Market conditions in Qatar will remain “highly competitive” for the insurance sector this year and profitability is likely to weaken on increased provisions for bad debt and ageing receivables companies, according to global credit rating agency Standard and Poor's (S&P).
However, some restrictions on foreign companies writing motor business at very low rates and hardening reinsurance rates could be mitigating factors, the rating agency said in a report.
Although reinsurance rates in some lines are rising, and so will infrastructure spending for the FIFA World Cup in Qatar in 2022, "we do not see much growth potential in the local market in 2019 in the absence of new mandatory insurance covers," it said.
Highlighting that insurers in Qatar are also likely to remain exposed to some earnings volatility, S&P said this is because some of them may increase their risk appetite while in search of top-line growth, either via lowering rates or exploring new or unfamiliar foreign markets.
Some Qatari insurers achieved healthy growth last year, mainly through international expansion or acquiring local business from foreign players, it said.
"We estimate that overall premium volumes have gone up only marginally over the past few years, since competition has restricted growth in some business lines," it added.
In the broader Gulf Co-operation Council (GCC), S&P said a modest pickup in gross domestic product (GDP) growth across the region in 2019 will not necessarily translate into stronger gross written premium (GWP) growth.
Cautioning that since lacklustre consumer spending and corporations' need to cut costs will persist, It said "we expect the difficult market conditions in the Gulf region, combined with higher operating costs and more stringent accounting standards, will require insurers to adjust their investment exposures."
Following years of double-digit year-on-year GWP growth, most of the GCC insurance markets are now experiencing a relative lull because of weaker economic conditions and the absence of new mandatory coverage.
However, longer-term growth prospects remain satisfactory, since the percentage of premiums to GDP of 1.5%-3.5% in most GCC markets is still relatively low compared with that in other developing markets.
"We believe top-line growth will continue to stem mainly from government-led initiatives, such as infrastructure projects and new mandatory medical and other insurance cover," the rating agency said.
The relatively small size of many insurers in the Gulf makes their capitalisation levels susceptible to declines if they've experienced strong growth in GWP, asset risk exposure, or large underwriting or investment losses, according to S&P.
"We also note that GCC insurers tend to invest a significant portion of their assets in equities, real estate, or unrated bonds, which we consider to be high-risk assets," it said.