Energy-rich Middle Eastern state Qatar is poised for rapid change. With one of the biggest development projects in the world underway, its undeveloped insurance industry is targeted for massive reform. Helen Yates considers the country's bid to attract the world's insurers and reinsurers.

Qatar already enjoys one of the fastest growing economies in the world. Now its government is investing $130bn in developing the country's infrastructure and potential even further. A lot of this investment is going into the hydrocarbon sector, but health, social welfare, education and transport are also primed for development. With its massive reserves of natural gas and its bid to become the world's main exporter of liquefied natural gas (LNG) by 2012, Qatar needs a world-class financial centre to support its ambitious plans. "Our objective is to create a thriving financial services hub to support the future development of Qatar in all sectors of the economy," says Fetooh Al Zayani, managing director of insurance and reinsurance business development at the Qatar Financial Centre (QFC).

One of the six member states of the Gulf Cooperation Council (GCC), Qatar occupies a small peninsula that extends into the Persian Gulf. It has two immediate neighbours, with Saudi Arabia to the west and the United Arab Emirates to the south. Nearby Bahrain will soon be accessible from Qatar via a massive road bridge, which is reportedly costing $3bn to build. While the country is largely barren, it is what lies below the surface that is dictating the country's current and future growth.

With massive reserves of natural gas - the South Pars gas field it shares with Iran is the largest in the world - Qatar has become the richest state in the Middle East. Its people (numbering only 860,000) are some of the richest people on the planet and based on GNP per capital ($44,000), Qatar is the richest country in the world. Economic growth is expected to maintain its rapid pace of around 10% through 2007 and with heavy investment in the sector it is unlikely this pace of change will slow down anytime soon. In fact, according to Standard & Poor's, Qatar's real economic growth is expected to average 14% in 2008-2009 as heavy investment in the LNG industry expands production capacity. "Qatar is interesting to a lot of people now. The country sits on one of the largest gas reserves in the world. The potential wealth of the country, by head count, is extraordinary," explains Geoff Kinsella, business development director of Cooper Gay.

From cartel to competition

Until recently, five local insurance groups - Qatar Insurance Company, Qatar General Insurance and Reinsurance, Al Khaleej Insurance, Qatar Islamic Insurance Company and Doha Insurance - controlled 95% of the country's premium basis, and have been described as something of a cartel. "The current state insurance law in Qatar (outside the QFC) only permits direct insurance and agency business but not broking or the writing of life insurance," says Al Zayani. "Also Qatar ... either prohibited or severely limited foreign ownership of domestic insurers."

With low penetration and a lack of competition the local insurers have remained largely unspecialised in their product offerings. Traditionally risk-averse, they are heavily reinsured, which means pricing has been largely at the mercy of global reinsurance fluctuations. But the expectation is that prices will become more competitive as insurance penetration increases and consolidation within the market improves capitalisation, encouraging greater risk retention. With 99% of business written currently going abroad, it is hoped that the presence of international players will encourage local insurers to up their game. "It will be about survival of the fittest," predicts Al Zayani. Kinsella believes that if the local players can become more competitive it can only be good for business. "The local market has experience and knowledge. They obviously have the necessary language skills and of course an inherent understanding of the cultural aspects of doing business in these territories," he says.

The growth of life insurance in the Middle Eastern region as a whole has been very slow, with life representing only 12% of total premiums, although this may change with the expansion of Shari'ah compliant insurance products - or takaful insurance and reinsurance. "This has presented huge opportunities for Islamic insurance products and hence many regional and international insurers have seen the opportunity," says Al Zayani. In Qatar, the non-life sector has been dominated by motor insurance, but even within this line of business there has been little innovation. Alternative risk transfer solutions have yet to be explored, although energy giant Qatar Petroleum does have its own captive insurer. In 2005, total premiums for marine & aviation amounted to $40m, for property and accident lines they were $223m and motor insurance took $68m. All this is set to change dramatically, with premiums for marine & energy set to double by 2008 (see figure 1).

As Qatar's massive infrastructure and energy projects get underway the need for specialised insurance and reinsurance will grow. "Because of the sheer scale of some of these construction projects it's going to require international support, says Kinsella. Locally, according to Wayne Jones, commercial litigation partner at Clyde & Co, Qatar Insurance Company is emerging as a strong regional player (with an "A" S&P rating). "And there are other regional reinsurers able to provide some of the following capacity," he adds.

Attracting the attention of the dominant industry players, many of which are being wooed by other Middle Eastern financial centres, is not an easy task. Having stepped up its marketing efforts in 2006, QFC is hosting a conference in Doha on the 25-27 March 2007 - "MultaQa Qatar" - aimed at promoting opportunities in Qatar to the international insurance and reinsurance industry. "The QFC is doing a good job of raising its profile and promoting the opportunities in Qatar within the international (re)insurance markets," says Jones. "As more players enter the market, one would expect awareness of the opportunities to increase."

Home from home

In just under two years the QFC has introduced a new regulatory and legal system to encourage international players to set up shop in Qatar. Unlike rival centres in other parts of the Middle East, it was not set up as an offshore market or a free zone and has developed rules for both direct and wholesale business. QFC has worked hard to eliminate barriers to entry including allowing 100% ownership and complete repatriation of profits, ensuring a speedy set-up and introducing a high standard of legislation and supervision. In a region with imbalanced regulatory norms, such a system becomes an important competitive advantage when seeking the attention of the global insurers and reinsurers. The centre is also offering favourable tax conditions.

A new legal environment has been created to serve financial institutions, modelled on those in the major markets. In cases where there is any conflict with local Qatari laws, the rules and regulations of the QFC will prevail and QFC's Commercial Court will be the setting for any dispute proceedings, which take place in English. "The QFC appears to be acquitting itself well to its tasks," notes Matthew Gill, operations director for the Middle East region at Clyde & Co. "The general view from the market is that the legislation that has been developed is clear and the process for Clyde & Co to obtain a licence was transparent."

Qatar of the future

Politically, Qatar is considered extremely stable with its "A+" S&P risk rating the highest in the region. Ruled by the long-standing Al-Thani royal family, Sheikh Hamad bin Khalifa al-Thani is emir and head of state. However, Qatar is developing into a constitutional monarchy, with its first national elections due to be held in 2007. Despite its strong ties with the US, Qatar has at times been tarnished by its proximity to more turbulent neighbours. "The ratings remain constrained primarily by the geopolitical risks facing sovereigns in the Gulf region, which are higher than for other 'A' rated sovereigns," commented S&P. "Middle East unrest has always been here but this has not stopped the region from growing at phenomenal rates," points out Al Zayani.

So will QFC succeed in attracting global insurers and reinsurers to the region? "Is there enough business in Qatar to support another financial centre?" asks Kinsella. "If you were a major insurer or major investment bank or conglomerate and took a look at the region, would you be drawn to Qatar or would you be drawn to somewhere that already has a more mature financial infrastructure in place?" Matthew Gill believes insurers and reinsurers will be drawn to QFC, but that Qatar should also showcase the wider regional opportunities. "While Qatar can be considered as a market in its own right, we expect there will be international businesses establishing regional hubs in Qatar, as they have in both the UAE and Bahrain," he predicts. Al Zayani is quick to dismiss the suggestion that QFC is trying to muscle in on other financial centres in the region, and sees Qatar's offering as a complement to the GCC's wider growth opportunities. "Qatar needs a strong financial services market to support the development of Qatar and not to compete with other financial centres in the region," she says.

- Helen Yates is editor of Global Reinsurance.