Investors should be optimistic about Qatari insurance

Investors should be "guardedly optimistic" for the medium- and longer-term future of the Qatari insurance sector, ratings agency Standard and Poor's has said.

With the wealth of insurers as well as banks tending to rise and fall in line with the fortunes of their local economy, it is of more than just academic interest to note how GDP has developed in Qatar in recent years, with nominal GDP approaching QAR300bn in 2008, or almost double the level of 2005, the agency said.

"It is on this until recently robust, albeit oil and gas-dependent economic base that the country's nascent aviation, marine, construction, and financial services infrastructure is today being built, and generating steadily growing levels of insurable activity," said S&P credit analyst David Anthony.

In the short term, the Doha Stock Market DSM20 Index was, in January 2009, down nearly 50% on the peak of 12,629 reached in June 2008. Meanwhile, the share prices of Qatar's own listed insurers are themselves mostly down about 60% on last summer's highs. "This suggests that both Qatar and its insurance companies have proven far from immune to global financial influences," S&P added.

Although the downturn in asset values will undoubtedly have had a negative impact on the generally strong capitalization of Qatari insurers, particular concerns today also include the local insurance sector's high dependence on international reinsurance capacity, the implications of persistently negative results on compulsory, fixed tariff motor third-party liability cover, the gradual move of industrial corporations to captive insurance, and the limited prospects for the development of health insurance while the State's provision of medical care is of very good quality and remains virtually free for all.

Additional issues surround the creation of the Qatar Financial Centre (QFC), S&P added. Although the QFC is proving successful in terms of its own strategic goals, it has also brought international insurance majors to Qatar and allows them to write commercial business in the domestic market, which has significantly increased competition for what have traditionally been some of the most lucrative "big ticket" insurance contracts available. The QFC has also created a separate regulatory code for insurers, which is being implemented in parallel with existing domestic regulations. In due course, unified regulations and supervision would likely be welcomed by most insurers.