QFC Authority publishes its 3rd GCC Reinsurance Barometer

Market sentiment remains upbeat among reinsurers and brokers operating in the countries of the Gulf Cooperation Council (GCC). According to the 3rd GCC Reinsurance Barometer, a survey released today on behalf of the Qatar Financial Centre (QFC) Authority, the impact of last year’s near-record burden of global catastrophe losses, the aftermath of the Arab Spring and growing primary insurance markets will translate into an improved pricing and profitability outlook.

The annual study, which is now in its third year, is based on in-depth interviews conducted with 33 reinsurance and brokerage executives, representing the majority of the region’s players.

In 2011, the combined GDP of the six GCC countries, Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates amounted to US$ 845 billion, ranking the region among the 20 largest economies in the world. From 2007 to 2011 the region’s economies grew at an average pace of 4% annually, twice as fast as the rest of the world. Insurance markets in the GCC reflect the region’s economic dynamics.

Between 2006 and 2010, GCC insurance premiums expanded almost five times as fast as the global average, with Qatar registering an impressive 12% nominal growth p.a. For 2011, total non-life and life premiums in the GCC amounted to roughly US$ 14.9 billion and may reach US$ 18 billion by 2013. Infrastructure and construction spending continues to be the single biggest driver for insurance demand in the region. In Qatar alone, more than US$ 70 billion was allocated to infrastructure projects between 2005 and 2011. As of January 2012, US$ 570 billion worth of projects were underway in the region. Current projects in Qatar amount to US$ 63 billion, with a further US$ 108 billion in the pipeline for the next three years.

Based on these strong economic fundamentals, confidence in the prospects of the reinsurance sector in the GCC remains high as the region continues to be perceived as one of the world’s most attractive (re)insurance growth markets, benefiting from a relatively low exposure to natural perils. As in 2011, about two-thirds of interviewees expect that reinsurance exposure and premium volume will grow faster than the region’s GDP.

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In terms of reinsurance profitability, the survey has revealed a strong turnaround in expectations. Compared to a mere 8% a year ago, 43% of interviewees now expect profitability to improve over the next 12-24 months. This heightened sentiment is based on tighter terms and conditions as well as moderate price increases in the region due to the massive global catastrophe losses in 2011.

The percentage of participants expecting reinsurance capacity in the GCC to grow further has increased from 50% to 54%. The GCC remains an attractive high growth, low-catastrophe market and geographic portfolio diversification is viewed as even more essential following last year’s catastrophe losses. 41% of respondents believe that this capacity growth will be driven primarily by regional and Asian capacity, citing continued strong capital formation in the GCC region and Asia.

“The attractiveness of the GCC as a marketplace for reinsurers continues to increase,” says Shashank Srivastava, CEO and Board Member of the Qatar Financial Centre Authority. “Economic and associated direct insurance market growth is set to remain well above the global average. In addition, natural catastrophe exposure is moderate, resulting in generally low and stable loss ratios. At the same time, crucial soft factors such as insurance awareness and the professionalism of reinsurers, insurers and brokers continue to improve.”

Akshay Randeva, Director Strategic Development of the Qatar Financial Centre Authority comments: “The GCC reinsurance market is worth more than US$ 5 billion and poised to expand briskly. As a world-class regional financial centre, it is our ambition to support future market growth by attracting further players, talent and expertise and by enhancing the transparency of the market place through additional benchmarks for decision-making. The 3rd GCC Reinsurance Barometer contributes to this objective.”

Dr. Schanz, Alms & Company AG, a Zurich-based consultancy, conducted the executive interviews and edited the 3rd GCC Reinsurance Barometer. The interviews took place in June and July 2012.

A copy of the report can be downloaded at http://www.qfc.com.qa.