S&P Report on Qatar Finds ‘Long-term Strengths, Short-term Weakness’

January 27, 2009

Standard & Poor’s Ratings Services has published an article examining the Qatari Insurance Sector In 2009. Entitled “Short-Term Weaknesses Offset By Long-Term Strengths,” it 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.”

S&P noted that the “wealth of insurers as well as banks” tends to rise and fall in line with the fortunes of their local economy. It is therefore “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 [$82.5 billion] in 2008, or almost double the level of 2005,” said S&P.

“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,” explained credit analyst David Anthony.

“In the short term, the Doha Stock Market DSM20 Index is, in January 2009, down nearly 50 percent on the peak of 12,629 reached in June 2008 (or down by approximately 28 percent (from an Index number of 9,580.45 to 6,886.12) over the 12 months to Dec. 31, 2008),” S&P continued. “Meanwhile, the share prices of Qatar’s own listed insurers are themselves mostly down about 60 percent 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 Center (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.”

The reports are available to subscribers of RatingsDirect, the real-time Web-based source for Standard & Poor’s credit ratings, research, and risk analysis, at: www.ratingsdirect.com. If you are not a RatingsDirect subscriber, you may purchase copies of these reports by calling (1) 212-438-9823 or sending an e-mail to: research_request@standardandpoors.com. Ratings information can also be found on Standard & Poor’s public Web site at: www.standardandpoors.com.

Source: Standard & Poor’s

Was this article valuable?

Here are more articles you may enjoy.