DOHA: The recent instructions issued by the Qatar Central Bank (QCB) for insurers operating in Qatar are credit positive. These instructions are credit positive as they will strengthen several credit characteristics, including capital, asset quality and reserve adequacy, said Moody’s Investors Service in a note yesterday.
On March 30, QCB Governor H E Sheikh Abdullah bin Saud Al Thani issued operating instructions and governance principals for insurers operating in Qatar. These instructions were related to licensing, regulations and controls, risk management, accounting and actuaries reports. The instructions include prudential requirements and took effect this month.
“The QCB’s instructions aim to ensure the stability and sustainability of the insurance industry by improving the solvency of the 31 insurance companies operating in Qatar (17 of which operate in the offshore-domiciled Qatar Financial Centre),” said Moody’s note.
“Qatar is the third-largest and one of the fastest growing insurance markets in the Gulf Cooperation Council, expanding at a compound annual growth rate of 21 percent over the past 10 years, and we estimate that the insurance market grew at 25 percent in 2015, with the top six insurers achieving growth of 28 percent in 2015 in their Qatari operations,” it added.
Insurers that will benefit from the new law include the largest Qatari insurance groups: Damaan Islamic Insurance Company, Qatar Insurance Company, Qatar General Insurance & Reinsurance Company, Doha Insurance Company, Al Khaleej Takaful Group and Qatar Islamic Insurance Company.
The new law stipulates that listed insurance companies must have capital greater than QR100m or their risk-based capital (RBC) requirement, while unlisted insurance companies must have capital higher than the figure set by the QCB or their RBC requirement. The RBC is the company-specific minimum capital and solvency capital requirement that incorporates an economic view of the risks borne by insurers, including underwriting, market, liquidity, credit and operational risk.
The instructions also set out specific requirements on investments, changes that we expect will improve insurers’ asset quality. They include new limits on risky asset classes and concentration risk.
“We consider asset quality to be the key credit weakness for many Gulf Cooperation Council insurers and these steps are a positive development. We also expect that a requirement for actuarial-led reserve-setting, monitoring and reporting will enhance reserve adequacy and improve underwriting profitability by encouraging insurers to set premiums in line with underwriting risks and become increasingly selective about the risks they underwrite,” said the note.
“These enhanced regulations and implied additional costs of monitoring, managing and reporting may also encourage consolidation among some smaller insurers, potentially reducing competitive pressures and aiding market stability,” it added.
