In an article published today titled "The Qatari Insurance Sector In 2009: Short-Term Weaknesses Offset By Long-Term Strengths," Standard & Poor's Ratings Services notes that when the State of
Qatar's sound economic prospects are considered alongside the specific strengths, weaknesses, opportunities, and threats confronting the local insurance sector, it is reasonable to be guardedly optimistic for the medium-and longer-term future of the Qatari insurance sector.
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 (AA-/Stable/A-1+) in recent years, with nominal GDP approaching Qatari riyal (QAR) 300 billion in 2008, or almost double the level of 2005. "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 Standard & Poor's credit analyst David Anthony.
In the short term, the Doha Stock Market DSM20 Index is, in January 2009, down nearly 50% on the peak of 12,629 reached in June 2008 (or down by approximately 28% (from an Index number of 9,580.45 to 6,886.12) over the 12 months to Dec. 31, 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.
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). Although the QFC is proving successful in terms of its own strategic goals, it has also brought international insurance majors to Qatar and is allowing them to write commercial
business in the domestic market, which is significantly increasing 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.
About Standard & Poorâs in the Gulf Cooperation Council
Standard & Poor's is the leading provider of financial market intelligence to customers in the Gulfâs credit risk management, wealth management, and data and information markets. Since entering the region in the early 1990âs, Standard & Poor's has become the largest provider of credit ratings in the G.C.C, rating 114 issuers. In equity markets, Shariah-compliant versions of Standard & Poorâs global and regional equity market indices - S&P 500, S&P Europe 350, S&P Japan 500 and S&P/IFCI GCC - have created new opportunities for Islamic investors to benchmark their international investments and for asset managers to create new investment products serving the Islamic community. Standard & Poorâs Fund Services launched a qualitative fund management rating service for regional asset managers in 2007.
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