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Qatar, which is the third largest insurance market in the Gulf region, has seen a compound annual growth of 17.9% over the last six years, making it the second fastest growing market, according to global credit rating agency Moody’s.
Despite this rapid growth, Qatar has one of the lowest insurance penetration in the region at 0.6% of GDP (gross domestic product) and an insurance density of $695.9 as of 2012, it said.
“This implies that there is room for significant further growth within the Qatari insurance market,” it said.
A resource-driven economic boom in recent years has produced very high growth and boosted per capita GDP at purchasing power parity to the highest level in the world at nearly $98,000 as of 2011.
“This growth, together with anticipated infrastructure developments ahead of the 2022 FIFA World Cup, should drive future demand for insurance products over the medium term,” it said.
Finding strong capitalisation and good access to capital for most of the insurance companies, it said Qatari insurers have relatively low or non-existent levels of financial borrowing.
National insurers have access to local equity market as a result of their listed status, though debt market access is likely to be limited only to the very largest Qatari insurers in the foreseeable future, it said.
It found that most Qatari project risks are given to national operators resulting in large local groups such as Qatar Insurance (QIC), Qatar General Insurance and Reinsurance, Doha Insurance, Al Khaleej Takaful and Qatar Islamic Insurance, which together corner over 84% of the insurance market.
Thus, 2012 average premium per insurer was only $9.1mn if these top five insurers were excluded, with QIC representing about 54% of the market, it said.
“Even though this high competition will ease as the market grows, we expect that the number of market players may reduce over time, driven by a desire to see improved profitability,” according to Moody’s.
The large national companies saw consistent and good returns on capital in 2011 and 2012, driven by their underwriting in large energy and infrastructure projects in Qatar.
“However, this is not a consistent trend across the industry, as pricing competition for the remainder of the market has driven poor underwriting performance in many of the smaller groups, particularly within the less profitable third-party motor line of business,” the report said.
On the distribution channels, Moody’s said unlike other countries in the region, the direct channel dominates premiums written as the majority of risks covered are in energy and infrastructure projects and these risks are assigned directly to national insurers.
As in other parts of the GCC, non-life products dominate the Qatari market with life products accounting for approximately 5% or less of the premiums, it said, adding the Qatari market is driven by the engineering and energy lines, business which is typically reserved for larger national insurers.
“We note that these lines show high-risk profiles particularly in terms of loss severity, as indicated by the volatile and inconsistent claims ratios of the top five national insurers,” it said.
The remaining insurers compete more actively within the next largest product line (motor), with third-party motor a compulsory line of business in Qatar, as is the case in much of the GCC.
Health insurance sector is poised to benefit from the expected implementation of compulsory medical cover for nationals, expatriates and visitors, it added.
On asset risk, Moody’s said Qatari market has relatively lower investments in realty at about 8% for 2010 and 2011.
Mitigating this is the sizeable exposure to equity markets (both domestic and international equities), with equities being one of the largest single asset class for Qatari insurers, it said.
There are also significant related-party transactions (through common shareholdings) within investment portfolios, it said, adding these related party transactions are not expected to reduce materially in the near-to-medium term.
Due to a lack of scale and an unwillingness to fully expose their balance sheets to large commercial risks, many national players rely on reinsurance for large commercial risks, resulting in low retention rates against developed markets, albeit higher than some other GCC markets, it said.
This indicates limited risk-bearing capacity, or a possible over-reliance on re-insurers for technical assistance - neither of which are generally regarded as credit positives, it said.
“More positively we note that the remainder of the risks (principally motor, health and other wealth management related products) is largely retained by local insurers, it said.