Market characteristics suggest significant potential for further growth in Qatar’s insurance activity, which currently remains at a “modest level”, a new report has shown.
Annual premiums of around $3bn account for 1.5% of Qatar’s GDP, compared to a global average of more than 6%, according to Oxford Business Group. The insurance penetration rate, meanwhile, stands at less than 2%, significantly below the OECD average of 8.9%, OBG said in its ‘The Report: Qatar 2019’.
Despite a relatively small population of around 2.7mn, Qatar accounts for around 5% of insurance premiums in Mena.
These market characteristics, OBG said 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.
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.
Throughout 2017 (the year in which a blockade was imposed on Qatar by a quartet of Arab nations) 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 a leading Qatari insurer’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 ($466.9mn) to QR1bn ($274.6mn).
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 to QR53.6bn.
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 (as of September 2018) is QIC, which occupies a leading position within the market.
With total assets of around QR9.7bn, QGIRC is the second-largest domestically licensed insurer. It is followed by Doha Insurance Group with QR1.9bn, KTG with QR947.2mn and QIIC with QR940.1mn.
In terms of outlook, OBG noted that 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, Doha Insurance, told OBG.