
Meanwhile, new regulations on brokerages and associated trades will see professional standards continue to rise, along with a consequent diminution of risk. Much also depends on the overall health of the economy, and in early 2017 Qatar indicated it will take necessary steps to continue growth. This bodes well for the sector, with the health insurance segment set to boost insurers’ bottom lines throughout 2018(see analysis).
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