Qatar’s Life Insurance Sector Has Moderate Growth Potential: S&P Report

Doha, Qatar: Qatar’s property and casualty insurance sector has modest growth potential and should remain resilient even if economic growth slows, according to rating agency S&P Global Ratings (S&P).

The rating agency assesses the insurance industry and country risk for Qatar’s property and casualty (P&C) insurance sector (AA/Stable/A-1+) as moderate.

S&P said the rating is similar to several other property and casualty insurance markets, particularly those in neighboring Gulf Cooperation Council markets such as the United Arab Emirates, Saudi Arabia and Kuwait.

After an estimated economic growth of around 1.6% in 2023, S&P forecasts real GDP to grow by an average of 2% in 2024-25, driven by non-hydrocarbon sectors such as wholesale and retail trade, finance and hospitality. However, non-hydrocarbon economic activity is expected to slow from its peak of 6.8% growth in 2022, when Qatar hosted the FIFA World Cup.

Despite rising geopolitical tensions in the Middle East, S&P believes macroeconomic conditions in Qatar will remain broadly stable.

S&P’s industry risk assessment for Qatar’s property and casualty insurance sector is based on the solid operating performance that the rating agency expects the sector to maintain over the next two years, as well as the institutional framework that supports it.

Once fully implemented, Qatar’s mandatory health program is expected to provide further support to the sector. Over 80% of the market’s total revenue is generated by a total of 10 insurers.

S&P assesses the sector’s profitability and growth prospects based on data from these insurers, excluding Qatar Insurance’s significant international operations, which could distort S&P’s domestic market analysis.

S&P’s data set includes seven traditional insurers, all of which adopted International Financial Reporting Standards (IFRS) 17, the new accounting standard, in 2023.

Three takaful insurers in the dataset still report under IFRS 4 – they are expected to transition to IFRS 17 from 2025. This distorts the overall market data. To generate the performance metrics in this report, S&P combined the metrics from the two accounting standards, averaging them.

In 2023, traditional insurers recorded an average net combined ratio of around 82% under IFRS 17, while takaful insurers recorded an average net combined ratio of around 85% under IFRS 4.

In 2024, S&P expects issuance performance to remain strong, with an overall net combined ratio of 85% to 90%. The average market return on equity was around 8% in 2023; S&P expects it to be 6% to 8% in 2024 and 2025.

Asset allocation at many Qatari insurers is focused on equities and real estate—S&P considers these to be high-risk assets. Given the excellent capital strength of Qatari insurers, S&P does not consider the risk-taking on the investment side to be excessive.

The industry has seen revenue growth of around 7%-8% in 2023. This growth, compared to the 15% growth seen in 2021-2022, may seem modest. However, S&P has predicted a significant drop in revenue growth due to the peak in 2021-2022 related to the hosting of the FIFA World Cup in Qatar. Over the next two years, S&P is predicting a 5%-7% increase in premiums unless the government fully implements its mandatory health insurance program.

Qatar has already begun a preliminary phase that requires visitors staying longer than 30 days to have medical insurance from an approved local provider for the duration of their stay. While the move is expected to boost industry growth, S&P does not expect a significant increase in revenue as a result. Each policy carries a minimum premium.

In subsequent phases, the programme will be expanded to ultimately cover the entire population of Qatar.

Once fully implemented, a comprehensive mandatory health program of this scale would generate significant revenue growth. Based on the growth seen in neighboring markets following similar programs, S&P projects revenue growth of 15% to 20% annually. This forecast assumes the government will phase in the program over two to three years.

In absolute terms, Qatar’s total mandatory health program could potentially generate total revenue of QR1.0 billion ($275 million) to QR1.5 billion for the insurance market. However, due to delays in program implementation over the past few years, S&P has not included this potential increase in our baseline forecasts.

Qatar’s lucrative property and casualty insurance sector benefits from the country’s rich economy and a market structure in which six of the country’s largest firms have merged to form a local consortium, creating significant barriers to entry.