Akshay Randeva talks to EMEA Captive about Qatar’s captive offering and how the emirate is looking to differentiate itself from the international competition.
How does Qatar differentiate its offering from other captive domiciles?
Qatar’s exciting long-term prospects for economic growth, legal and regulatory frameworks that are modelled on international best practice and the fast-growing insurance industry itself are some of the factors that underpin Qatar’s attractiveness as a domicile for captives. In fact, the captive insurance industry is one of the three financial services hubs targeted for development by the Qatar Financial Authority (QFC).
Other key differentiators are the strong legal and regulatory frameworks offered by the QFC. The QFC legal system is based on English Common Law, and the risks of conflicts between local and QFC law for QFC licensed firms are minimised by the fact that civil and commercial disputes may be brought before the QFC Civil and Commercial Courts. Moreover, the Qatar Financial Centre Regulatory Authority (QFCRA) has recently responded to an increase in demand for captive solutions by publishing a consultation paper on a series of proposals to review the existing captive regulatory framework (including in relation to protected cell companies). These proposals will further facilitate the development of a regional hub for captive insurance in Qatar, as well as give additional support to insurance intermediaries and captive managers. So Qatar prioritises the establishment of a strong, long-term and businessfriendly regulatory framework.
In addition, Qatar’s unique economic growth prospects create significant opportunities for the insurance sector and for other financial service industries. According to the International Monetary Fund’s most recent World Economic Outlook Report, Qatar’s growth in real GDP is expected to rise from a forecast 16 percent in 2010 to 18.6 percent in 2011, driven not only by the oil and gas sector but also the non-energy sectors, setting it apart from other captive domiciles both in the region and internationally.
What kind of financial incentives is Qatar offering to those captives thinking of domiciling in the territory? And how does the tax and regulatory environment compare to other international jurisdictions?
To begin with, all entities operating within the QFC can be 100 percent foreign-owned. Base capital requirements amount to $10 million and $20 million for direct insurers and reinsurers, respectively. For captives, they range from $150,000 to $1 million. In contrast to other regional centres, the QFC does not impose any restrictions on insuring domestic risks located within Qatar. Subject to obtaining the necessary approvals, authorised firms are fully permitted to conduct insurance business with retail customers.
Under the new tax regime, which came into effect on January 1, 2010, all QFC registered companies are subject to a 10 percent corporationtax, chargeable on locally sourced profits. This compares favourably with many other financial centres, which often have higher rates of tax or have other charges and taxes on turnover rather than profits. However, tax incentives for reinsurance, captive insurance and asset management businesses reduce this rate to zero, making the QFC even more attractive for captives. The new regulations also ensure QFC inclusion in Qatar tax treaties negotiated with other countries.
Looking at Europe, while the full implications of the EU Solvency II directive and its respective regulatory regime have yet to be fully examined, the possibility that EU-based captive insurers will face higher capital requirements and increased disclosure under the new rules may lead them to rethink their business model and domicile.
How are Qatar, the QFCA and its captive clients looking to exploit and maximise the region’s insurance potential?
The extraordinary economic growth of Qatar, as already noted, is supporting the development of many sectors, including the insurance industry. Captive insurance in Qatar and the Gulf Cooperation Council (GCC) is expected to grow rapidly, driven by huge infrastructure spending on energy, construction, water, transportation and logistics, trade, tourism and the privatisation of state assets (previously uninsured risks that now require insurance cover).
The QFC is keen to play its part by granting foreign as well as domestic insurers, reinsurers and associated professional service providers, such as captive managers, access to the domestic market, and creating the best legal, regulatory and business environment from which to exploit the many insurance opportunities in the wider GCC.
Captive insurance is becoming an increasingly attractive proposition to regional corporates, many of which are now giving higher priority to seeking adequate risk cover following the lessons learned during the global credit crunch of 2008. The large assets on the books of many companies have left them struggling to secure the cover they require at an appropriate price. This trend, coupled with the capacity destruction in the international reinsurance market and the inability of local insurers to underwrite large complex facultative risks, forces corporates to look to alternative solutions such as the establishment of a captive insurance vehicle.
Can you tell us a little about Qatarlyst and its role in developing Qatar as a leading reinsurance centre?
Qatarlyst was launched in 2009 and, at present, more than 40 insurance firms in the UAE , Bahrain, Qatar, Kuwait, Lebanon and Jordan have been approved to use the Qatarlyst service. Headquartered in Doha, Qatarlyst S.P.C. is owned by Qatar Insurance Services LLC (QIS), which in turn is a wholly owned subsidiary of the Qatar Financial Centre Authority (QFC Authority).
Qatarlyst provides a web-based solution for regional brokers and insurance firms to negotiate, place and accept large commercial insurance risks electronically. The Qatarlyst platform has digitised the insurance transaction process and facilitates the distribution of information between brokers and insurance firms. This does not remove the need for face-to-face contact between brokers, as Qatarlyst doesnot replace the process itself; rather, it supports and underpins the existing process.
QIS has very recently taken a strategic step forward by acquiring RI3K, the London- based pioneer and innovator of technology that supports paperless transactions for the commercial insurance and reinsurance industry. This is a transformational deal for Qatarlyst. It expands its international reach, enhances its service offering to London and beyond, creates additional opportunities for growth and provides a quantum leap in the number of members served to more than 330, whilst more than doubling the firm’s headcount to 45. In turn, existing RI3K customers will benefit from long-term financial security and Qatarlyst’s superior functionality in areas such as retakaful, claims and accounting.
The two businesses are expected to be fully integrated over time to create a single platform with enhanced functionality and accessibility. This will help to accelerate the development of the Qatar Financial Centre in its declared ambition to become a leading hub for reinsurance in the GCC region and beyond.
How are you preparing for the impact of Solvency II and is Qatar considering equivalency?
While the full implications of the EU Solvency II directive and its respective regulatory regime have yet to be fully examined, the possibility that EU-based captive insurers will face higher capital requirements and increased disclosure under the new rules may lead them to rethink their business model and therefore their domicile.
It has been suggested by some industry players that the Middle East can be used as a stepping stone to the rest of Asia. What is your opinion of such an idea and how is Qatar looking to exploit its geographic position?
Indeed, Qatar’s political, economic and historical ties are not confined to the Middle East, but also extend to North Africa, and central and south Asia. So Qatar can not only be used as a springboard into other countries in the GCC, but also as a powerful regional base from which to tap into the broader growth markets of the Middle East, North and sub-Saharan Africa, and the Indian subcontinent.
Finally, what do you believe are the prospects for captives in Qatar moving forward?
The strong economy built on the foundations of the world’s thirdlargest reserves of natural gas, the significant ongoing investment in infrastructure projects, the introduction of some forms of compulsory insurance coverage, and the attractive legal and regulatory regime at the QFC, together with the growing availability in the QFC of specialist captive managers that can provide a comprehensive range of services to the market, all suggest that the captive insurance industry is set to show significant grow in Qatar in the foreseeable future.
Akshay Randeva is director, strategic development, at the Qatar Financial Centre Authority. He can be contacted at: email@example.com
Qatar, EMEA, domicile report, captive, insurance