Qatar outlook cut to negative amid risks from £240m loan to Markerstudy

Qatar Insurance Company could lose a ‘significant portion’ of $1bn premium business if Markerstudy fails to pay its loan obligations, ratings giant S&P said.

Markerstudy owes Qatar £240m, due for full repayment in May next year, S&P said.

As first broken by Insurance Times, Markerstudy is now seeking capital to solve the loan issue. 

The loan was originally brokered after Qatar acquired four Markerstudy subsidiaries last year.

Makerstudy’s managing agents now supply around 28% of Qatar’s premium through a reinsurance arrangement.

Cutting Qatar’s financial strength outlook from stable to negative due, S&P said: “If MS does not pay its obligations it will most likely find it difficult to maintain its premium income.

“This is because such behaviour would indicate financial difficulty at MS and by extension this could cause reputational damage to MS and QIC.

“We understand that QIC is working with MS to ensure a successful resolution of the potential issues with MS. On the earnings side, any potential loss of business from MS is likely to have only a modest effect on QIC’s earnings.”

Qatar loan risk mitigated

The loan equals around 14% of Qatar’s shareholders’ equity. However, Qatar has dampened the risk with a trust account.

“QIC has premium receivables amounting to about £200 million in total; we recognize that £160 million of the receivables are held in a trust account and they are due within 90 days as of Sept. 30, 2019. We understand QIC controls the trust account’s operation. Therefore, counterparty risk to QIC is minimal,” S&P said.

Qatar strategy questioned

S&P is now questioning the strategy of Qatar following rapid growth and the loan deal with Markerstudy.

“In our view, the developments with MS, along with rapid premium growth–gross premium increased by 27% between 2016 and 2018–and significant changes in business mix in recent years, raise questions about the group’s strategic planning process and risk management practice.

“That said, we acknowledge that QIC has managed to post profit consistently in recent years while raising and holding sufficient levels of capital to manage the material amount of growth in recent years.

“The negative outlook indicates the possibility that we could lower the ratings by one notch if QIC’s strong competitive position deteriorates or we identify governance deficiencies in QIC’s strategic planning process and risk management practices. QIC’s exposure to MS could significantly reduce its premium income albeit the impact on earnings is likely to be modest. “

S&P added: “Our base-case scenario is that QIC is likely to maintain its ‘AAA’ capital over 2019-2020. This takes into account our earnings projection (about QAR900 million per year in 2019 and 2020) and dividend policy. We expect QIC to maintain its consolidated group solvency ratio between 160% and 170% over 2019-2020.”