By Santhosh V Perumal/Business Reporter
Qatar’s insurance sector is not expected to be affected by economic headwinds on lower hydrocarbon prices as gross premiums are set to grow 10% in 2016-17 mainly on favourable growth prospects in non-life where return on equity (ROE) is projected to be in excess of 12%, global credit rating agency Standard & Poor’s has said.
“Although we forecast lower real gross domestic product (GDP) growth in 2015 and 2016 than in previous years due to lower oil and gas prices, we do not expect this to affect insurance premiums growth significantly in the short run,” S&P said. Anticipating gross premium in Qatar to grow more than 10% in 2016-17, the rater expects the non-life sector to continue to show favourable growth prospects, driven by medical and commercial lines as the level of insurable activity in Qatar increases.
Viewing the barriers to entry as “moderate” due to the dominance of the five national players, which benefit from a first right of refusal on government-sponsored infrastructure business; it said “overall, we expect non-life insurers to continue to generate profitable underwriting results and ROE of more than 12% in 2016-17.”
Nevertheless, it sees a slight increase in product risk with the expected privatisation of medical insurance for nationals and expatriates, as there is currently some uncertainty around the pricing and profitability of the new business, although it could lead to notable growth in gross written premium.
Although the insurance market in Qatar remains very competitive, S&P believes the five national insurers would likely continue to dominate the market in terms of size and profitability.
Qatar’s robust economic development sustains growth in the property/casualty (P/C) insurance sector, where the historical and prospective profitability is “positive”.
“On the investment side, the portfolios of Qatari P/C insurers are often geared towards equities and real estate, resulting in potentially more volatile investment returns and consequently net earnings,” it said.
The ROE drivers of the five national insurers are influenced to varying extents by their access to government-sponsored commercial and infrastructure projects that are highly reinsured in the global markets and generate generous reinsurance commissions. Moreover, high investment income for some players that invest heavily in the local equity and property markets can further inflate returns and potentially mask poorer technical profitability.
“Overall, we expect average market ROE to decline over the next two years to a lower level than seen in the five years to 2014, as a result of increasing competitive pressure and continuing investment volatility as well as ongoing gradual growth in shareholders’ capital bases,” S&P said.
Viewing growth prospects of the Qatari P/C sector as “positive”; it said the segment’s gross premiums rose about 6% in 2014 and 2013, excluding international business written by the market leader Qatar Insurance.
The P/C insurance penetration has gradually increased over the past five years but at less than 1% of GDP in 2014, it is still relatively low and below levels in most other Gulf countries, it said.
Takaful insurance growth seen underperforming the market
By Santhosh V Perumal
Takaful insurance is increasingly expected to underperform the market in terms of growth as the sector offers no genuine differentiation and competes on price only, but it is promising “if applied properly and geared towards mutuality”, according to Middle East Insurance Barometer 2016.
The barometer, a survey instituted by the Qatar Financial Center Authority, found that 34% (up from 22% in the previous year) expect Islamic insurance to underperform the market as a whole in terms of growth.
Many executives continue to feel that takaful offers no genuine differentiation and does not even live up to the concept of mutuality, given conflicting interests of policyholders and shareholders.
“This lack of a ‘unique selling proposition’ forces many takaful insurers to engage in fierce price competition,” it said.
However, most survey participants continue to agree that the principle of takaful, if applied properly, is “valid and promising”, as demonstrated, for example, by some Asian markets, including Malaysia. For Egypt as well, the assessment is relatively positive, on the back of differentiated products and profit sharing schemes. “Going forward, some interviewees suggest that Takaful players should concentrate on embracing the concept of mutuality which works best in personal lines,” the barometer said.
The profitability issues witnessed recently are mostly associated with takaful companies that were set up at a time when markets already had reached a very soft condition, according to Osama Abdeen, chief executive of Abu Dhabi National Takaful Company.
“Some of these players aggressively went after market share without giving adequate consideration to technical aspects in rating their products. However, their problems should not mask the potential of takaful in general,” he added.
Qatar insurance market to maintain double-digit growth, says Moody’s
By Santhosh V Perumal
Having grown 25% last year, Qatar’s insurance market is expected to maintain its double-digit pace with several factors helping it weather the impact from a depressed oil price, according to global credit rating agency Moody’s.
Although capitalisation largely remains strong; the expanding operations will put pressure on capital, thus requiring insurers to strengthen the capital metrics to support growth and ensure compliance with internal and regulatory solvency targets, it also said.
Estimating that the insurance market grew 25% in 2015 with the top six insurers clocking 28% growth (30% for the three conventional and 17% for the three takaful insurers); it said “we expect the double digit growth to continue for the next couple of years.”
There are 14 insurers operating in Qatar and 17 insurers and reinsurers in the offshore-domiciled Qatar Financial Centre. With these 31 licensed insurance and reinsurance companies, the Qatar insurance market is highly competitive.
Most Qatari project risks are underwritten by national entities with the top six insurers (Qatar Insurance, Qatar General Insurance and Reinsurance, Doha Insurance, Al Khaleej Takaful, Daaman Islamic and Qatar Islamic Insurance) collectively accounting for about 45% of the Qatari insurance market.
“We expect the strong competition to ease off somewhat over the next few years thanks to the opportunities for growth in the market driven by the infrastructure projects catering to the 2022 FIFA World Cup,” said Mohammed Ali Londe, Moody’s assistant vice president and analyst.
In addition, the motor and medical lines growth will cushion the effects that depressed oil price may have on some energy projects, he added. Underwriting profitability for the top six players increased marginally in 2015, with the average combined ratio, a measure of claims and costs as a proportion of premiums, improving to 97% in 2015 from 98% in 2014 despite their rapid growth of about 28% in 2015, it said.
The growth factors include the government’s substantial focus on infrastructure development, including projects related to 2022 FIFA World Cup; rapid population growth, which has more than doubled since 2006, as well as the compulsory motor insurance (third-party) and health insurance.
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