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Qatar - Facing the headwinds

Source: Middle East Insurance Review | Mar 2016

Slower economic growth and uncertainty over the compulsory health insurance scheme are threatening to hurt Qatar’s insurance prospects, but imminent regulatory changes might help.
By Wong Mei-Hwen
 
 
Qatar has been the GCC’s fastest-growing insurance market with a CAGR of 20.7% between 2006 and 2014, thanks to its strong economic performance, infrastructure development and growth in compulsory insurance, particularly the health segment. 
 
   But how have these underpinning factors performed recently? And what other factors can drive the development of Qatar’s insurance market?
 
Projections of slower growth
Late last year, the Ministry of Development Planning and Statistics (MDPS) forecast real GDP growth for 2015 at 3.7%, down from the 4.1% recorded in 2014. This was attributed to the contraction in the hydrocarbon sector, due to falling oil production and shutdowns for operations and maintenance.
 
   Global factors are also posing risks to Qatar. According to a 2015 Columbia University study, the country’s natural gas revenue will likely plateau under an optimistic scenario and could plunge to $37 billion within the next decade, thanks to US shale gas production and alternative natural gas sources for emerging Asian economies that currently buy gas from Qatar.
 
   This will ultimately affect the prospects for non-oil sectors, even as Qatar has been working hard to diversify its economy. In its Qatar Economic Outlook 2015–2017, MDPS further anticipates that the expansion in the non-oil and gas economy will moderate as project activity plateaus, population growth tapers and the government looks to improve the efficiency of public spending.
 
A discontinued health scheme
Qatar’s national health scheme or SEHA, announced under a new law in 2013, was welcomed as a much-needed boost for the tiny domestic insurance market. The scheme was, in fact, about to enter its final phase of implementation starting 2016, when all residents as well as foreigners and visitors would be covered by compulsory health insurance.
 
   However, towards the end of 2015, it was announced that SEHA would be terminated in line with a Cabinet decision. Health cover for citizens will be transferred to private insurance providers from 1 June this year, but interim health insurance arrangements for citizens in the intervening period until 1 June have yet to be announced.
 
   Although some clinics have reportedly been hit, as they are no longer able to sell some of their packages under SEHA, others have commended the decision to terminate SEHA. “The termination would allow the market to open up further and provide more opportunities for leading insurance companies to enhance and develop their medical insurance plans, which would be beneficial both for the insurer and its beneficiaries,” said Mr Salem Al Mannai, Deputy Group President and CEO of Qatar Insurance Co (QIC) – MENA region. 
 
   Mr Ali Ibrahim Abdulghani, CEO of Qatar Islamic Insurance Co (QIIC), views the move as a “challenging opportunity”. He elaborated: “The industry can draw a lot of benefit from it if it manages to control its temptation to undercut pricing. We saw this happening in Saudi Arabia where half of the companies lost half of their capital due to a price war on mandatory health insurance and eventually, the Saudi Arabian Monetary Agency had to introduce tight control measures to let some sense prevail.”
 
Taking stock of regulatory changes
Last year, the Qatar Central Bank (QCB), which oversees the insurance and other financial services sectors, extended the deadline for insurance, reinsurance and takaful companies to comply with its new regulations by six months to 30 November. 
 
   The new rules are intended to tighten control over insurance agencies and representative offices, and restrict the companies and insurance practitioners from getting involved in cross-border activities. The regulations also demand greater transparency, good governance and effective risk management from insurance companies. 
 
   According to Mr Ali Ibrahim, the QCB has yet to finalise the regulations. “Last year, they invited public comments on draft regulations and we expect they will be finally promulgated in first half of this year.”
 
   He added: “The new regulations shall fill the long-standing regulatory gap in insurance market and shall create a level playing field for both national companies and QFC-registered companies, the latter being heavily regulated for a long time in contrast to the former. They introduce a risk-based capital regime and focus a lot on internal controls and risk management. 
 
   “Most importantly, the new rules disallow composite operations, which we feel shall bring consolidation of life insurance business since the share of life insurance business is not significant enough to justify separate operations by each company currently writing life business. This shall affect all players outside QFC, including QIIC.”
 
   However, Mr Ali Ibrahim pointed out: “The new regulations do not directly cover the regulation of actuaries, insurance consultants, intermediaries, representatives, or loss adjustors. We feel QCB should act fast on this front as well to complete an overall market reform.”
 
A more proactive regulator
Since the QCB became the primary regulator for the insurance sector in 2013, it has been “more proactive in terms of insurance regulation, especially when it comes to reporting and analytics. At the same time, the QCB has also shown more flexibility in terms and conditions for technical requirements”, said Mr Al Mannai.
 
   Mr Ali Ibrahim added: “There has been increased supervision ever since the QCB took over the role of primary regulator for the insurance industry, which we believe is good for the overall market as it brings resilience.”
 
Growing influence of brokers
The growing competition in the market has been blamed partly on brokers, who have increased in clout and numbers.
 
   “Brokers used to play a marginal role but with the evolution of Qatar’s insurance sector and the growing complexity of risks and requirements, the role of the brokers – especially international brokers – has become even more significant and pronounced,” said Mr Al Mannai. 
 
   “Given that most companies are now tightening belts and are rationalising costs, I would expect more international brokers to enter the market and add value to the chain by sharing international expertise, experience and best practices to mitigate risks in the best way possible,” he continued, adding that the QCB needs to provide “more clarity” on the regulation of brokers and agents due to their growing importance.
 
   This growing influence has been seen mainly in the non-life sector, with life insurance being sold mostly through bancassurance, noted Mr Ali Ibrahim.
 
Prospects for 2016
Despite economic uncertainties in the broader economy, the insurance industry seems to be well-placed for growth in 2016 if it can count on opportunities in the revamped health sector and regulatory reforms.
 
Qatar’s Big 5
By Cynthia Ang
 
 
Qatar’s five national insurers, known as the “Big Five” – Qatar Insurance Company (QIC), Qatar General Insurance and Reinsurance Company (QGIRC), Doha Insurance Company (DIC), Qatar Islamic Insurance Company (QIIC), and Al Khaleej Takaful Group – reported growth in their combined GWP in 2015. 
 
   These five insurers not only enjoy strong links to the Qatar government and the local business groups, but are also financially strong and rated by international rating agencies. 
 
GWP surges 38% 
The Big Five’s aggregate GWP rose 38% y-o-y to QAR10,094.8 million (US$2.8 billion) last year, according to their latest financial statements filed with the Qatar Exchange. In comparison, total premiums for the sector grew by almost 10% to US$2.2 billion in 2014, according to Swiss Re’s sigma.
 
   The growth in 2015 was led by QIC and QIIC, with gross premiums growing by 48.7% and 24.2% to QAR8,347.2 million and QAR293.1 million, respectively. QIC Group, with an 82.7% share of total GWP, saw its property & casualty, life & health and marine & aviation premiums expand by 63%, 31% and 2%, respectively.
 
   Qatar General Insurance and Reinsurance Co (QGIRC), ranked second in terms of GWP which it reported to be QAR627.3 million for 2015, a marginal 1.8% increase over 2014.
 
   With GWP of QAR494.1 million, DIC accounts for the third-largest market share but was the only company to post a decline in premiums by 7.4%. 
 
Profits remained flat
Profitability of the five listed insurers remained flat at QAR2,205.7 million comparable to the overall profits of QAR2,146.7 million achieved in 2014. Just two companies – DIC and QIIC – reported double-digit profit growth, while QIC and QGIRC saw their profits grow marginally by 4.2% and 0.6% to QAR1,043.6 million and QAR925.7 million, respectively. Al Khaleej was the only company to report a decline in profits, down by 41.7% to QAR43.4 million.
 
   QIC, which posted the highest net profit in 2015, said its profit growth “fell short of premium growth as a result of regional economic and investment headwinds due to lower oil prices and continued softening of global reinsurance and specialty insurance markets”.
 
   DIC contributed the third-largest share of total profits, a 43.6% increase to QAR111.0 million. In a statement last August, A.M. Best said: “DIC has demonstrated a good track record of technical profitability, producing solid combined ratios below 85% over the past five years and a five-year average return on equity of approximately 13%.”
 
   In 2015, QIIC’s profits grew by 11.7% to QAR82.0 million. Affirming the financial strength rating of ‘B++’ (Good) and the issuer credit ratings of “bbb+” of QIIC this January, A.M. Best said: “QIIC has an impressive track record of underwriting profitability with a five-year weighted average combined ratio (replacing wakala fees for actual expenses) of 80%, reflecting consistently strong profitability in medical and family takaful (life) lines of business. QIIC’s performance is supported by strong investment returns from equity and real estate assets in Qatar, producing an average return on equity of 21% over the same period.” 
 
Plans for the year ahead
QIIC is planning to roll out new products for the year ahead, and is also “gearing up to make necessary changes to our operations to become compliant with the new regulations”, said Mr Ali Ibrahim Al Abdulghani, CEO of QIIC. 
 
   As for QIC, “with the rising popularity of ecommerce, online retail platforms and smart phone apps that facilitate insurance transactions and focus on convenience of customers, we wish to focus more on growing further our retail business not only in Qatar, but across the MENA region”, said Mr Salem Al Mannai, Deputy Group President and CEO of QIC – MENA region. “Simultaneously, we shall continue to develop corporate underwriting with detailed attention in servicing both the hydrocarbon and non-hydrocarbon sectors.”
 
Performance of five insurers traded on Qatar Exchange
 
Q: What significant changes have you seen since the QCB became the primary regulator for the insurance sector?
“The QCB has been more proactive in terms of insurance regulation especially when it comes to reporting and analytics. At the same time, the QCB has also shown more flexibility in terms and conditions for technical requirements.” 
– Mr Salem Al Mannai, Deputy Group President & CEO, QIC – MENA region
 
 
“There has been increased supervision ever since the QCB took over the role of primary regulator for insurance industry, which we believe is good for the overall market as it brings resilience.” 
– Mr Ali Ibrahim Abdulghani, CEO, QIIC
 
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