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Why is Qatar attracting the attention of asset management companies? the Qatar financial center authority (Qfca) got its seeding programme off the ground in 2012 Which facilitated the regional ambitions of tWo asset management firms and there are more to come this year. RoRy Coen spoke to shashank srivastava, the neW ceo of the Qfca, to analyse the authoritys recent direction.

the managing director and head of BNRI, Mark Brown said that Barclays Bank had interests in oil and gas in the North Sea, Central Europe, India and Kazakhstan and further pursuits in mining in South Africa and Sub Saharan Africa, as well as coal in Colombia, it was easy to appreciate why the bank chose Doha as a location to set up shop. If youre looking for a town which is aggregately closer to these markets than Doha, then Barclays might be interested in talking to you. Brown was speaking last year at the announcement of Qatars QR 910 million ($250 million) investment deal with the global private equity business, which is a division of Barclays Bank. The new office is under the umbrella of the QFCA. The partnership is seen as an important milestone in Qatars strategy of developing an asset management hub and promoting the expansion of its financial services industry, as the state tries to scale up the amount of assets under management in the country to QR546 billion 910 billion ($150-$200 billion) by 2020.

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Qatar is fast becoming an attractive place to do business and the QFCAs mandate is to make it as hospitable as possible. Its current focus is on the creation of a global business hub for three core markets - Asset Management, Reinsurance and Captive Insurance. QFC Authoritys Chief Executive Officer, Shashank Srivastava explains why the country is such a hotbed for asset management companies at the moment. There are a number of trends playing out, says Srivastava. One is that the asset management firms needs to be closer to their clients. After the financial crisis, they need to be able to demonstrate that they can do a better job, not only performing their task, but also in risk management. They need to show their client that they have robust systems in place, that they have a longterm understanding of their clients investment needs, and this can only really be done on the ground. Another driver is that the investors are also demanding this. They want them nearby to monitor and supervise them properly. They want to be able to communicate their needs, he added. The third reason is the geographical element. Qatar is right in the foyer of the

worlds hottest markets right now. Historically, the majority of the regional wealth had been invested in the west, but the high yields simply arent there anymore. You get highquality purchases and cheap valuations, but theres no growth there. So whether you are hunting for yield or growth, Srivastava maintains that you need to look outside these traditional western marketplaces and into Asia or the emerging markets for high yields and growth. Away from investments and relationship building, Srivastava continues, we now have the correct legal regulatory tax environment for asset management companies to actually establish themselves on the ground. So you might have all these global trends playing out, but if the environment is not there for them to establish themselves, then what can they do? Tax wise, its a great location for asset management firms to operate in as the QFC environment only taxes locally-sourced profits, so internationallysourced profits are not taxed. Reinsurance The QFCA is bullish about the outlook for reinsurance in Qatar and the region in general. So much so that its the cornerstone of

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Low insurance premium penetration rates, coupLed with high cession rates to internationaL reinsurers, suggest the potentiaL of the industry to grow significantLy over the next few years.

their core strategy. Low insurance premium penetration rates, coupled with high cession rates to international reinsurers, suggest the potential of the industry to grow significantly over the next few years. In 2011, half of the insurance that was written was reinsured abroad, with the global average being 12%; while the insurance penetration rate - the percentage of total insurance premiums in comparison to gross domestic product - was at about 1% in 2011, while the global average was almost 7%. Shashank says: In general, reinsurance underpins economic growth because it helps primary insurance companies to prosper and provides risk protection to households and firms alike. As a consequence, reinsurance usually grows in line with the underlying primary markets. For Qatar we expect a rapid expansion of the primary markets due to strong growth in commercial lines on the back of unabated momentum in infrastructure and construction investments. In addition, the industry is to benefit from continued growth in personal lines such as motor, homeowners, health and life. We are witnessing an increasing interest from reinsurers who are considering a local presence in the Gulf region. As of now Q-Re, SEIB and Chedid Capital Holding are reinsurers licensed in Qatar and we are confident to see more establishments in the not too distant future as many leading primary insurers such as AXA and Zurich as well as brokers like Aon and Marsh have already set up a presence in this country. Cession rates are comparatively high in Qatar for two simple reasons: firstly, the country boasts a number of huge and highly complex insurable risks, in construction and oil & gas in particular. The global reinsurance markets therefore offer protection to the local insurance industry by reinsuring these large risks abroad. Furthermore, even from a risk management perspective, the local insurance industry

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interest in captive insurance is increasing because it is an efficient means to deaLing with our environment of doubLe-digit economic growth rates in combination with a higher compLexity in business and associated risks.

seeks to diversify and protect its balance sheet by taking advantage of the global reinsurance markets. Nevertheless, partly as a reflection of the growing maturity of the GCC insurance markets, cession rates show a declining trend. This is primarily due to growth in compulsory personal lines, which have lower cession rates. In addition, lower cession rates reflect improving risk management capabilities. Shashank intimated that changes in insurance penetration are reflective of the pace of growth of insurance relative to GDP growth: an increasing insurance penetration reflects the fact that the insurance sector growth has outpaced GDP growth. Although insurance premiums have expanded at double-digit rates in Qatar, he said, GDP grew even more rapidly over the past few years due to the increased LNG capacity that was brought online. Therefore, in 2011 Qatars insurance penetration stood at 0.7%, a decline from 1.0% in 2009. But it is forecasted that total premiums will more than double to QR7.6 billion ($2.1 billion) by 2016. So, the industry is set to grow spectacularly, but whether this translates into an increasing share in GDP remains to be seen. Captives The QFCAs third strategic focus is on captives. The development of the Middle East as a centre for captives has been a talking point for some time now, what with changing attitudes to risk management and the moderation of the recent global economic crisis. In 2011, three-quarters of the Fortune 500 had captive insurance companies, while the GCC region had only ten. Companies are now looking at alternate ways to transfer their risk onto the markets, seeing it not as a liability, but as an opportunity. The GCC-based corporations consider captives as viable solutions for their insurance requirements and an integral part of their overall risk strategy, says Srivastava. In July 2011, the QFC Regulatory Authority

issued new regulatory frameworks applying to captive insurers, captive managers and insurance intermediaries, designed to support the development of Qatar as a regional centre for captive insurance. Interest in captive insurance is increasing because it is an efficient means to dealing with our environment of double-digit economic growth rates in combination with a higher complexity in business and associated risks. Infrastructure spending is increasing, previously state-owned assets are being privatised and regulatory requirements on transparency and disclosure are rising. Finally, company managers and directors are becoming more sophisticated. These factors augur well for the demand for captive solutions in Qatar. Srivastava concedes that it would take some time for the world to familiarise itself with this new environment. For instance, some regional companies have already reached a scale where it would make sense for them to create their own captives. However, there would be an opposing force to that in the sense that the whole insurance industry has being going through a soft cycle recently, which leads to less risk capacity. So in that scenario, its probably better to pass that risk on to the industry rather than do captives themselves. They should wait for the right time in the economic cycle, which isnt at this point in time, he says. Product offerings Many of the global insurance investment products are currently available in Qatar, they just lack the maturity needed to be properly quantified.. How further along the line is Qatar regarding the range of products that can be offered here? If there isnt the demand for them, can they ever mature here? Difficulties in quantifying loss trends, for example, make it harder to price certain products adequately, says Srivastava. This is a recurrent phenomenon when indus-

tries emerge or innovations are launched, because sometimes we still lack meaningful time series as products have just sprung into life. As the industry grows, more reliable data become available and projecting losses and pricing products should be less of a challenge. In addition, issues on the product development and distribution side, such as access to consumers, product innovation and risk segmentation closely matching products to the risks of the potential buyers arguably hold the industrys growth back. However, these are common features of emerging insurance markets across the globe. Most standard products in personal and commercial lines are available here. In general, insurance penetration and density (i.e. insurance spend per capita) is still held back. In personal lines, there are also some religious and cultural reservations which inhibit the growth of conventional life insurance, an issue which the industry tries to tackle through Sharia-compliant Family Takaful products. From an investors perspective there is still a lack of suitable longterm financial assets, especially high-quality bonds which insurers could use to cover their long-term liabilities, he adds. The product offerings, of course, depend on the skill and technical ability of the staff here. Is attracting talent a significant problem here? Based on the GCC Insurance and Reinsurance Barometers, which we issue in alternation, twice a year, says Srivastava, the insurance executives participating in the survey pointed out that locally available technical skills are inadequate. This results in an extreme reliance on expatriate staff. These deficiencies extend to all major areas of underwriting, claims management, risk management and general management. However, interestingly enough, many respondents believe that insurers themselves can do a lot more to nurture local talent and invest in the development of management skills

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