Despite a relatively small population of around 2.7m, Qatar accounts for around 5% of insurance premiums in MENA – a little more than Egypt and one percentage point behind Morocco. Nevertheless, relative to the size of its economy, insurance activity in Qatar remains at a modest level. Annual premiums of around $3bn account for 1.5% of GDP, compared to a global average of more than 6%. The insurance penetration rate, meanwhile, stands at less than 2%, significantly below the OECD average of 8.9%. These market characteristics suggest significant potential for further growth. In the short term, however, much of the industry will be focused on regulatory matters; time is running out for insurers to comply with a new framework introduced in 2016 that aims to align Qatar’s insurers with global best practices.
Phased Development
Since the 1950s, when the emergence of the domestic hydrocarbons industry first necessitated large-scale risk protection, Qatar’s insurance sector has undergone a number of development phases. The first was driven by foreign insurance companies, operating through agents or branch offices, which provided cover to the growing number of businesses that were being established in Doha. In 1964 the arrival of the first domestic insurer, Qatar Insurance Company (QIC), marked the beginning of a second phase of industry development, this time led by national companies. The rapid expansion of the sector in this period was supported by rising demand for insurance cover from foreign trading activity, higher levels of domestic investment, significant increases in public spending and the need to insure the property – particularly motor vehicles – of an increasingly wealthy population. Over the succeeding decades, four more domestic firms followed QIC into the market. Qatar General Insurance and Reinsurance Company (QGIRC), and Al Khaleej Takaful Insurance Group (KTG) entered the market in 1978; followed by Qatar Islamic Insurance Company (QIIC) in 1993; and Doha Insurance Company in 1999. Together with QIC they are the five largest firms, and the only insurance companies listed on the Qatar Stock Exchange. In 2005 a third phase of sector development was ushered in by the creation of the Qatar Financial Centre (QFC), a business and financial hub that operates its own legal, regulatory, tax and business infrastructure. Companies operating in the QFC benefit from an array of incentives, including a legal and judicial framework based on English common law; an independent court, regulatory tribunal and dispute resolution centre; up to 100% foreign ownership and 100% repatriation of profits; and a modest 10% corporate tax on locally sourced income. The fact that insurers based in the QFC are permitted to compete for onshore business in the wider market has made it a popular destination for foreign insurers, investors and a number of international giants, such as Allianz and AXA, have opted to establish operations there. In addition, firms such as Seib Insurance & Reinsurance, which has 49% foreign capital among its Qatari shareholders, are attracting direct foreign investors into the sector.
In the decade following the creation of the QFC, the insurance industry was governed according to parallel jurisdictions, one overseen by the QFC Regulatory Authority (QFCRA) and the other by the Ministry of Economy and Commerce. However, over recent years a number of regulatory changes have begun to erode this distinction, and this gradual process of alignment represents the latest development phase in the ongoing evolution of the insurance sector.
Performance
Over the past decade Qatar’s insurance industry has emerged as one of the fastest growing in the region, showing a compound annual growth rate of 19.7% in total gross written premiums (GWP) between 2011 and 2016, according to Swiss Re. High oil prices and government spending on projects related to the 2022 FIFA World Cup were the primary drivers behind this notable expansion.
In June 2017 the governments of Saudi Arabia, the UAE, Bahrain, Egypt, the Maldives, Mauritania, Senegal, Djibouti, the Comoros and Jordan, as well as the Tobruk-based Libyan government and the Yemeni government led by Abdrabbuh Mansour Hadi, severed diplomatic relations with Qatar and announced an economic blockade of the country. This gave rise to concerns regarding sector and overall economic growth. Nevertheless, throughout 2017 the sector continued to expand in absolute terms, with GWP rising by 14.5% to finish the year at QR14.4bn ($4bn). Sector profitability, however, was negatively affected by QIC’s exposure to natural disasters in the US, as well as the more challenging business environment resulting from the blockade. Consequently, the industry’s aggregate net profit for 2017 was 40% lower than the previous year, declining from approximately QR1.7bn ($466.9m) to QR1bn ($274.6m). In the first nine months of 2018 Qatar’s listed insurance companies continued to grow their assets, which expanded by 11.8% year-on-year from an aggregate QR47.9bn ($13.2bn) to QR53.6bn ($14.7bn). Aggregate profit for the period, meanwhile, grew by 57.1%, with QIC posting a 53.7% expansion in income, and both QGIRC and KTG reversing the declines they posted in the previous year. Among non-listed companies, Seib Insurance continues to maintain strong technical results with underwriting margin exceeding 15%, placing it among the top of its peers in the market.
Market Structure
Despite the trend of regulatory convergence, Qatar’s vibrant insurance industry continues to operate according to two distinct regulatory environments. The five largest domestic firms are supervised by Qatar Central Bank (QCB) and dominate the sector, accounting for around 80% of GWP, according to GCC financial advisory firm, Alpen Capital.
The largest of these, with total assets of QR40.1bn ($11bn) as of September 2018, is QIC, which occupies a leading position within the market similar to that enjoyed by Qatar National Bank within the banking sector. QIC has an estimated market share of 29%, although it should be noted that there is no agreement as to the absolute size of the domestic market due to the differing reporting standards of non-listed active insurers and the widespread accounting practice of including international business with locally derived premium. With total assets of around QR9.7bn ($2.7bn), QGIRC is the second-largest domestically licensed insurer. It is followed by Doha Insurance Company with QR1.9bn ($521.8m), KTG with QR947.2m ($260.1m) and QIIC with QR940.1m ($258.2m). The latter two companies form part of a rapidly growing sharia-compliant segment (see Islamic Financial Services chapter). A total of five firms licensed by QCB offer takaful (Islamic insurance) products to the market, and their combined activities have established the country as the second-largest sharia-compliant arena in the GCC, behind the UAE (and excluding Saudi Arabia, which has adopted a cooperative model rather than takaful). By 2015 around 13% of all insurance premiums taken in Qatar were attributable to the nation’s general takaful players.
In total, 13 insurance and reinsurance firms are licensed by the central bank, four of which are foreign companies: Arabia Insurance, Libano-Suisse Insurance, American Life and Misr Insurance. A further three insurance companies maintain licensed representatives in the country, and operate according to QBC rules. As of January 2019, 14 insurance companies operated on the QFC regulatory platform. While smaller than the domestic giants, their ability to leverage expertise in reinsurance and captive insurance, due to their international linkages to multinational corporations, has enabled them to prosper in the market. The QFC is also home to seven intermediaries authorised to conduct insurance mediation business in Qatar.
Foreign Expansion
The limited size of the domestic market means that, for Qatar’s biggest players, foreign expansion represents the most direct route to growth. The economic blockade imposed on the country in 2017 by regional states has raised questions about the ability of domestic insurers to expand within the GCC. However, in November 2017 QIC succeeded in renewing the licence for its Abu Dhabi branch, despite an earlier announcement that it was unable to do so due to political events. Expansion is also taking place outside the MENA region. In January 2018, for example, Qatar Insurance Group announced that the contribution of MENA business to its total operations would soon be less than 20%, thanks in large part to the acquisition of Markerstudy Group’s Gibraltar-based insurance companies by QIC’s reinsurance arm, Qatar Re. Markerstudy underwrites more than 5% of the UK’s motor insurance market and generates premium of around £750m annually. Doha Insurance Group, meanwhile, plans to open offices – which may later be converted to branches – in London and Beirut, from which it will pursue opportunities in energy risks, life and medical.
Retention & Reinsurance
While foreign expansion remains an important trend within the industry, many opportunities are present in the domestic sphere. Due to the predominance of commercial lines and a shortage of expertise in the industry, most primary insurers rely heavily on reinsurance companies to cover risk – a market inefficiency that many industry observers believe might be addressed by local insurers. According to the QFCRA, GCC insurers cede more than 37% of their non-life insurance premiums to reinsurers, much of which is transferred to the large reinsurance markets of Europe and the US. Qatar’s insurance industry performs relatively well compared to its regional peers, claiming an aggregate retention ratio of almost 77%, but in some areas – particularly high-value cover connected to hydrocarbons activity – the risk appetite of domestic insurers remains low.
Some Qatari insurers, however, have demonstrated a willingness to join forces to capture an increasing share of the premiums generated by large infrastructure projects. The National Insurance Consortium (NIC) is a group of domestic insurers that collectively bids for selected projects deemed beyond the capacity of individual firms. Previous successes of the NIC include securing of the largest-ever single tunnelling and rail construction insurance policy from Qatar Rail. In 2014 the body was awarded an insurance contract for capital expenditure works related to the construction of tournament stadia for the 2022 FIFA World Cup. The six-member consortium is made up of QIC, QGIRC, KTG, Doha Insurance, QIIC, and Al Koot Insurance and Reinsurance. While some reinsurance capacity exists within the country, Qatar’s most significant reinsurance institution operates under the jurisdiction of the Bermuda Monetary Authority. Qatar Re is a wholly-owned subsidiary of QIC Capital, which is in turn a 95.74% majority-owned subsidiary of the nation’s largest insurer, QIC. With total assets in excess of $3.1bn at the start of 2018, it is a global, multi-line reinsurer with a large international portfolio and branches in Zurich, Singapore and Dubai. In early 2018 it received permission from the QCB and the UK’s Prudential Regulation Authority to open a branch in London. A presence in London is viewed by some as an essential requirement for a reinsurer with global ambitions.
Lines
Qatar’s status as one of the world’s biggest gas exporters means that energy, marine and construction risks represent the most significant business lines for the industry. Insurers also benefit from a number of 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. Consequently, securing a profit from motor polices is a challenging proposition, which results in some insurers limiting the amount of third-party business they take on and concentrating on more rewarding comprehensive cover. Some marine activity, such as ownership of luxury yachts, also falls into the compulsory insurance category. Unlike some neighbouring jurisdictions, Qatar does not have compulsory insurance written into a mortgage law. A mandatory health insurance scheme has been put on hold indefinitely. A new national health insurance model is currently being worked on, and may be introduced in 2019. “We have been consulted on it, but we are still not sure what structure will be used. It may be a revamped Seha model, or it may be opened up to the private sector, as was the case in the UAE. The health insurance model would be a significant boost for the industry, and I see QR2bn ($549.3m) worth of premiums in it,” Muhammad Ashraf Ali Siddiqui, executive manager risk management at QIIC, told OBG. As with the rest of the region, life insurance remains undeveloped in Qatar, accounting for around 1% of GWP. Most life business is term life within group life products, along with speciality policies, drawn up in collaboration with the country’s banks. The Boston Consulting Group’s annual survey of the global wealth management industry found that in 2017 life insurance and pensions accounted for just 3% of personal assets in Qatar. However, while Qataris still prefer to direct their assets into deposit accounts, offshore investments and equities, a 24% expansion in life insurance and pension investments made it the fastest-growing segment between 2016 and 2017.
Distribution
In terms of distribution, direct channels are the primary method by which insurers sell their products, with brokers accounting for over 50% of the total premiums written. Recent years have seen growth in brokerage activity, and the arrival of global brokers such as Marsh and Aon, although a tightening of brokerage regulations currently at the draft legislation stage is likely to reduce the number of competitors.
The adoption of bancassurance in Qatar has been modest compared to corporate insurance, but is particularly strong among insurers in the retail sector. Nevertheless, the roll out of online channels means that the sale of insurance through brick-and-mortar facilities – both bank branches and insurance offices – is likely to play a smaller part in the overall distribution mix. Human interaction channels will continue to play an important role in the industry, although in new and more efficient forms. In January 2019 QIC Insured, the retail arm of QIC, unveiled two new kiosks in the City Centre Mall and Mall of Qatar, offering motor, home, travel and personal accident cover to walk-in customers. Meanwhile, Seib Insurance is focused on online referrals and has developed a mobile application to provide health insurance for domestic workers.
Regulation
The most significant regulatory theme to emerge in the Qatar insurance market over recent years is the narrowing of the regulatory divide between the QCB and the QFC. In 2012 a new law established the QCB as the regulator for the entire financial services industry, including those insurers licensed by the QFCRA. The development was widely interpreted as a step towards establishing a harmonised regulatory structure across the industry; however, as of February 2019 the QCB has made no attempt to interfere with the established model of parallel regulatory frameworks. Instead, in 2016 it introduced new regulations geared at a more harmonised regulatory model. The QCB’s new regulations are largely based on the QFC’s insurance rulebook, with some minor alterations. The most significant differences between the frameworks is in the area of capital requirements, with the QFC mandating a minimum of QR10m ($2.7m), while the QCB requires a minimum of QR100m ($27.5m), or a new risk-based capital requirement – whichever is greater. The risk-based capital approach is an important step for sector stability; it is a company-specific figure based on an assessment of the risks borne by insurers, among them underwriting, market, liquidity, credit and operational risk. “Solid management provides resistance to market risks and agility in decision making, which includes applying the right policies in different scenarios,” Elias Chedid, deputy CEO and COO of local firm Seib Insurance & Reinsurance, told OBG. The International Reporting Standard 9 has also sought to make insurers more stable by increasing provisions for losses. However, many insurance firms are still adjusting to these new requirements, which were adopted in January 2018.
Elsewhere, the authorities’ new regulations address matters related to licensing, accounting and actuarial activities. According to the QCB, all insurers were able to meet the new capital and solvency requirements within the permitted transition period; however, at the close of 2018 some companies had requested more time to meet the new governance stipulations. One of the biggest challenges currently faced by insurers are new investment concentration limits, which have placed a 20% cap on real estate investments.
Outlook
Downside risks to industry growth are centred in the areas of regulation and taxation. Full compliance with the new regulatory framework will challenge some insurers in 2019, although the QCB has shown a willingness to extend the transition period in certain cases. The introduction of value-added tax (VAT) in Qatar, originally expected in 2019 but recently deferred until an as-yet unspecified date, is also likely to present difficulties to the domestic industry. Experience in other GCC states has shown that claiming VAT on retail policies, in particular, can be a costly administrative exercise and that not all VAT liability on existing policies is recoverable. The potential for future premium growth in Qatar’s insurance sector is largely dependent on the continued expansion of the economy.
There are also welcome signs of Qatar’s insurers exploiting hitherto untapped economic segments. QIC Insured launched its product range focused on small and medium-sized enterprises in the first half of 2018, offering covers such as personal accident, workers’ compensation, property risk and business interruption through its online portal. “The resilience of the local insurance industry was shown in 2017, and 2018 proved its strength, not only locally, but regionally and internationally. There is a generalised desire to support the development of the national industry, and the local market has experienced a noticeable increase in healthy competition in most insurance lines,” Jassim Al Moftah, CEO of Doha Insurance, told OBG.
New efficiencies are also expected to boost underwriting margins in the near term. In line with requirements laid out in Qatar’s traffic safety strategy for 2018-22, motor insurance premiums will be calculated according to a driver’s road accident history, their age and the type of vehicle in question. In addition, a centralised IT system will link stakeholders, including insurers, with data on traffic accidents, while cameras and tracking devices will be installed on heavy vehicles.
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